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  • Does Alabama provide for a federal income tax deduction?
View All Corporate Income Tax FAQs

Does Alabama provide for a federal income tax deduction?

Yes. Federal income tax may be deducted for the taxable year in which paid or accrued, according to the method of accounting used in computing taxable income. The federal income tax allowable as a deduction is the net tax liability as accrued and subsequently paid, that is, the amount after subtracting all deductible and/or refundable credits.

When computing the federal income tax deduction for any taxable year for members of an affiliated group filing a consolidated federal income tax return, the consolidated FIT liability must be apportioned only among the members of the group that individually report positive federal taxable income. Each member is apportioned a share of the consolidated FIT based on a fraction, the numerator of which is the member’s positive federal taxable income and the denominator of which is the sum total federal taxable income of all members separately reporting positive federal taxable income (without regard to any election under 26 U.S.C. §1502) for its consolidated federal return.

Corporations which do business in Alabama are allowed to deduct federal income taxes attributable to their Alabama income (Code of Alabama, 1975, §40-18-35(a)(2), and Rule 810-3-35-.01(1)(b).

Yes. Federal income tax may be deducted for the taxable year in which paid or accrued, according to the method of accounting used in computing taxable income. The federal income tax allowable as a deduction is the net tax liability as accrued and subsequently paid, that is, the amount after subtracting all deductible and/or refundable credits.

When computing the federal income tax deduction for any taxable year for members of an affiliated group filing a consolidated federal income tax return, the consolidated FIT liability must be apportioned only among the members of the group that individually report positive federal taxable income. Each member is apportioned a share of the consolidated FIT based on a fraction, the numerator of which is the member’s positive federal taxable income and the denominator of which is the sum total federal taxable income of all members separately reporting positive federal taxable income (without regard to any election under 26 U.S.C. §1502) for its consolidated federal return.

Corporations which do business in Alabama are allowed to deduct federal income taxes attributable to their Alabama income (Code of Alabama, 1975, §40-18-35(a)(2), and Rule 810-3-35-.01(1)(b).

Related FAQs in Corporate Income Tax

View information on the Small Business Health Premiums Deduction (Act 2008-559, amended by Act 2011-155). View Form 4020- Small Business Health Insurance Deduction Information.

View information regarding Alabama Consolidated Income Tax Returns.

C-corporations, and those LLCs that have elected to file as a c-corporation, doing business in Alabama or deriving income from sources within Alabama, including income from property located in Alabama and on every corporation licensed or qualified to transact business in Alabama except for those corporations specifically exempted by §40-18-32.

Yes. If the company has registered or qualified to do business in the state, a Form 20C is required to report no activity and/or business activity as provided by Sections 40-18-2 and 40-18-31, Code of Alabama 1975.

Yes. If an extension has been granted for federal purposes, the extension is also granted for Alabama purposes; the Federal Form 7004 must be submitted with the Form 20C.

NOTE: This is an extension for filing purposes ONLY. The full amount of the tax liability is due by the original due date of the return.

Yes. Alabama Code §40-2A-7(c)(2) states, “A petition for refund shall be filed with the department or an automatic refund issued pursuant to Section 40-29-71, or a credit allowed, within (i) three years from the date that the return was filed, or (ii) two years from the date of payment of the tax, whichever is later, or, if no return was timely filed, two years from the date of payment of the tax.”