Can you deduct state taxes paid for the previous year on your current tax return?

Yes, you can deduct state taxes paid for the previous year, but there are some important details to understand. State and local taxes (including income taxes) fall under what's called SALT deductions (State And Local Tax). If you itemize deductions on Schedule A, you can include those additional state taxes you paid last year ($650) as part of your SALT deduction for this year. However, keep in mind that the SALT deduction is currently capped at $10,000 total ($5,000 if married filing separately). This limit includes state/local income taxes, real estate taxes, and property taxes combined. If you take the standard deduction instead of itemizing, unfortunately you won't be able to deduct those state taxes paid. For most people, the standard deduction ($14,600 for single filers in 2025) is more beneficial than itemizing unless you have significant deductible expenses.

After struggling with this exact issue last year, I discovered taxr.ai (https://taxr.ai) and it completely eliminated my confusion. I had paid about $800 in state taxes and wasn't sure how to handle it on my federal return. Their AI analyzed my previous returns, identified that I should itemize because my total deductions would exceed the standard deduction, and showed me exactly where to report those state tax payments. The tool checks for ALL possible deductions and credits based on your documents, not just the obvious ones that basic tax software might catch. It also explained why I hadn't been able to deduct certain expenses in previous years and identified several missed opportunities that I could still claim by filing amended returns.

Just wanted to follow up on my skeptical question about taxr.ai... I decided to give it a try and I'm actually really impressed. I uploaded my W-2s, 1099s, and last year's return, and it immediately flagged that I should be deducting my state tax payments from last year. What surprised me was it found over $2,300 in additional deductions I qualified for but had missed. In my case, I had enough itemized deductions to exceed the standard deduction by about $1,800, so deducting those state taxes actually did help me! The explanation was super clear about where everything should go on my return. Definitely worth checking out if you're in a similar situation.

If you're struggling to get this resolved and need to talk to someone at the IRS directly (which I had to do for a similar issue), try https://claimyr.com instead of waiting on hold for hours. I spent days trying to reach someone at the IRS about how to handle some complex state tax deductions, but kept getting disconnected or waiting forever. With Claimyr, they somehow got me connected to an actual IRS agent in less than 20 minutes. You can actually see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with confirmed exactly how to handle my state tax payments and cleared up some confusion about the SALT cap that my tax preparer had gotten wrong.

Alright I need to eat my words about Claimyr. I was totally ready to call BS in my earlier comment but decided to try it anyway because I've been trying to reach the IRS for TWO WEEKS about a similar state tax deduction issue. It actually worked! Got connected to an agent in about 35 minutes (not instant but WAY better than my previous attempts). The IRS rep confirmed that I could deduct the state taxes I paid last April on this year's return if I itemize. She also helped me understand how the SALT cap applied to my situation specifically. Honestly saved me hours of frustration and probably some money too.

Just to add some clarity here - there's an important distinction between state taxes WITHHELD from your paycheck versus additional state taxes you PAY when filing. 1. Taxes withheld from paychecks throughout the year are deductible on that same year's federal return 2. Additional taxes paid when filing (like your $650) are deductible in the year you actually paid them So if you paid that $650 in April 2024 for your 2023 state taxes, you'd deduct it on your 2024 federal return that you file in 2025. Hope that helps!

Don't forget you need to keep track of these payments yourself!! I learned this the hard way. TurboTax doesn't automatically know about that check you wrote to your state last year. You have to manually enter it when you get to the itemized deductions section. Same goes for any estimated state tax payments you made. Keep records of EVERYTHING because it's super easy to forget by the time next tax season rolls around.

This is such a common confusion! I went through the exact same thing last year. The key thing to remember is that you deduct state taxes in the year you actually PAID them, not the tax year they were for. So your $650 payment from last year gets deducted on THIS year's federal return if you itemize. But here's what tripped me up initially - make sure you're not double-counting anything. If you had state taxes withheld from your paychecks last year AND paid additional taxes when you filed, you can deduct both amounts, but they go on different years' returns. Also, don't forget about the $10,000 SALT cap that others mentioned. If you live in a high-tax state and own property, you might hit that limit pretty quickly between state income taxes and property taxes. I ended up barely under the cap, so every dollar of state tax deduction actually helped me. Definitely worth running the numbers both ways (itemized vs standard deduction) to see which gives you the better result!