[Anonymous]

For the year ended December 31, 2013, Bard Corp.’s income per accounting records, before federal income taxes, was $450,000 and included the following: State corporate income tax refunds $ 4,000 Life insurance proceeds on offi cer’s death 15,000 Net loss on sale of securities bought for investment in 2011 20,000. Bard’s 2013 taxable income was

a. $435,000

b. $451,000

c. $455,000

d. $470,000

(c) The requirement is to determine Bard Corp.’s taxable income given book income of $450,000. No adjustment is necessary for the $4,000 of state corporate income tax refunds since they were included in book income and would also be included in taxable income due to the “tax benefi t rule” (i.e., an item of deduction that reduces a taxpayer’s income tax for a prior year must be included in gross income if later recovered). The life insurance proceeds of $15,000 must be subtracted from book income because they were included in book income, but would be excluded from taxable income. The net capital loss of $20,000 that was subtracted in computing book income must be added back to book income because a net capital loss is not deductible in computing taxable income. Thus, Bard Corp.’s taxable income would be $450,000 – $15,000 + $20,000 = $455,000.

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The answer says the state income tax refund is included. Is this only for corporations and not for indivuals?

[Lindrobe]

For individuals, a state income tax refund received during the calendar year for a prior year is only taxable income if the individual itemized on their prior year return. I believe that the amount that has to be included in income is limited to the amount of benefit from deducting the income taxes on Schedule A in the prior year, but I cannot find it in my book. Can anyone confirm?

FAR 12/3/14, 87
AUD 2/3/14, 90
BEC 4/1/14, 88
REG 5/27/14, 94

Licensed CPA, Indiana

"Successful people do things that unsuccessful people don't want to do"

[Lindrobe]

For individuals, a state income tax refund received during the calendar year for a prior year is only taxable income if the individual itemized on their prior year return. I believe that the amount that has to be included in income is limited to the amount of benefit from deducting the income taxes on Schedule A in the prior year, but I cannot find it in my book. Can anyone confirm?

FAR 12/3/14, 87
AUD 2/3/14, 90
BEC 4/1/14, 88
REG 5/27/14, 94

Licensed CPA, Indiana

"Successful people do things that unsuccessful people don't want to do"

[Only Reg Left]

State taxes are deductible on Form 1120. So there's no book/tax difference for the refund; it's taxable.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[Only Reg Left]

State taxes are deductible on Form 1120. So there's no book/tax difference for the refund; it's taxable.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[NYCaccountant]

Confirmed. @Lindrobe is correct.

AUD - 99
BEC - 84
FAR - 93
REG - 87

NYC born and raised.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

Confirmed. @Lindrobe is correct.

AUD - 99
BEC - 84
FAR - 93
REG - 87

NYC born and raised.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[KBinMN]

For individuals it depends if you were able to deduct (or got a benefit from) state taxes the prior year (the source of the refund). If you don't itemize you don't have to claim the refund as income since you didn't get a benefit from deducting state taxes. If you were in AMT (to a certain extent) you don't have to claim the refund for a similar reason. Otherwise it is included in income.

I can't remember if using general sales tax in the prior year instead of state tax also lets you not include the refund as income and I'm too lazy to look it up.

[KBinMN]

For individuals it depends if you were able to deduct (or got a benefit from) state taxes the prior year (the source of the refund). If you don't itemize you don't have to claim the refund as income since you didn't get a benefit from deducting state taxes. If you were in AMT (to a certain extent) you don't have to claim the refund for a similar reason. Otherwise it is included in income.

I can't remember if using general sales tax in the prior year instead of state tax also lets you not include the refund as income and I'm too lazy to look it up.

[Author]

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