Hi All:
I am finishing up my taxes for the 2021 year and noticed that my itemized deductions total around $27,800. That is just a little more than the standard deduction for married filing jointly of $25,100. As it was, a portion of my charitable contributions for 2021 was not deductible on the federal return as the itemized deductions was below the standard deduction. My state tax refund from 2020 was $7259. My state tax refund this year will be larger, around $9,250.
So in terms of tax planning for 2022... For the state tax refund I am expecting this year to be nontaxable... How does taxation for the state tax refund work? Does the itemized deductions need to be used the year the state tax refund is claimed (ie, this year for the 2021 taxes) or next year when the notice is received (for the 2022 taxes)?
Because if I am so close to the standard deduction, I might consider giving up the $2,800 of deductible charitable contribution and choose the standard deduction for this year so that the $9250 of state tax refund that I am getting this year (for 2021 return) would not be taxable on next year's (2022) return. If the law says that I need to use the standard deduction next year (the 2022 return) instead, I could do that.
I am expecting even less of itemized deduction next year as I have paid back some of the mortgage, and I will defer my charitable contributions to 2023 to bunch them.
Does this makes sense? Let me know if I am on the right track. Thank you for taking the time to help.
