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If my understanding is right, generally you add any prior year state taxes you paid as a "balance due" to current year itemized deductions.

Please let me know if I my understanding is incorrect.

Your understanding is quite correct.

Now if that's true, here is my situation

I made payments in 2011 towards my 2009 state taxes. Should I include in itemized deductions in 2010 return or 2011 or either or neither?

You deduct state income taxes in the year the taxes are paid. So you would include this late payment of 2009 state taxes on your return for 2011 when you finally paid them.

Don't forget that you can only deduct the tax itself. Any penalty and interest you paid are not deductible.

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