Accounting question re tax refund

[Ronal B Morse]

On Thursday 22 May 2008 13:44:38 Jason Ahrens wrote:
> Michael DeBusk said the following on 20/05/2008 10:22 PM:
> > The last time I got a state refund, it was for one
> > dollar. I aspire to someday break precisely even. :) I
> > can't say I've ever noticed that line on the forms.
>
> It's actually really interesting that such a line exists.
> A tax refund is a refund you get on the years taxes
> because you overpaid. That you then have to claim that
> refund the next year as income is very underhanded.
> Basically the state is clawing back money that should
> already be free and clear because it was from a previous
> years books.
>
> Jason

It's not really underhanded at all. You get to deduct the 
amount of the income tax you paid to the state when you 
determine your federal tax liability. If your state or 
local tax liability is less than the amount that was either 
witheld or prepaid, hence the refund, it means the basis of 
your taxable federal income should have been that much 
higher.  

It's a matter of convenience that the state refund is 
considered income in the year it was received, so you don't 
have to go back and rejigger the books or file amended tax 
returns for the year the tax payment was originally made. 

Ron Morse