1040NR: itemized deductions

[issp]

I am independent consultant, citizen and resident of Canada, who has been conducting business in various states in US during last 8 years on a TN1, travelling back home weekly. Husband is resident and employed in Canada, I maintain close ties with Canada. Between 2007 and 2013 I spent between 150-300 days annually in US, on 2014 about 50 days (Ohio)
In the past I used professional tax services, but with business significantly down in 2014, I am trying to cut tax preparer fees. I am using Taxact for Federal and State returns, and TurboTax for Canada taxes (currently reviewing my T1 before filling).
1. Anticipating a higher income in 2014, I overestimated both, federal and state taxes.
So, I assume that consequently the Itemized deduction (field 38 in section Tax and Credits of 1040NR) are inflated as they are based on Taxes You Paid (field 1 in Schedule A of 1040NR), in my case by approx. USD 3,000 overpayment of state tax. This would further lead to an understatement of Taxable Income and of Total Federal Tax for 2014. Is this correct ? If yes, is it ok or what should I to fix it?

2. So, I had very little income and only approx 50 days spent in US in 2014, no US income so far in 2015. I am still working on acquiring new US customers and contracts, however, I don’t anticipate getting any work for 2015, not sure about 2016. Is there anything that I need to do regarding a potential “departureâ€￾ year from US, considering that I was always a NR, and kept ties to Canada.

[issp]

[quote="issp"]I am independent consultant, citizen and resident of Canada, who has been conducting business in various states in US during last 8 years on a TN1, travelling back home weekly. Husband is resident and employed in Canada, I maintain close ties with Canada. Between 2007 and 2013 I spent between 150-300 days annually in US, on 2014 about 50 days (Ohio)
In the past I used professional tax services, but with business significantly down in 2014, I am trying to cut tax preparer fees. I am using Taxact for Federal and State returns, and TurboTax for Canada taxes (currently reviewing my T1 before filling).
1. Anticipating a higher income in 2014, I overestimated both, federal and state taxes.
So, I assume that consequently the Itemized deduction (field 38 in section Tax and Credits of 1040NR) are inflated as they are based on Taxes You Paid (field 1 in Schedule A of 1040NR), in my case by approx. USD 3,000 overpayment of state tax. This would further lead to an understatement of Taxable Income and of Total Federal Tax for 2014. Is this correct ? If yes, is it ok or what should I to fix it?

2. So, I had very little income and only approx 50 days spent in US in 2014, no US income so far in 2015. I am still working on acquiring new US customers and contracts, however, I don’t anticipate getting any work for 2015, not sure about 2016. Is there anything that I need to do regarding a potential “departureâ€￾ year from US, considering that I was always a NR, and kept ties to Canada.[/quote]

I missed mentioning on #1 above:: I did not receive a 1099G from OH state for my overpayment in 2013, so I am not sure whether to include the overpayment in my 2014 income and deduct the 2013 state taxes paid (including the overpayment), or to report only my 1099-MISC income, in which case should I deduct the 2013 state taxes as paid or as calculated in my 2013 return.

Any help would be greatly appreciated.

[issp]

Any advice on my above would be greatly appreciated.
I played scenarios in Taxact, but it seems that:
1. I cannot manually reduce the state tax from what paid to what is due, as the field relates to my state tax return (refund due)
2. Adding the state overpayment (calculated refund) to my income on 1040NR does not seem correct ?

Any suggestion at all ?

[nelsona]

Your deduction for state tax can only be the PAID tax during the 2014 calendar year, and is not reduced by any projected refunds.

Any refund you get will be added as income to THIS YEAR's tax return , when you file next spring.

[issp]

Nelsona, thank you very much for the quick reply.

Would you, please, confirm that I got this right:
- I had my OH state overpayment for 2013 (approx. USD2900) carried over to 2014 tax liability. Later in the 2014, anticipating the same activity and income level as in previous years, I made another OH state installment of approx. USD500.
Due to reduced income, my calculated state taxes for 2014 will be only approx. USD200, so I anticipate a 2014 state refund for approx. USD3200.
Based on your advice, I should add the $2900 refund to my total income for 2014, and the $3200 refund to the total income for 2015.

If this is correct, does it mean that I will have to file a 1040NR for 2015 even if I won't have any business income at all?

It somehow feels strange that a tax refund in the previous year is inflating the current year income !?

Thank you, again

[nelsona]

Itemized deductions on 1040NR work to REDUCE federal tax (down to zero), not give you a refundable tax credit.

Whatever you paid in 2014 to your state, you can itemize as a deduction on 2104 1040NR. Whatever refund you recieved in 2014, you must add as income on your 1040NR if you itemized in 2013.

If you do not need to itemize in 2015, for whatever reason, you will still need to report the refund check as income, since you are itemizing in 2014.

That's aal I'm saying on this one. Follow your tax software.