Specific US personal Federal tax question in regard to State taxes...?

Question

In 2005 I had a large amount of income (really large), however because of Accounting delays, I only made my initial Federal and state payment for this large 2005 tax in January 2006, I filed an extention in April then in September 2006 made the final payment. I paid $10K+ to the state of NJ, because my gain was from a corporation there, I do not live in NJ. My question is: since I made the payment in 2006 for my 2005 state taxes, should I be putting this amount ($10K+) of 2005 taxes paid in 2006 in Schedule A, line 5 of my 2006 1040 return... ?
That is how I read the instructions for the 1040 schedule A (page A-3, left column on the bottom), but it seems that this would take the $10K straight off my federal tax bill, and the feds would owe me money.... is that correct??

Doesn't seem right to me...

Thanks in advance

Answer 1

It doesn't take $10K off your tax bill. It takes $10K off your income, which may only be taxed at 15 or 25%, certainly no more than 35%. So at most, it reduces your tax bill by $3,500. Does that make it seem more right?

Answer 2

The payment made in 2006 would be listed on your 2006 schedule A, but it doesn't come dollar for dollar off your tax bill. Itemized deductions come dollar for dollar off your taxable INCOME - the reduction in tax bill is basically that amount multiplied by your tax bracket percent.

Answer 3

Yes, the payment that you made in 2006 should be applied to your 2006 taxes, regardless of the tax year.

Answer 4

the federal government isn't limiting sale of this scientific well being insurance to single state markets. that's finished by using the guy states. If a state wanted to permit its voters to purchase scientific well being insurance from companies not authorized in that state, they have each and every ideal to do this, with out concerning the federal government in any way.