SALT Safe Harbor and State Tax Credits for Charitable Organizations

[job407]

I made a charitable contribution to a Certified School Tuition Organization in Arizona that allows me to get a credit for Arizona state taxes. According to IRS rules, I cannot get both a deduction from federal taxes and a credit from state taxes for this charitable contribution. So I removed that as a charitable contribution in my federal taxes in TurboTax. However, under its SALT "safe harbor" rule, the IRS says in this situation rather than list the contribution as a charitable contribution in my federal return, I should list that charitable contribution as state taxes withheld on schedule A of my federal tax return. See https://www.irs.gov/pub/irs-drop/n-19-12.pdf. 

I did that in TurboTax by listing the charitable contribution as an estimated state tax payment to Arizona in my federal return. But when I do that, TurboTax transfers my information from my state return and double-counts my contribution as both state taxes withheld and a state tax credit and therefore gives me a much too big state refund. That's wrong. TurboTax should not be counting the charitable contribution as both a withheld state tax and a state tax credit. How can I fix this problem? 

[ThomasM125]

You would have leave the withheld tax entry off of your federal tax return and then file your state tax return. Then, enter the withheld tax and file your federal tax return. In other words, file the returns separately and change your entry to make each one of them correct when you file them. 

[AZ48]

I don't understand why TurboTax does not fix this issue.  It is beyond idiotic that one has to basically manipulate this.  It should allow you to send them together.  

[job407]

I appreciate the suggestion of filing the state return and then the federal. But according to this link (https://ttlc.intuit.com/turbotax-support/en-us/help-article/state-taxes/e-[product key removed]n-fed...), turbotax no longer allows you to file your state return before your federal. So it seems there is no work around and turbotax simply will not allow you to claim the safe harbor SALT tax deduction. That is quite frustrating. Is there another work-around anyone sees here? 

[job407]

See my note below. You can no longer file your state return first on turbotax and then file your federal. So unfortunately, your suggested work-around no longer works. Do you have an alternative suggestion? Thank you!

[ErnieS0]

You can print and mail your Arizona return before e-filing federal only.

See How do I change from mail to e-file in TurboTax Online?

TurboTax will print mailing instructions. We suggest sending your return by certified mail with proof of delivery so you know it was received by Arizona Department of Revenue.

@job407 

[BEL27]

This is the first year I've had to address this, but what seems to be working is to enter the disallowed deduction/safe harbor amount directly in the State column of line 18a Other Withholding of the "Tax Payments" Worksheet (under Forms).   Then for the "St" entry to the left, I'm entering "SH" for Safe Harbor.  (I think you could use any two letters that aren't the abbreviation for a real state.). Turbotax then treats this amount on the federal forms as state tax withheld for the SALT deduction (included on Line 5a of the federal Schedule A), but it does not include this as withholding on the state income tax forms (apparently because it doesn't know which state to associate it with).   I'm not finding this to create any problems or miscalculations.