Itemize to save on state taxes?

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Saving$
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Itemize to save on state taxes?

Post by Saving$ »

Are there any downsides to taking an itemized deduction on federal return that may be lower than the federal standard deduction in order to be eligible to carry the itemized deduction on the state return? In this case the itemized deduction on the state return results in a net $500 savings between the two.

Doing taxes for a friend. I entered the data to itemize, and the itemized came in about $600 under the standard deduction, so I went with the standard for the federal.

Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard.

Then, just to see, I redid the return using the itemized for federal, which resulted in a few hundred higher federal tax. But then I was able to use the itemized for the state also, and this resulted in almost a $1k savings in state tax over the standard state deduction. The net differential is about a $500 savings. Just trying to figure out if there are any downsides to this approach?
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galawdawg
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Re: Itemize to save on state taxes?

Post by galawdawg »

I am not aware of any downsides to that approach. Georgia is one of those states where your deductions are dependent upon your federal return...if you take the federal standard deduction you must take the state standard deduction and if you itemize on federal you must itemize on state.

Each year I calculate my taxes using the itemized deduction and then recalculate using the standard deduction and file according to whichever approach to deductions results in the lowest combined federal and state tax obligation.
Grogs
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Re: Itemize to save on state taxes?

Post by Grogs »

I'm in a no income tax state right now, but I might find myself in the same situation soon if I take an out of state assignment for 2-3 years. My state income tax would probably be close to the SALT limit of $10k and (being single) it wouldn't take much to go over the standard deduction on the federal. But I wouldn't be able to deduct the state taxes when itemizing for the state return.

My thought is that if I have two full years of paying state income taxes my best strategy would be to take the standard deduction one year and then try to bunch deductions (i.e., make 2-3 years of donations to a DAF) in the other year and itemize both state and federal.
jebmke
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Re: Itemize to save on state taxes?

Post by jebmke »

Saving$ wrote: Sat Mar 20, 2021 8:28 am Are there any downsides to taking an itemized deduction on federal return that may be lower than the federal standard deduction in order to be eligible to carry the itemized deduction on the state return? In this case the itemized deduction on the state return results in a net $500 savings between the two.
This is done routinely in Maryland because the state standard deduction is low. If you get a refund from the state for 2020, it would not be taxable on the Federal return next year even though you have itemized.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
bluegill
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Re: Itemize to save on state taxes?

Post by bluegill »

Saving$ wrote: Sat Mar 20, 2021 8:28 am Are there any downsides to taking an itemized deduction on federal return that may be lower than the federal standard deduction in order to be eligible to carry the itemized deduction on the state return? In this case the itemized deduction on the state return results in a net $500 savings between the two.

Doing taxes for a friend. I entered the data to itemize, and the itemized came in about $600 under the standard deduction, so I went with the standard for the federal.

Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard.

Then, just to see, I redid the return using the itemized for federal, which resulted in a few hundred higher federal tax. But then I was able to use the itemized for the state also, and this resulted in almost a $1k savings in state tax over the standard state deduction. The net differential is about a $500 savings. Just trying to figure out if there are any downsides to this approach?
"Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard." I have used TaxAct Professional for several years and there has never been a requirement to use Standard Deduction on State if I use Federal Standard Deduction. Actually, I input Schedule A itemized deductions on the Federal return, use Standard deduction on Federal, and the software transfers itemized deductions on the Federal schedule A to the state, and use itemized deductions on the state. I live in Alabama. What tax software are you using ??
DIFAR31
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Re: Itemize to save on state taxes?

Post by DIFAR31 »

bluegill wrote: Sat Mar 20, 2021 9:23 am
Saving$ wrote: Sat Mar 20, 2021 8:28 am Are there any downsides to taking an itemized deduction on federal return that may be lower than the federal standard deduction in order to be eligible to carry the itemized deduction on the state return? In this case the itemized deduction on the state return results in a net $500 savings between the two.

Doing taxes for a friend. I entered the data to itemize, and the itemized came in about $600 under the standard deduction, so I went with the standard for the federal.

Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard.

Then, just to see, I redid the return using the itemized for federal, which resulted in a few hundred higher federal tax. But then I was able to use the itemized for the state also, and this resulted in almost a $1k savings in state tax over the standard state deduction. The net differential is about a $500 savings. Just trying to figure out if there are any downsides to this approach?
"Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard." I have used TaxAct Professional for several years and there has never been a requirement to use Standard Deduction on State if I use Federal Standard Deduction. Actually, I input Schedule A itemized deductions on the Federal return, use Standard deduction on Federal, and the software transfers itemized deductions on the Federal schedule A to the state, and use itemized deductions on the state. I live in Alabama. What tax software are you using ??
It's state dependent.
jebmke
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Re: Itemize to save on state taxes?

Post by jebmke »

bluegill wrote: Sat Mar 20, 2021 9:23 am "Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard." I have used TaxAct Professional for several years and there has never been a requirement to use Standard Deduction on State if I use Federal Standard Deduction. Actually, I input Schedule A itemized deductions on the Federal return, use Standard deduction on Federal, and the software transfers itemized deductions on the Federal schedule A to the state, and use itemized deductions on the state. I live in Alabama. What tax software are you using ??
The software should conform to specific state laws. Some states require that the deductions be the same Federal to state and some states allow you to disconnect and itemize on one and take the standard on the other. Maryland, for example requires you to synchronize the deduction methods. Similarly, some states allow you to disconnect filing status and some states require the same filing status.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
MathWizard
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Re: Itemize to save on state taxes?

Post by MathWizard »

This clearly depends on the state.

In mine, I do not have to take the same deduction on state as I do on federal. As in a prior post, I can file either MFJ or MFS on the state return, even though MFJ is always best on the federal return. MFS is almost always better on the state return,though slightly more complicated.

I would definitely check your state tax code. I'm not sure why they would even know what you have done on your federal return,much less care .
humblecoder
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Re: Itemize to save on state taxes?

Post by humblecoder »

bluegill wrote: Sat Mar 20, 2021 9:23 am
Saving$ wrote: Sat Mar 20, 2021 8:28 am Are there any downsides to taking an itemized deduction on federal return that may be lower than the federal standard deduction in order to be eligible to carry the itemized deduction on the state return? In this case the itemized deduction on the state return results in a net $500 savings between the two.

Doing taxes for a friend. I entered the data to itemize, and the itemized came in about $600 under the standard deduction, so I went with the standard for the federal.

Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard.

Then, just to see, I redid the return using the itemized for federal, which resulted in a few hundred higher federal tax. But then I was able to use the itemized for the state also, and this resulted in almost a $1k savings in state tax over the standard state deduction. The net differential is about a $500 savings. Just trying to figure out if there are any downsides to this approach?
"Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard." I have used TaxAct Professional for several years and there has never been a requirement to use Standard Deduction on State if I use Federal Standard Deduction. Actually, I input Schedule A itemized deductions on the Federal return, use Standard deduction on Federal, and the software transfers itemized deductions on the Federal schedule A to the state, and use itemized deductions on the state. I live in Alabama. What tax software are you using ??
You have to remember that there are 50 states, each with their own state tax laws. So just because you can do something in Alabama doesn't mean you can do it in the other 49 states! :happy
Grogs
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Re: Itemize to save on state taxes?

Post by Grogs »

MathWizard wrote: Sat Mar 20, 2021 10:00 am This clearly depends on the state.

In mine, I do not have to take the same deduction on state as I do on federal. As in a prior post, I can file either MFJ or MFS on the state return, even though MFJ is always best on the federal return. MFS is almost always better on the state return,though slightly more complicated.

