My research shows that I am subject to federal income taxes on my 2021 AZ state refund (received in 2022). This is because
1) I itemize my federal taxes in 2021
2) I received a 2021 state refund during 2022
https://blog.turbotax.intuit.com/tax-tips/is-my-state-tax-refund-taxable-and-why-90/
Strategically, this seems odd to me because I received donation tax credits that boosted my state refund 1 for 1
i.e...donate $600, and receive $600 in tax credits.
https://phoenixchildrensfoundation.org/updated-arizona-charitable-tax-credit-guide/
If I received $600 in tax credits for the 2021 year, now I'm counting that $600 as "income" during the 2022 year, which gets taxed at my ordinary tax rate...suddenly it's roughly $150 of unexpected taxes this year.
All in all, I've donated over $2000 in 2021 because it provided a 1:1 credit boost, but seems like I just ended up paying the price in 2022.
Any Arizonians in the room with the same/similar issue?
From a tax strategy perspective, am I missing the picture?
