This section discusses federal, state, local, and foreign income
Federal income taxes.
You cannot deduct federal income taxes.
State and local income taxes.
A corporation or partnership can deduct state income taxes imposed
on the corporation or partnership as business expenses. An individual
can deduct state income taxes only as an itemized deduction on
Schedule A (Form 1040).
However, an individual can deduct a state tax on gross income (as
distinguished from net income) directly attributable to a trade or
business as a business expense.
Accrual of contested income taxes.
If you use an accrual method, can deduct taxes before you pay them,
and contest a state or local income tax liability, a special rule
applies. Under this special rule, you must accrue and deduct any
contested amount in the tax year in which the liability is finally
Filing a tax return is not considered contesting a liability. If
you do not make an objective act of protest or show some affirmative
evidence of denial of the liability, you can deduct any additional
state or local income taxes found to be due for a prior year in the
year for which they were originally imposed. You cannot deduct them in
the year in which the liability is finally determined.
Foreign income taxes.
Generally, you can take either a deduction or a credit for income
taxes imposed on you by a foreign country or a U.S. possession.
However, an individual cannot take a deduction or credit for foreign
income taxes paid on income that is exempt from U.S. tax under the
foreign earned income exclusion or the foreign housing exclusion. For
information on these exclusions, see Publication 54,
for U.S. Citizens and Resident Aliens Abroad. For information on
the foreign tax credit, see Publication 514,
Foreign Tax Credit
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