| One provision of Alabama law that is especially confusing to many taxpayers and professional preparers is the deduction for the Federal income tax liability. For years, Alabama taxpayers deducted the total Federal income tax paid during the taxable year without consideration for which tax year the payments applied to. For tax years beginning after December 31, 1998, though, the amount that is deductible is the liability shown on the current year Federal return, regardless of the amount of Federal income taxes actually paid during the year. Also, the deductible Federal liability does not include Federal self-employment taxes, although those taxes are deductible as an itemized deduction in the following year. The Department of Revenue provides the following table which indicates the appropriate line of the various Federal forms to reference for the Federal income tax liability deduction. Please note that all line numbers refer to 2005 Federal forms.
There are several circumstances where the otherwise deductible Federal income tax liability must be pro rated. A part year Alabama resident, or a nonresident, allocates his deduction by the ratio that his Alabama adjusted gross income bears to his Federal AGI. Also, when a married couple files a joint Federal return, but elects to file separately in Alabama, each of them is entitled to a portion of the Federal tax liability deduction from their joint federal return. The Alabama instructions say that each of them computes the deduction by applying the ratio that their Alabama AGI bears to the joint Federal AGI.
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