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I received a letter from my state's department of revenue saying I owed them an extra $200 because of an error in an old tax return. They also tacked on about another 10% interest for the nearly 2 years between the filing date and the date of the letter. I paid it immediately, but now I'm wondering how I need to account for this in the rest of my tax reporting.

On the US federal form 1040, there are instructions for entering state taxes paid for the previous tax year, but since the instructions mention a specific tax year, it seems I'm not supposed to enter state taxes or adjustments paid during the previous tax year.

This leaves me with a two-part question:

Part 1: If I want to reclaim part of the adjusted state taxes on my federal return, does this mean I need to amend all my federal returns going back to the year for which I had to pay additional state taxes, or is there some easier solution?

Part 2: Is it even worth the effort to try to reclaim some fraction of the adjusted state taxes on a later return? (i.e., will I even be able to reclaim anything on my federal taxes anyway if I'm taking the standard deductions?)

  • What tax year was the old return for? Did you itemize (on Schedule A) deductions on your federal return that year? – JoeTaxpayer Oct 15 '13 at 5:02
  • 2010, and yes, I did itemize on my federal return that year. – rob Oct 15 '13 at 5:30
  • @JoeTaxpayer: it doesn't actually matter whether you itemized deductions that year – user102008 Oct 15 '13 at 9:15
  • @user102008 - You are right. It was late, and I was thinking OP would amend past returns. No need for that, your answer looks right +1. – JoeTaxpayer Oct 15 '13 at 12:09
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If you paid state taxes this year, say, 2013, then if you itemize deductions on this year's federal tax return (2013 tax return, which you file in 2014), you can deduct the state taxes paid on your federal taxes. It doesn't matter what year those taxes were for; they could have been for 2013, 2012, or 2010, or whatever. What matters is that you paid them this year.

However, you cannot deduct penalties or interest.

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