Louis files as a single taxpayer. In April of this year he received a $900 refun

Question

Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $6,200.

a.       Last year Louis claimed itemized deductions of $6,450. Louis’s itemized deductions included state income taxes paid of $1,750.

b.       Last year Louis had itemized deductions of $4,800 and he chose to claim the standard deduction. Louis’s itemized deductions included state income taxes paid of $1,750.

c.       Last year Louis claimed itemized deductions of $7,640. Louis’s itemized deductions included state income taxes paid of $2,750.

Explanation / Answer

Standard deduction defition

A base amount of income that is not subject to tax and that can be used to reduce a taxpayer's adjusted gross income (AGI). A standard deduction can only be used if the taxpayer does not choose the itemized deduction method of calculating taxable income. The amount of the standard deduction is based on a taxpayer's filing status, age and whether he or she is disabled or claimed as a dependent on someone else's tax return.

standard deduction as given in question =$6200

refund of income tax of tax payer=$900

a) As per definition Louis can claim the deduction which benefits to him to reduce the taxes

standard deduction =$6200

itemized deductions claimed=$6450

itemized deductions includes amount of state income tax paid =1750

Amount to be included in the gross income

=($1750/$6450)*$900

=$244

b) In second scanario Louis itemized deductions is $4800 but he choose to claim standard dedction

Amount to included in the gross income=

=($1750/$6200)*900

=$254

c) In the third scanario Louis itemized dedutions is $7640 which includes the state income tax paid of $2750

Amount to be included in the gross income =

=($2750/$7640)*900

=$324.

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