The very long thread about tax reform has been shut down — but the new tax law has some very real and important consequences for many, especially for parents who need to plan for and make decisions about college expenses. This includes some tax planning decisions that should be made before the end of 2017.
Some of us have actually read all or parts of what is now the law, and I am guessing that the vast majority haven’t done so – so I think that a Q&A thread where people can get specific questions answered will be helpful.
I am hoping that this thread will be allowed and that it can be confined to specific questions and answers about what IS – not for discussion of policy or whether or not the tax law is good or bad.
I am not a moderator and have no power over posts, but I will flag any posts that seem political.
I just think there needs to be a place where people can get some straight answers, including an exploration of “what if” scenarios because for some people there are important choices to make. (And changing the law at this point is not an option – it is what it is – so no point discussing that).
DH met with our financial planner/tax guy earlier this week. His advice was to prepay CA state tax estimate, any DMV fees, and the 2nd installment of property taxes before year end.
The ACA individual mandate is eliminated for 2019, but not for 2018. If that enters into your calculations, you may still be able to buy ACA health insurance for 2018.
I’m confused. I thought that 2018 state income tax can not be prepaid-- that is, it can be prepaid but it would still be deemed as paid on Dec. 31, 2018. But 2018 state property tax can be prepaid and deducted in 2017 taxes. Can someone clarify this?
What we’re talking about here is paying the second installment of 2017 property taxes in 2017, not 2018 property taxes. Many states allow taxpayers to split property taxes into two payments rather than one, and for some that second payment isn’t due until 2018. These are taxes that have already been billed and could actually have been paid at any time.
Our second 2017 payment is due 2/1 (but not overdue until 4/10). I did pay it today so it can be included in our 2017 itemized deductions. My rough estimate for 2018 indicates that exceeding the $24,000 standard deduction will be iffy and depends on AGI and medical expenses (still allowed in 2018 but not thereafter). Between Medicare/supplemental/Plan D and dental, it might take us over. I figure I can always pay the second 2018 property tax in December 2018 if it would bring us over the standard deduction. Certainly without medical in 2019 we’ll do standard deduction.
And I can’t believe I’m thinking that far ahead.
Although some states are talking about a way to let taxpayers pay 2018 property taxes in 2017, I’m not aware of any state that allows payment of unbilled property taxes. So payments for 2018 taxes probably can’t be done because there just isn’t time for the states to figure out how to finagle this.
Prepaying state income taxes is a different situation and that’s what the bill addressed. Only payments for 2017 state income taxes can be included in 2017 itemized deductions. If you itemize, have sizeable state income taxes,and do quarterly estimated tax payments, it’s worth paying your fourth quarter estimate in December rather than waiting until Jan. 15. I was going to do this until I realized we’ll be including sales tax rather than state income tax since I bought a new car in 2017 which had a nice hefty sales tax.
We usually pay our mortgage during the 10 day grace period but in this case I’ll be sure to get our Jan. 1 payment done in December so we can include that mortgage interest in 2017 itemized.
Our FP was suggesting prepaying estimated 2017 state tax due. He also said to pay the second property tax installment due early 2018. Don’t think we can do the fall 2018 property tax. Someone please correct me if I’m wrong.
I’m trying to wrap my head around why you’d need to prepay 2017 state taxes. The 2017 federal return will be filed under the current/old rules, where you can write off your SALT. As in previous years, you may end up writing a final check to your state government in calendar year 2018, but you still deduct those taxes from your 2017 income. So why would you need to prepay those taxes in calendar year 2017?
I know the new W4 form hasn’t been created or released yet…but…we always put zero exemptions on it…because that was the only way we seemed to come even close to having enough withheld to not have to pay at tax filing time.
Now that exemptions are gone…wondering how we will be able to deal with this…
I’ll be on fellowship again next year so I’ll have to start paying my taxes quarterly again. I’m salaried for the first part of the year so I don’t have to worry about it soon.
Question: when do you think there will be decent calculators so we can figure out how much we should be pre-paying?
@thumper1 - I feel the same way re withholding. We should take 2 exemptions as a married couple with no dependents, but we end up owing, so we each take zero. Our federal tax bill for 2017 should be around $18,000 and I plan to have the same amount withheld in 2018 - even though all the tax calculators show our tax bill falling to about $16,000 under the new legislation. I have no idea how accurate these calculators are and I would rather simply aim for the same amount withheld and maybe have a nice surprise come April 2019.
@SlitheyTove said “As in previous years, you may end up writing a final check to your state government in calendar year 2018, but you still deduct those taxes from your 2017 income. So why would you need to prepay those taxes in calendar year 2017”
Individuals are on a cash basis (not accrual) so a 2017 state balance due that is paid in 2018 is NOT deductible on the 2017 federal return Schedule A.
Not everyone who follows the advice of paying 2017 property taxes and the projected 2017 remaining income tax liability by 12/31/17 will receive a tax benefit. Consider AMT.
