topic how to correctly enter state tax credit as state tax paid on Fed Sch A in Deductions & credits

how to correctly enter state tax credit as state tax paid on Fed Sch A

SFieber — Sun, 26 Jan 2025 20:06:00 GMT

how do you properly enter "charitable" payments that are state tax credits per Treas Reg 1.164-3(j) on Line 5, Sch A, as state taxes paid? The only answers are completely wrong that I found. You cannot enter them as charitable deductions on Fed Sch A. Turbo Tax does not have a proper option for entering. It appears the only way is to go to forms view, click on Tax Payments, and enter on Line 24 an amount paid (which TT calls "other" and refers to amended returns, installments, etc), but this isn't correct either because it says the payment is for "prior year" taxes. These payments are not estimated payments or withholdings or any other option in TT. TT clearly needs to add a new box to properly account for payments made in accordance with Treas Reg 1.164-3(j).

Re: how to correctly enter state tax credit as state tax paid on Fed Sch A

SabrinaD2 — Wed, 29 Jan 2025 01:55:00 GMT

Yes, According to Treasury Regulation §1.164-3(j):

Payments made to charitable organizations that result in state or local tax credits should be treated as payments of state or local taxes on Schedule A, Line 5, rather than as charitable contributions

While TurboTax doesn't have a dedicated input field for state tax credit payments that qualify as SALT deductions under Treas. Reg. 1.164-3(j), you can still manually enter these payments in the "Other Income Taxes" section

To enter these payments as in Turbo Tax as state taxes paid, follow these steps:

Open your TurboTax return
Select Deductions & Credits
Scroll to "Add" and search "Estimates and Other Taxes Paid."
Click on "Income Taxes Paid."
Go back to Deductions & Credits and
Select "Income Taxes Paid," locate the line for "2023 state estimated taxes paid in 2024."
Enter the amount of your payment that resulted in a state or local tax credit here
Check Schedule A, Line 5 as part of your state and local taxes deduction to be sure it calculated

Re: how to correctly enter state tax credit as state tax paid on Fed Sch A

SFieber — Wed, 29 Jan 2025 19:38:57 GMT

where I put them makes more sense (they aren't estimated payments and they are not for a prior year--paid and due in 2024); that is in "Forms" view, the worksheet called "Tax Payments Worksheet" at the bottom, line 24 because there is a place to add a description, for which I added "2024 AZ TAX CREDITS PAID RE TREAS REG 1.164-3(j)" Of course, I don't know if that description actually goes to the IRS in the e-file data, but hopefully it will at least print out in my copies (in case of audit). Again, I believe Intuit should make an entry specific for this tax situation instead of forcing us to guess where to put it (especially since most taxpayers have no clue how to prepare taxes or what is actually deductible).

Re: how to correctly enter state tax credit as state tax paid on Fed Sch A

AmyC — Fri, 31 Jan 2025 00:03:25 GMT

Worksheets are not part of your filed tax return. Only the actual forms that are your tax return go to the IRS. You have the worksheet and this conversation record to prove your point, in case the IRS asks. Your solution works fine. Good job!