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Tax Tip: make sure you deduct all of your tax payments

April 11, 2010

All itemizers are allowed to deduct payments of state and local income taxes made during the year, including estimated tax payments and withholdings. If you file an Iowa 2009 return, you get to deduct your federal payments made during 2009.

One of the most common errors we see in self-prepared returns is failing to deduct all of your tax payments. For example, taxpayers making estimated tax payments often make their fourth quarter payments in January of the subsequent year -- say, the 4th quarter 2008 payments in January 2009. These payments aren't deductible in 2008 because they weren't made during the year; they can be deducted on the 2009 returns, but taxpayers often forget to do so.

To keep the payments straight, CPAs often use a little worksheet like the one below. By listing out tax payments received and payments made during or for 2009, you can make sure you don't miss any deductions, or fail to properly report tax refunds.

Boxes with bold borders are totals. Click worksheet to enlarge.

The first important line is line 4, "Overpayments Taxable in 2009". The amount in the "Federal" column should appear on line 27 of your Iowa 1040. The amount in the "Iowa" column is often taxable on the Federal 1040, line 10 -- though maybe not, especially if you didn't itemize in 2008, or if you paid alternative minimum tax in 2008. The Line 10 worksheet on page 23 of the 2009 1040 instructions will help you determine whether your state tax refund received in 2009 is taxable.

The next key line is "Deductible taxes paid in 2009" The amount on that line in the "Federal" column is should match the total on your Iowa 1040, line 34. The amount in the "Iowa" column should match the federal 1040 Schedule A, line 5, assuming you don't file in any other states.

Finally, double check the amounts on the "Total Taxes Paid for 2009" against your return; the "Federal" column should match the total on lines 61 and 62 of your 1040, and the "Iowa" column should tie to the total on lines 60 and 61 of your IA 1040. Nothing is more annoying than being told after you file that the state wants some more money from you.

There are only a few days left this filing season - don't miss the rest of our daily 2010 Filing Season Tips!

Tags: 2010 Filing Season Tips.Estimated tax payments.