Why is Turbotax using my "Estimated" Taxes paid for my State and local taxes (Sch A, Line 5a)

[roninshawneeKS]

State and local taxes (Schedule A, Line 5a)

Why is Turbotax using my State Estimated taxes paid in this box instead of using the General Sales taxes for my state. 
Yes, my quarterlies will be much higher than the General sales taxes for my state - but why is it using Estimated taxes as opposed, for instance, to the State taxes I paid earlier this year on my 2020 return - like real taxes, like the property tax on Line 5b.

I.E. The 5a verbiage says, "may include either income taxes or . . . ", but it doesn't say "may include estimated income taxes".

And yes, it does max out the SALT at 10K, but I just want to understand what is going on.

ron in shawnee

[ErnieS0]

TurboTax will maximize your deductions and use the better of state and local income taxes paid or sales taxes. Line 5a should include state taxes paid in 2021 on a 2020 balance due.

Property taxes, as you observed, are on line 5b.

Here's how to choose the sales tax deduction:

1. Type sales tax in Search in the top right
2. Select Jump to sales tax
3. On Let's Compare Your Sales Tax and Income Tax tap Try Sales Tax Deduction Anyway
4. Tap EasyGuide on How do you want to enter your sales tax info?
5. Fill out the screens.
6. On We've Chosen a Deduction for You, check the box Change your deduction
7. Select Sales tax deduction​​​​​​​

[roninshawneeKS]

Ernie- 

Thanks for the response.  Yes, I follow your response, but still do not understand the use of the Estimated taxes paid here - and yes, the SALT limitation (10K in my case) does limit damage here (possible miss-use of this deduction).

For instance, suppose I don't owe any State Sales Tax but go ahead and send them $10,000 in Estimated Tax Quarterlies.  This would allow me to add an additional 10K in deductions on the Schedule A - allowing me to deduct an additional 10K off of my Income.  I guess this is the part I am missing - or is that supposedly counter-balanced by a higher tax bill the following year (because of a possible $10K State refund).  This is the only gotcha I see here.

ron in shawnee

[LenaH · Accepted solution]

If you overpay on your estimates one year to lower your tax bill, then you will likely get a refund of state or local taxes when you complete your state return. This refund then turns into taxable income in the year you receive the refund.

If all three of the following are true, your refund counts as taxable income:

• You itemized deductions last year, instead of taking the standard deduction
• You claimed state and local income taxes (not general sales tax)
• Claiming the deduction helped you increase your federal refund or lower your tax bill

The amount that is taxable depends on how much the deduction affected your refund or tax bill. If the entire amount of overpayment lowered your tax bill, then the refund would be taxable. 

@roninshawneeKS

[roninshawneeKS]

Lena-

OK, I guess you are saying the gotcha that I mentioned is the gotcha in this opportunity to reduce you current owed Tax.

I can see a couple of possible uses here:

1)  If you were expecting a lower income the following year, you could use this additional deduction opportunity to lower your owed Tax for the current year (this is good).

2)  Using this Sch A deduction in the current year, if it gets you above the Standard Deduction allows you to also lower your owed Tax for the current year (also good).

In both cases, it allows you the opportunity to get a larger deduction with the ability to include a Schedule A in your return (ASSUMING of course, that you have paid Quarterlies) - even though it could sort of catch up with you the following year as income.

OK, I guess I understand.  It is a perk that allows you to manipulate your current return in a small way, but the SALT limitation really does limit your ability to be very creative with your tax return - and of course, you still have to possibly deal with additional income the following year.

3)  But wait, I just remembered.  Using this feature in order to reach the ability to file a itemized deduction Schedule A could give you a benefit in some states that allow medical expenses to be deducted on your State Return.

AH yes, taxes are so fun.  Thanks Lena. Going to mark your response as the Best Answer.

ron in shawnee

ron in shawnee