To clarify, I didn’t prepay my state taxes. I understand that you can’t do that and have it be deductible. What I did was try to figure out how much the state taxes might be, based on my past two years’ returns, and prepay a portion of my general property taxes so that the total of the state taxes and the remaining property taxes for 2018 will be as close to $10K without going over as I can get it. It is my understanding that pre-paying the property tax is now allowed in NY.
That makes perfect sense, @techmom99. Prepaying property taxes is not the issue – at least, not the one I have been talking about. Making a payment of estimated INCOME taxes is a different thing entirely. How the IRS will view advance payment of property taxes under the recent state laws allowing it is anyone’s guess. Making inflated payments of estimated taxes is not a new issue for the IRS.
@techmom99 – I think that in most places, partial payments for property taxes aren’t accepted. Here in California,we can pay in two installments, fall and spring, but we are told the amount of the installments and I don’t think the assessors will accept any different amounts. In other words, I had the option to pay both installments at once, or I could pay the spring installment early in December (which I did) – but if the amount of the installment is set at $3500, I can’t opt to send in $2000 now and pay the balance of $1500 later.
I see from Googling that partial payment is allowable in New York – so your strategy makes sense there – but it doesn’t work that way in a lot of other places. It’s a matter of administration and accounting – it’s more work to accept partial payments because then the payments have to be tracked and some sort of notice or statement would need to go out to bill for the balance – so logistically there needs to be a system in place to handle that. Plus a lot more potential for disputes and confusion down the line, which for real property could impact title. So easier for their systems to simply run on an either/or, “paid” or “not paid” basis.
This is what the IRS has released. " In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. "
Prepaying is allowed if the taxes were assessed in 2017.
Ok, I thought I was being pretty obviously tongue -in-cheek. I guess not. :-??
In my area, school taxes are assessed as of October 1 and are payable in two portions, due by November and May. If you pay both parts together, you get a small discount. I paid both portions early this year, because I needed to move some money before I filed for FAFSA.
Our general taxes are usually assessed in January and payments are due by February and August. Per Governor Cuomo’s executive order, my town pushed the assessment up and issued it a few days ago. Thus, everyone here knows what their 2018 tax liability is and, because it was assessed in 2017, it should be deductible for this year. I chose to pay one general tax payment in full, another in part (one of the two payments) and to not pay the third. I own two homes, but one of them is bizarrely divided so that I pay 90% on one bill and 10% on the other, which gives me three tax bills. I don’t think that you can do a partial payment, other than the half. For instance, if my tax was $1000, I could pay that or I could pay $500, but I don’t think that I could have paid $300 or $400.
If Cuomo had not made the executive order, I doubt my town would have rushed the assessments and we could not have gotten the deduction.
@notrichenough : Given the number of wacky tax avoidance schemes I’ve seen come through the courts in the last 40 years, it seemed very possible to me that you were serious. Thanks for setting the record straight.
I just want to chime in to a response that was posted last week on this thread. I own a small payroll company. My firm does payroll for about 400 companies, mostly small and medium size businesses. Yes you can tell your payroll person that you want your withholding to change to “whatever” , whenever. It happens all the time. We are in a high tax state. I consider myself a professional in these matters but I must confess that I too am confused. When asked I am telling my clients that they should add back to their withholding the savings they will see on their paycheck after the change. I am a "better safe than sorry " person. I am not a CPA but I plan on meeting with mine very soon so I can get clarification.
@Twinmom -
I decided to increase my 401K contribution by 2% to account for the alleged reduction in tax bracket. I don’t know if this will work but my accountant will let me know. My company hasn’t yet done anything to inform us, but I expect we will hear something soon.
Actually… why wouldn’t that work? Make a large deductible state tax payment now, and have it come back as income at a lower tax rate next year. Are there rules limiting estimated tax payments? Remember, if it is legal, it is do-able. It always bothers me when individuals are saddled with the “moral implications” of financially expedient decisions, while somehow corporations are permitted to make so-called “business decisions” with impunity.
ok, they have thought of that! (of course) publication 17:
I just have this feeling that once the actual 2018 tax year guidelines…and interpretation of this tax reform…come out…there are going to be some things that might not align with what we think this is…now.
I agree with Thumper1 about likely guidelines and interpretations of the new tax laws. It’s frustrating when tax law changes or reinterpretations are retroactive and there’s nothing we can do to lessen their negative impact.
We took only two steps to maximize our 2017 deductions, neither of which will have any real negative effect if we’re wrong. Our property taxes are low, relative to most of the country, and the amount we might have earned on that money had it been left in a money market account until next October (the usual billing time) is a pittance. It seems worth the risk of missing out on the interest to get a deduction that could be worth many times that amount.
The Fidelity charity account that we set up at the 11th hour was funded with stock that has appreciated since dh received it. He’s been unable to exercise options or buy/sell shares for 3/4 or more of each year, which has gotten us burned in the past. I learned to never count on that part of our income so it was painless to donate it. I doubt that such fund’s tax deductible status will suddenly change in 2018.
@NJres --A state income tax payment that is way out of line would trigger an audit. IRS knows the taxpayer income and they know state income tax rates.
IRS update - everyone filing a new W4 may not be necessary:
Oh God. I’ve gotten notices from my pension folks to go online and make a change to my W4 withholding.
Do you suppose the folks in charge of paying all of us have received this info?
If so…why are we being told to do new forms?
This is likely the first SNAFU…I know folks who have already changed their W4 withholding…using the old form.
Wonderful.
The 2018 W4 does not yet exist, so changing existing W4 to withhold less may backfire based on above guidance. I plan to leave it as is, wait until end of first quarter and see how much we are on pace to have withheld by end of year, and then adjust as needed. We will owe this year, so I want to be conservative next year. I’d prefer a $1000 refund to a $1000 balance owed.
How come I feel,like this is all a shot in the dark. That I might get more take home money now… it have no idea really what that will mean when 2018 tax filing time comes.
Call me…disgusted.
It’s kind of a game for me - I like to see how close I can get it. 2016 was close to perfect - within $50 on both Federal and state. But I am really off for 2017 and I don’t really understand why. We lost S2 as a dependent - but I knew that - and we each did new W4 forms and reduced allowances to zero. Our situation is so simple - just W2 income - I cannot understand why we owe so much this year.
^^ because you are so rich? :))