State, Local, and Federal Taxes (Portfolio 525)
This Portfolio analyzes the deduction of state, local, and federal taxes, and the timing of the deduction, with primary focus on §§164, 275, and 461 in the Internal Revenue Code.
Bloomberg Tax Portfolio, State, Local, and Federal Taxes, No. 525, analyzes in depth the deduction of state, local, and federal taxes, and the timing of the deduction, with primary focus on §164, 275, and 461, in the Internal Revenue Code of 1986, and the regulations thereunder.
Under §164, taxpayers may deduct, in computing taxable income, certain taxes paid or accrued during the taxable year. Certain specifically enumerated taxes are deductible without regard to the existence of a trade or business or for-profit activity. Some taxes are deductible only if paid or accrued in carrying on a trade or business or for-profit activity. Some taxes are not deductible under any circumstances, even if paid or accrued in carrying on a trade or business or for-profit activity.
Taxpayers are not permitted to deduct taxes they pay unless the tax is imposed on them (rather than some other person) or falls within one of several exceptions allowing taxpayers to deduct taxes that are the obligation of other persons.
This Portfolio discusses these issues, as well as the proper timing for taking a deduction for paid or accrued taxes. Because of the technicalities involved in defining deductible taxes and the complexity of the accrual principles, it is essential that taxpayers and their tax advisers be completely familiar not only with applicable federal income tax principles concerning the tax deductions, but also with the state and local statutes that determine the precise date of imposition for federal income tax accrual purposes.
Table of Contents
II. Specifically Enumerated Deductible Taxes
III. Taxes Specifically Not Deductible
IV. Taxes and Similar Items Deductible as Trade or Business Expenses or as For-Profit Activity Expenses
V. Identity of Taxpayer Entitled to Deduction
VI. Timing of the Deduction for Taxes
VII. Alternative Minimum Tax
Professor of Law, Emeritus
Villanova University School of Law