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Adjusted Federal Income Tax

This guide provides an understanding of the calculation of adjusted federal tax due. Suppose a taxpayer pays $15,000 in federal income taxes.

Adjusted Federal Tax Due in Detail:

If the taxpayer lives in any of the states that allow deducting federal taxes paid, he can simply deduct $15,000 from the taxable income in the state.

As mentioned above, such an arrangement is allowed in 6 states. Let's look at these 6 states in detail.

Alabama:

Taxpayers in Alabama can deduct their full federal tax liability from their federal return less any federal tax credits claimed.

Iowa:

Taxpayers in Iowa can deduct all federal taxes paid during the year from their state income tax returns. The deduction includes the following:

  • Any federal taxes that were withheld during the year
  • Any estimated federal tax payments made during the year
  • Federal taxes paid with tax return during the year

Note, this means that taxpayers in Iowa can deduct any federal taxes paid with their federal return for the previous year because the return is filed during the present year.

Louisiana:

The state allows a deduction of federal income tax liability from a taxpayer's federal tax return after adjusting any non-refundable tax credits.

Missouri:

Taxpayers can deduct their federal tax liability from their federal tax return. The state also allows a deduction of a select refundable tax credits received by the taxpayers. However, Missouri has set a cap on deduction of federal taxes while filing state tax returns. Single filers can deduct a maximum of $5,000, and married filers can deduct $10,000.

Montana:

The state allows a deduction of the following:

  • Any federal taxes that were withheld from a taxpayer's earnings during the year
  • Any estimated payments made during the year towards federal taxes
  • Any amount paid towards federal taxes with the previous year's return during the current tax year

Like Missouri, Montana has a limit on the allowed deduction. For single filers, the deduction limit is $5,000 and for married filers who file their returns jointly, the limit is $10,000. Also, the Montana deduction is available only for taxpayers itemizing their state tax returns.

Oregon:

The state allows taxpayers to deduct their full federal tax liability from their federal return after adjusting for a few federal tax credits. However, the amount to be deducted cannot exceed $5,850. Furthermore, this limit is reduced taxpayers with high income.

Important points:

It should be noted that states that allow a deduction of federal taxes paid, require taxpayers also to adjust any federal tax refunds they may have received during the tax year. Examples of such states are Montana and Iowa.

And the states that allow a deduction of the federal tax liability from the federal return require taxpayers to adjust their deductions if they make any changes to their federal tax return at a later stage.

Use our state tax calculator to calculate your state income tax liability. If you are a resident of any of the states mentioned above, you can also check the impact of your federal income taxes on state's income tax calculations.

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