I would definitely check your state tax code. I'm not sure why they would even know what you have done on your federal return,much less care .
I'm not sure exactly how exactly they would know, but if the state tax form says that you have to take the same type of deduction on state and federal then you don't have much choice. Doing otherwise would be filing a fraudulent return. For example, here's what the Virginia form 760, Schedule A instructions say (bolding theirs):
You must claim the same type of deductions (standard or itemized) on your Virginia return as you claimed on your federal return. As a result, you may not claim itemized deductions on your Virginia return if you claimed the standard deduction on your federal return.
The why is probably much more simple - more revenue for them.
MathWizard
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Re: Itemize to save on state taxes?

Post by MathWizard »

humblecoder wrote: Sat Mar 20, 2021 10:45 am
bluegill wrote: Sat Mar 20, 2021 9:23 am
Saving$ wrote: Sat Mar 20, 2021 8:28 am Are there any downsides to taking an itemized deduction on federal return that may be lower than the federal standard deduction in order to be eligible to carry the itemized deduction on the state return? In this case the itemized deduction on the state return results in a net $500 savings between the two.

Doing taxes for a friend. I entered the data to itemize, and the itemized came in about $600 under the standard deduction, so I went with the standard for the federal.

Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard.

Then, just to see, I redid the return using the itemized for federal, which resulted in a few hundred higher federal tax. But then I was able to use the itemized for the state also, and this resulted in almost a $1k savings in state tax over the standard state deduction. The net differential is about a $500 savings. Just trying to figure out if there are any downsides to this approach?
"Then I started doing the state, and the software states if you take the standard deduction on the federal return, you must also take the state standard deduction on the state return. I completed the state with the state standard." I have used TaxAct Professional for several years and there has never been a requirement to use Standard Deduction on State if I use Federal Standard Deduction. Actually, I input Schedule A itemized deductions on the Federal return, use Standard deduction on Federal, and the software transfers itemized deductions on the Federal schedule A to the state, and use itemized deductions on the state. I live in Alabama. What tax software are you using ??
You have to remember that there are 50 states, each with their own state tax laws. So just because you can do something in Alabama doesn't mean you can do it in the other 49 states! :happy
Which is why I stated to check the state tax code, my state tax code allows it, as well as different filing status.

I actually read all the instructions applicable to my situation, even when using tax prep software.
It has saved me a few thousand over 40 years of taxes.

Granted, it is usually only a few hundred at a time,but everyone needs a hobby :sharebeer
Wk1014
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Re: Itemize to save on state taxes?

Post by Wk1014 »

Can you amend federal after you file?
jebmke
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Re: Itemize to save on state taxes?

Post by jebmke »

Wk1014 wrote: Sat Mar 20, 2021 1:07 pm Can you amend federal after you file?
Yes; of course, if you amend the Federal, you might have to amend the state if it is no longer in compliance. For example, if I filed FED and MD with itemization and later amended to fix a problem on Federal and changed to standard, I would have to amend MD to conform and take the standard deduction. You can't amend Federal as a workaround to avoid compliance with state law.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Topic Author
Saving$
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Re: Itemize to save on state taxes?

Post by Saving$ »

MathWizard wrote: Sat Mar 20, 2021 10:00 am This clearly depends on the state.

In mine, I do not have to take the same deduction on state as I do on federal. As in a prior post, I can file either MFJ or MFS on the state return, even though MFJ is always best on the federal return. MFS is almost always better on the state return,though slightly more complicated.
Yes depends upon the state. I am preparing a return for a friend who resides in a state that requires you to use the same deduction on the state return as you do on federal - if you take the fed standard, you get a state standard; if you itemize on the fed, you can itemize on the state.
MathWizard wrote: Sat Mar 20, 2021 10:00 am ... I'm not sure why they would even know what you have done on your federal return,much less care .
In this state you must file a copy of your federal return with your state return. They very much care.
lazynovice
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Re: Itemize to save on state taxes?

Post by lazynovice »

Grogs wrote: Sat Mar 20, 2021 8:56 am I'm in a no income tax state right now, but I might find myself in the same situation soon if I take an out of state assignment for 2-3 years. My state income tax would probably be close to the SALT limit of $10k and (being single) it wouldn't take much to go over the standard deduction on the federal. But I wouldn't be able to deduct the state taxes when itemizing for the state return.

My thought is that if I have two full years of paying state income taxes my best strategy would be to take the standard deduction one year and then try to bunch deductions (i.e., make 2-3 years of donations to a DAF) in the other year and itemize both state and federal.
What state allows you to take a state deduction for state taxes?
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Saving$
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Re: Itemize to save on state taxes?

Post by Saving$ »

lazynovice wrote: Sat Mar 20, 2021 7:02 pm
Grogs wrote: Sat Mar 20, 2021 8:56 am I'm in a no income tax state right now, but I might find myself in the same situation soon if I take an out of state assignment for 2-3 years. My state income tax would probably be close to the SALT limit of $10k and (being single) it wouldn't take much to go over the standard deduction on the federal. But I wouldn't be able to deduct the state taxes when itemizing for the state return.

My thought is that if I have two full years of paying state income taxes my best strategy would be to take the standard deduction one year and then try to bunch deductions (i.e., make 2-3 years of donations to a DAF) in the other year and itemize both state and federal.
What state allows you to take a state deduction for state taxes?
If you itemize your fed deduction, you can include state taxes.
If you live in a state that bases the state deduction on the federal deduction (itemized), you are in effect taking a state deduction for state taxes.
jebmke
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Re: Itemize to save on state taxes?

Post by jebmke »

Saving$ wrote: Sat Mar 20, 2021 7:25 pm If you live in a state that bases the state deduction on the federal deduction (itemized), you are in effect taking a state deduction for state taxes.
Can't speak for other states but Maryland removes the state income tax when it uses the Federal itemized deduction. As a result, in some circumstances it pays to take the sales tax in itemized deductions (even if less than state income tax) on the Federal because it increases the state deduction enough to more than offset when you look at total tax liability.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Grogs
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Re: Itemize to save on state taxes?

Post by Grogs »

lazynovice wrote: Sat Mar 20, 2021 7:02 pm
Grogs wrote: Sat Mar 20, 2021 8:56 am I'm in a no income tax state right now, but I might find myself in the same situation soon if I take an out of state assignment for 2-3 years. My state income tax would probably be close to the SALT limit of $10k and (being single) it wouldn't take much to go over the standard deduction on the federal. But I wouldn't be able to deduct the state taxes when itemizing for the state return.

My thought is that if I have two full years of paying state income taxes my best strategy would be to take the standard deduction one year and then try to bunch deductions (i.e., make 2-3 years of donations to a DAF) in the other year and itemize both state and federal.
What state allows you to take a state deduction for state taxes?
None that I know of, although I certainly don't know all state tax laws.
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Stinky
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Re: Itemize to save on state taxes?

Post by Stinky »

humblecoder wrote: Sat Mar 20, 2021 10:45 am You have to remember that there are 50 states, each with their own state tax laws. So just because you can do something in Alabama doesn't mean you can do it in the other 49 states! :happy
I also live in Alabama, and itemize for state but not for Federal. AL’s standard deduction is very low.

I wouldn’t know if commercial tax software is sophisticated enough to discern all of the possible state variations. As for me, I don’t use tax software, so I’ve gotten my information the old fashioned way - by reading the instructions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
humblecoder
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Re: Itemize to save on state taxes?

Post by humblecoder »

Stinky wrote: Sun Mar 21, 2021 6:21 am
humblecoder wrote: Sat Mar 20, 2021 10:45 am You have to remember that there are 50 states, each with their own state tax laws. So just because you can do something in Alabama doesn't mean you can do it in the other 49 states! :happy
I also live in Alabama, and itemize for state but not for Federal. AL’s standard deduction is very low.

I wouldn’t know if commercial tax software is sophisticated enough to discern all of the possible state variations. As for me, I don’t use tax software, so I’ve gotten my information the old fashioned way - by reading the instructions.
I live in Maryland where you are restricted to make the same itemization choice for Federal and Maryland state taxes. Both the Turbo Tax and H&R Block tax software will take this into account. Can't speak for other states or other tax software packages.
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