In a recent (January question) a user asked if they could enter the amount of state taxes paid as a negative item on line 10, form 1040. To which you answered:

No - line 10 is for the refund only, and should match the information on the 1099-G form you received. What you can do is enter the state tax you've paid in 2011 on line 5 of schedule A, which ultimately carries to line 40 of Form 1040 and hence reduces your taxable income. If you don't itemize this doesn't help, but in that case you shouldn't be reporting the state tax refund as income in the first place. Instructions for line 10 state: "None of your refund is taxable if, in the year you paid the tax, you either (a) did not itemize deductions, or (b) elected to deduct state and local general sales taxes instead of state and local income taxes."

I had the same question so the above answer is well understood. Do you have any idea of a scenario in which this number would be negative? I am preparing my own taxes this year and this is the only item I am stumped on. Last year my preparer entered a negative amount on this line. On further investigation of my records, I found this negative amount they entered for 2010, was the exact amount of state taxes I had owed and paid the prior year (2009) at filing. Was this a faulty entry? Or, again, is there any scenario where a negative would apply?

Thank you!

Hi All -

This was the original question I was referring to above ( I thought it would post direct to the original responder). But if anyone else can help, please do!:

Can line 10 be a negative number?
Asked by ____On Jan 29, 2012
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If I get a state tax refund, it may be subject to federal tax the next year. If instead I ended up paying additional state tax when I file my state return, would I be able to enter that amount as a negative on line 10 of Fed 1040 for the following year? If not, it seems that you would always want to make sure you withhold more state tax than you will actually owe.

A negative number on Line #10 is NOT allowed, and most tax software will not allow it.

I think your tax preparer messed up. As discussed in the previous post he should have entered your 2009 state tax payments on schedule A of your 2010 return, not as a neagtive amount on Form 1040. I wonder if perhaps (a) you didn't itemize deductions on your 2010 return, so he was trying a sneaky way to get you a deduction that you didn't deserve, or (b) you did itemize but took sales tax as a deduction on Schedule A, in which case you are not allowed to also take state income tax, so he snuck this in on Form 1040. Can you tell us whether in fact you did itemize deductions on your 2010 return, and if so what was shown for state and local taxes on line 5 of Schedule A?

If your preparer was a professional I suggest that (a) you call him and ask about the entry on line 10, and (b) review your contract to see if he will support you in responding to the IRS should they come after you, and will he cover any interest charges that come about due to his error?

Hi ebaines,

Thanks for your thorough response. Yes, I did have itemized deductions/Schedule A on that same return. And he did deduct for line 5, and not a sales tax deduction but an Income tax deduction ($1049).

Unfortunately, I had little faith and trust in this outfit after my experience with them (they came on referral from another friend) - but having used a very trusted professional for many years prior (who unfortunately passed away) and during a time when I was filing complicated Schedule C's, I had a sense that this above mentioned preparer was not up to par and can't even begin to explain my experience with them from the moment I arrived for my appointment and then waited for 5 hours (!). --- Which is why this year I endeavor to file myself.

Do you suggest this is something I should call attention to and amend, or rest on unless it comes up later with the IRS. I'm fairly sure this preparer and his staff will be of no help.

I am confident I have everything else in order, I was just stumped on this item because it just didn't make sense, and now I know why!

So on my current schedule A I will be deducting my state income taxes paid (and mandatory disability payments) on line 5 of Schedule A. Perhaps you can assist with one last question on this item: Do I include payments I made in 2011 for 2009 taxes? I have a balance due from 2009 for which I have been making installment payments on continuing throughout 2010. My amount due for 2010 I paid in full when filing 2011.

So you have a $1049 deduction on line 5 of Schedule A and also a negative $1049 amount on line 10 of Form 1040? Wow.

I'm not sure what advice to offer on pre-emptively filing an amended return for 2009. The upside is that the clock on failure-to-pay penalties plus interest stops when you file and pay the extra tax due. Depending on your tax bracket the amount you would have to pay is perhaps around $200 plus about $2/month for late payment.

On line 5 of schedule A you include all state and local income taxes that you actually paid in 2011. So yes - if you made a payment(s) against your 2009 and/or 2010 taxes in calendar year 2011 you can include them on your 2011 return. Be sure to keep records of what was paid when.

Well, the $1049 on line 5 of 2010 schedule A was the total amount of combined state tax /disability from my W2 for 2010. The amount on 2010 Form 1040 Line 10 was -$1630, was the amount of state taxes I owed at filing in calendar 2010 for tax year 2009. So now I see, this preparer just looked at my 2009 Tax Summary Statement from my former CPA and plugged took that number $1630 from there (not knowing/caring I had not paid it in full, regardless of whether it was placed in the proper line or not). Furthermore, that $1630 amount from 2009 state taxe) happens to be the installment I am still currently paying on (and have factored those payments made during 2011 into my current 2011 Schedule A line 5) What a mess! :-(

Thank you so much for your insight and balanced advice.