The Tax Benefit Rule

The Tax Benefit Rule - 33:010:421 Income Tax Accounting Fall 2011 The Tax Benefit Rule(Chapter 6 If an amount deducted as an itemized deduction in

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33:010:421 Income Tax Accounting Fall 2011 The Tax Benefit Rule (Chapter 6) If an amount deducted as an itemized deduction in one year is refunded in a subsequent year it must be included in gross income in the year in which it is refunded to the extent to which a tax benefit was obtained in deducting this amount. This “tax benefit rule” often applies to refunds of such itemized deductions as state income tax and medical expense. Example 1 Assume that a single person files both a Federal and a State individual income tax return for 2011. On his 2011 federal tax return a standard deduction of $5,800 is claimed. His 2011 Federal return showed a liability of $20,000 and payments of $21,000. In May 2012 he received a Federal income tax refund of $1,000. His 2011 State tax return showed a $800 liability and withholding and estimated tax payments of $940. In May 2012 he also received a State income tax refund of $140. How much of the State and Federal tax refunds are includible in gross income in 2012? Answers Example 1
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This document was uploaded on 11/03/2011 for the course ACCOUNTING 415 at Rutgers.

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The Tax Benefit Rule - 33:010:421 Income Tax Accounting Fall 2011 The Tax Benefit Rule(Chapter 6 If an amount deducted as an itemized deduction in

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