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Publication 535

Income Taxes(p17)

This section discusses federal, state, local, and foreign income taxes.

Federal income taxes.(p17)

You cannot deduct federal income taxes.

State and local income taxes.(p17)

A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. An individual can deduct state and local 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.(p17)
If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined.
If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. You cannot deduct them in the year in which the liability is finally determined.
The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability.
However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. For more information on accounting methods, see When Can I Deduct an Expense in chapter 1.

Foreign income taxes.(p17)

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, Tax Guide for U.S. Citizens and Resident Aliens Abroad. For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals.