I tried this method and it does correctly add the tax credit as state taxes paid to the Federal Schedule A (Line 5a) as well as correctly adjust the AZ Schedule A (AZ Schedule A lines 7 & 10). Unfortunately, Turbotax believes the State Withholding that I entered is really withholding and is incorrectly stating that I had state income tax withheld (AZ form 140, Line 53). This results in receiving both the state tax credit (AZ form 140 line 59) as well as the withholding. This is incorrect as it isn't state tax that was withheld. It appears to me that entering the tax credit as "Withholding not already entered on a W2" does not work correctly.
I need a method to:
1. Add the tax credit to the federal return as state taxes paid that will flow to my Federal Schedule A since I am itemizing my Federal (and State) returns.
2. Adjust my total itemized deductions from Federal Schedule A to reduce it by the state taxes paid on the AZ Schedule A.
3. Not include any state tax withheld on my state return.
The method you provided only addresses steps 1 & 2. I need a method to accomplish all three steps
Ken
