Does TurboTax assume it is best to take the Federal standard deduction if greater than itemized deductions, even where choosing Federal itemized deductions results in lower state tax liability (without increasing the Federal tax liability)?
I used the online TurboTax free version to prepare personal Federal and Massachusetts returns.
Massachusetts allows a deduction for certain medical expenses but only to those filers who itemized deductions on the Federal return. TurboTax suggested using the Federal standard deduction because it was significantly greater than my itemized deductions, which were mostly medical. When making this comparison, TurboTax apparently didn't take into consideration the significant reduction in state tax liability resulting from use of the medical deduction.
Shouldn't TurboTax consider the state medical deduction when comparing my Federal standard deduction vs. itemized deductions? I had to manually select the Federal itemized deductions in order to reduce the Massachusetts tax liability.
I'm wondering if this is a glitch with TurboTax, or is this not a proper way for me to proceed?
Thank you in advance for any clarifications.
Mass. doesn't allow itemizing unless the federal return itemizes? That's a problem with the Mass. tax law then.
The federal tax rates are a lot higher than any state's rates so it's generally by far the better option to minimize federal taxable income than the state's taxable income. For that reason the federal 1040 program doesn't worry about any attached state's situation.
Many states don't allow itemizing unless one itemizes on federal returns. Not a "problem with state tax law", it simply is the state tax law. TT should know those laws, and factor them into it's recommendations.
You confess "the federal 1040 program doesn't worry about any attached state's situation." Perhaps that shortcoming should be better known. You justification defaults to "generally....". What is the point of using TT if it just gives general rather than specific advice?
On this issue, the increase in the federal standard deduction without a concomitant change at the state level, make your "generally" not so true any more. In my situation using standard deduction reduced my federal taxable income by about $1000, and increased my state taxable income by $15,000. Even with very different marginal tax rates that difference cost me money.
Again, with the change in tax laws, the calculus for this is very different. I paid for turbotax, on the assumption that they actually studied and thought through the implications of these changes. I am very disappointed to find they did not.
TurboTaxTerry. this is a problem. You should own it and address it, not punt.