I did a simple test with a w-2g on the federal along with a Michigan return. The federal return had a huge refund while the state return had a modest refund. Why? Because I assumed you had one big win and that the casino withheld 20% for the IRS.
But, since the losses balance out the winnings, in fact, I get nearly all that 20% back.
The reason that the state wasn't so dramatic is that I assumed that the state did not withhold nearly a high a percentage as the IRS. Yes, the Michigan form (MI-1040) showed the same losses on line 13 (Subtractions) as on the federal return, but since the withholdings were not as high, the effects were less dramatic.
So, the next result is, I assume that you are using the Online software and can't see your state forms, otherwise you would be able to see for yourself that the gambling losses show up on the Michigan return.
"Why did the deductions cancel out the federal taxes, but had no impact on the state taxes??" - At this point, we don't have enough information to know if this statement is true.
If you are using the Online product, please look on the left at Tax Tools, then down below it to Tools, then in the center for View Tax Summary - Oh, did I mention that you need to be in the state interview when you do this (no, I didn't). In this way you can see a summary of your state return, and perhaps be able to see what's the Subtractions are on the MI-1040.
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