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Federal and State corporate tax refunds are not taxable regardless of whether your client uses cash or accrual basis. It is not income . The entry is debit cash and credit prepaid corporate tax. Just my opinion.
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My understanding is if the c-corporation paid estimates or overpaid throughout or end of the year, then it's money returned as an overpayment not as income.
https://www.irs.gov/pub/irs-drop/rr-03-3.pdf
LAW AND ANALYSIS
Section 451(a) provides that an item of income shall be included in gross income for
the taxable year it is received by the taxpayer, unless, under the method of accounting
used in computing taxable income, the amount is to be properly accounted for as of a
different period.
Section 1.451-1(a) of the Income Tax Regulations provides, in part, that under an
accrual method of accounting, income is includible in gross income when all the events
have occurred that fix the right to receive the income and the amount thereof can be
determined with reasonable accuracy.
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You said cash basis.
Were state taxes deducted?
Ex-AllStar
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The tax return states cash basis but on the return where the estimates are reported it's listed there as well as on the deduction screen. On the deduction screen, it lists the 2021 estimate paid and the the estimates paid in 2021 for tax year 2021.
Sorry I am trying to get a better understanding.
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Thank you!
One more question. If the client over-paid a federal estimate in 2021 for tax year 2020 and received a refund, would that be considered income?
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Federal tax refunds are not taxable income. Federal tax payments are not deductible.
Ex-AllStar
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Thank you so very much!
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Federal refunds for C-Corporations are taxable. However, Federal refunds for S-Corp and LLC are not taxable. I have a C-corporation established in 1997 and have been running it to now. I have filed taxes through using Turbo Tax sine 1997.
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Welcome to this forum that is intended to be for tax professionals.
****
Even tho Turdohhho tax has allowed you to do that 27 years, that is incorrect. Federal taxes are not deductible, ergo the refunds are not taxable income.
And, with very few exceptions, S-Corps and LLC's do not PAY any Federal taxes
( Generic Comment )"
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You might wish to consider amending your prior year tax returns.