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I have a carryover of credit that was not used last year. I am wondering if I can skip applying it this year (we do still have a tax liability so would be eligible to use it) & go ahead & use it next year? Kind of a weird question but we are trying to manage our income in a way that would benefit us tax bracket wise. I'm wondering if we take a 'break' between applying the credit whether we then would have to forego applying it altogether? I spoke to an IRS advisor by phone but my question has had to go to the research department & they can take up to 15 days to answer. Anyone out there dealt with this before & work for the IRS?
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Hmmmm.... It's income you claimed the first time, then you paid taxes with it, then you got it back ... now they're telling you that you have to claim it again because you got it back?
Ex:
Earn $10,000 - pay $1,000 of it in taxes - get that $1,000 back in credits. Earn $10,000 the next year but have to claim you earned $11,000 because of that $1,000 that was sent back to you?
That sounds like they're double-taxing it. Am I still misunderstanding or are they really doing that?
I am either just plain wrong (known to happen), or I am not saying what I mean to say (also known to happen). :)
Maybe my mind has spent too much time on taxes today & now it's frazzled. I am thinking that you have to claim any federal return as income on the next year's state tax -- is that not right?
I don't know about that. I always arrange my exemptions so close that I usually end up paying the IRS just a few dollars on April 15. So if there is a space for that, I wouldn't have had to use it.
A federal return being taxed by the state... that almost makes sense. The state didn't agree to whatever the feds decide to give credit for, so your state still wants their percentage of what you would have paid the feds. Yikes.
I just re-read the IRS publication... I can't find anywhere it says you *must* use it. Everywhere seems to say "can" be used or "to" be used for up to 5 years. You might get to be a test case for this! Let us know what the IRS answer is.
thank you so much for all your help. I am trying like heck to maintain my status at either a small refund or a small payment & while I appreciate the credit (a whole lot!!!), it just confuses things a little bit. It wouldn't make a huge difference to count it but I want to do it my way if possible. I'll update the board when the IRS gives me an answer. Thanks for your help !!
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Hey Tom, so you are saying that if I opt not to apply the carryover this year, then I lose all rights to it? Have you personally dealt with this for your credit? It's not worth losing it altogether I guess but their wording seems to be somewhat vague -- maybe they're just of the assumption that if carryover is available, then the filer would use it up as soon as possible.
I was in a car accident a few years back and when the settlement came in my lawyer told me that money was not to be counted as income, and should not be listed on my taxes at all.
In the past when we have gotten money back from the IRS as a tax return, we have never claimed it as income the following year and I have never heard of anyone who has. So it would be my belief that you would not have to pay taxes on this additional return as income next year. Therefore it would not benefit you to skip a year. If you are still having doubts call Jackson Hewitt or your local tax company. Simply ask the person who answers the phone. "Do you claim last years return as income?" I'm sure the answer will be no, but there's no reason not to ask.
Perhaps I misunderstood your question, but it seems you're making this harder than it really is.
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I'm not used to dealing much with state matters, I live in Florida and we don't have a state income tax. However, I've never seen a IRS credit or refund taxed at the state level. If you receive a state refund, it might be taxed at the federal level if you deducted it in the prior year. I suppose if your state has some deduction for taxes paid to the federal govt., then they could tax you on any refund you may receive at a later time.
What state are we talking about here?
As far as carrying over the credit, carryovers go from one year to the next. You can't skip years.
Tom Sawyer, CPA
I just took a very quick look at the Idaho state website. It looks like you start with federal AGI on the Idaho return and then add and subtract stuff (like non Idaho earnings and state taxes paid that were deducted on the federal return.) I did not see any place where federal refunds or credits were added to back to get to state income. Again, It was a very quick look.
I see that Idaho has a $3000 adoption credit. So, you would get the bigger credit on the federal return and a smaller one on the state return.
You asked earlier if I had every carried over a credit. In my personal case I did not. I had to do drastic tax planning in order to qualify at all (the limits were lower in 1999 when I did this last for myself). However, I just did a federal tax credit for a friend. She used about half of it in 2003 and will use the remaining amount in 2004. It carries forward for 5 years until you use it or lose it.
Hope this helps.
Tom
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I deal with taxes on a daily basis, both in a business and in my own home business. Any credit carryover's must be taken the following year or be lost. Also, for those who live in tax states, you must claim a state refund on your federal taxes, which then carry's over as a deduction on your state tax. Reason - The state requires you put down your federal AGI, which includes your state refund, but the state has you deduct it on their return, so as not to include it as part of your income and tax you on it...
Any more questions????
Tara Bendle
Bendle Consulting