Tom and Betsy, who are married filing jointly, reported a standard deduction of $11,400 on their 2010 tax return. They paid $500 to the state for income taxes in 2010. In 2011, they received a $125 refund of state taxes paid in 2010. What is the amount that Tom and Betsy need to report on their 2011 tax return?
a. $0
b.$125
c. $375
d. $500
is it D
What is $500 - $125?
its not 375.
To determine the amount that Tom and Betsy need to report on their 2011 tax return, we need to consider the rules for reporting state tax refunds.
According to the IRS, if you claimed the standard deduction on your previous year's tax return and received a refund of state income taxes in the following year, the amount of the refund generally does not need to be included as taxable income on your federal tax return.
In this case, Tom and Betsy claimed a standard deduction of $11,400 on their 2010 tax return. They received a refund of $125 in 2011 for state taxes paid in 2010.
Since the refund is less than their standard deduction for 2010, they do not need to report any of the refund as taxable income on their 2011 tax return.
Therefore, the correct answer is:
a. $0