Taxable income is any gross income used to calculate the amount of tax you owe. This includes salaries, tips, bonuses, investment income, and various types of unearned income. But what about tax refunds? Are they taxable?In general, state and local tax refunds are taxable if the tax refunded was deducted in a previous year and you received a tax benefit from the deduction. Refunds are partially taxable if your itemized deductions from last year exceeded your standard deduction by less than the refund amount.
On the other hand, federal tax refunds are not taxable as income. This is because the term 'taxable income' refers to your adjusted gross income minus any deductions. If you itemized and deducted in Schedule A the amount of state taxes you actually paid this year, you have reduced your taxable income from the IRS by that amount. Therefore, if you listed the deductions in Schedule A and chose to deduct state and local sales taxes instead of deducting state income taxes paid, state refunds are not taxable. Unemployment compensation is considered taxable income.
You must report unemployment benefits on your tax return if you are required to file them. If you're a shareholder, profits, losses, and deductions are reported on your personal income tax return. First, you can deduct your state and local taxes, and then suddenly, the following year, you receive a Form 1099-G from your state and pay taxes on your state and local tax refunds. State income tax refunds may be taxable depending on what you deducted on your previous year's tax returns. To avoid any complications, use the information and tips above to ensure that you calculate and report your taxable income accurately. If you have questions, you can connect live via a one-way video with a TurboTax Live tax expert to get answers to your tax questions.
Turbotax allows you to re-calculate your previous tax by hand, even though they have all the information to do the calculations for you. Dear Tax Talk: My husband and I filed amended state (Massachusetts) and federal tax returns for the past three years. Owners of sole proprietorships, public limited companies and some trusts and properties may be eligible for a qualified business income (QBI) deduction, which allows eligible taxpayers to deduct up to 20% of the QBI, dividends from real estate investment trusts (REITs) and corporations qualified publicly traded (PTP) revenues.