Image courtesy of Pixabay.com

Image courtesy of Pixabay.com

On Wednesday I wrote about the Iowa “charitable checkoffs” and how it’s a way to give to select charitable causes on an Iowa tax return. Money given to these causes decreases a taxpayer’s Iowa refund, or increases the amount owed. The taxpayer can take a deduction for a charitable contribution on the following year’s tax return.

But how do amounts given to the charitable checkoffs affect the federal tax return as to the following two scenarios:

  • Being taxed on your Iowa tax refund?
  • Deducting any Iowa taxes owed?

Claiming Iowa Refund as Income When You Also Gave to the Charitable Checkoffs

Sometimes, a state tax refund may be taxable on the federal tax return. A full discussion of this topic is for another blog post on another day, but the very brief version is: if you claim itemized deductions, and you took a deduction for state income taxes as an itemized deduction, you might have to report some or all of your state refund as income on your federal tax return in the following year.

Here’s how this works with the Iowa charitable checkoffs:

Joe gives $20 to the charitable checkoffs. Without the checkoffs, his Iowa refund would have been $250. With the checkoffs, his refunds ends up being $230. On his federal tax return the next year, Joe would use $250 as his state refund amount. The $20 of contributions gets deducted as a charitable contribution.

Deducting Iowa Tax Owed When You Also Gave to the Charitable Checkoffs

If you itemize deductions on your federal tax return, you can claim a deduction for state income taxes paid. This includes paycheck withholdings, and also additional amounts paid when you file your tax return.

Here’s how that works when a taxpayer also gave to Iowa charitable checkoffs

Joe gives $20 to the charitable checkoffs. Without the checkoffs, he owed $250 of taxes. With the checkoffs, he ended up owing $270. On his federal tax return the next year, Joe would deduct $250 as additional Iowa income taxes paid, and the $20 of contributions gets deducted as a charitable contribution.

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”