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Old 12-21-2017, 02:17 PM   #21
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Any details OldShooter?
Well, I read it in an article a few days ago that seemed authoritative and specifically said there was an IRS opinion that prepayments would not be allowed. So I pushed it out of my mind, hence my post here.

Since I didn't remember where I saw it, though, I just did a Google search and am seeing opinions all over the map. So .... I dunno. Apparently it is settled that you cannot prepay income taxes. I will do some more research as this could be worth several $K to us.
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Old 12-21-2017, 02:21 PM   #22
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OK, maybe I got lucky: Try https://www.cnbc.com/2017/12/18/prep...-gop-bill.html

At the end it says "(Correction: A previous version of this story incorrectly stated that property taxes could not be prepaid.)"

So that is probably the article I read.
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Old 12-21-2017, 02:38 PM   #23
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More: Here is a pdf of the bill: http://docs.house.gov/billsthisweek/...RPT-%20466.pdf

IANAL, but beginning Line 20, Page 87 is apparently the language that forecloses prepayment of income taxes:

87
20 For purposes of subparagraph (B), an
21 amount paid in a taxable year beginning before Jan-
22 uary 1, 2018, with respect to a State or local income
23 tax imposed for a taxable year beginning after De-
24 cember 31, 2017, shall be treated as paid on the last

88
1 day of the taxable year for which such tax is so im-
2 posed.

Similar language in the conference report on pages 606 and 1083

So ... I guess we will prepay our 2018 property taxes which, coincidentally, are about $10K.
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Old 12-21-2017, 02:43 PM   #24
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With respect to income taxes it seems to me to be a gray area.

There seems to be consensus that paying your 2018 state income taxes in 2017 would not be allowed.

From Kitces:

Quote:
In addition, to prevent households from attempting to maximize their state and local tax deductions in 2017 (before the cap takes effect in 2018), the new rules explicitly stipulate that any 2018 state income taxes paid by the end of 2017 are not deductible in 2017 (and instead will be treated as having been paid at the end of 2018). However, this restriction applies only to the prepayment of income taxes (not to property taxes), and applies only to actual 2018 tax liabilities, which means it is still permissible to pay 4th quarter 2017 estimated taxes by the end of 2017 (and not in early January of 2018) to obtain the 2017 deduction. (And in point of fact, there wasn’t much existing authority to support deducting prepayments of income taxes for a future tax year, anyway.)
Also:https://www.journalofaccountancy.com...201718054.html

However, I have estimated state income tax payments that I scheduled long ago based on what I expected to owe but that based on my current view will exceed my state tax obligation. Would this excess be verboten? If so, it would impact my Roth conversion since my itemized deductions would be lower.

I suspect the IRS will take a practical approach to this. If a taxpayer's makes reasonable estimated payments in 2017 then they will be allowed but if they make an oversized estimated payment in December 2017 then all or a portion of it will be denied as an itemized deductions.

So for example, say a taxpayer's state tax bill is usually $4,000 a year and they make 4 $1,000 estimated payments but the actual tax ends up being $3,500. The $500 excess is simply estimated error and legitimately deductible in 2017 and is income in 2018.

OTOH, if under the same fact the taxpayer made a $5,000 estimated payment in December, then at least $4,000 would be disallowed because it was prepayment of 2018 taxes.
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Old 12-21-2017, 02:57 PM   #25
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... OTOH, if under the same fact the taxpayer made a $5,000 estimated payment in December, then at least $4,000 would be disallowed because it was prepayment of 2018 taxes.
IIRC for either feds or state, the extra money is considered to be an overpayment and the taxpayer has the option (at filing time) of receiving a refund or applying it to the next year's taxes. So (IANAL) the overpayment is not considered by the recipient to be a payment of future taxes at the time the taxpayer submits the estimated tax payment. The taxpayer makes that election at filing time in the following year and directs the recipient accordingly. IOW, we're screwed.
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Old 12-21-2017, 03:07 PM   #26
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If we tried to pay property taxes early it wouldn't even get us up to the 2017 standard deduction. Feeling bad that I won't be able to take advantage of this gambit but also glad that we aren't in one of those high property tax / income tax states.
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Old 12-21-2017, 03:08 PM   #27
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Paid second half of 2017 property taxes that were not due till next March. Paid 4th qtr 2017 estimated state taxes not due until April of next year. Paid two years of vehicle registration and ownership tax due in January. Made DAF contribution.
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Old 12-21-2017, 04:14 PM   #28
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I'm not doing anything, because I never have enough deductions to itemize now that I am retired, mortgage free, in a low SALT state, and with what I regard as low taxes already (7% of my AGI last year). I finally dared to try the calculators for the old vs new taxes. It looks like in my case, my taxes under the new rules will be even lower than that, without doing anything at all, bringing them down to about 5% of AGI. But, we'll see. Anyway, any further reduction is almost venturing into the trivial, and it hardly seems worth the effort to lower my taxes further.

Sure makes life simple for me. Wishing you all some productive tax planning this week and next.


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Old 12-21-2017, 04:16 PM   #29
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Originally Posted by OldShooter View Post
IIRC for either feds or state, the extra money is considered to be an overpayment and the taxpayer has the option (at filing time) of receiving a refund or applying it to the next year's taxes. So (IANAL) the overpayment is not considered by the recipient to be a payment of future taxes at the time the taxpayer submits the estimated tax payment. The taxpayer makes that election at filing time in the following year and directs the recipient accordingly. IOW, we're screwed.
Also don't the new regs come into play next year (basically 2 weeks) so these would be last ditch efforts to play by expiring rules?
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Old 12-21-2017, 04:17 PM   #30
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with the new SD I won't itemize in the future. My prop tax = 3k + FTB = 5k .... trying to figure out how to do just the 1040A from now on. So 2017 = prop tax 4.5 (3 pymts) + 5k. I read you can pay prop taxes already billed as in past years just not prepay in income taxes
I read the same thing today: You can prepay and deduct property taxes but not state and local taxes.

I'm prepaying property taxes and doubling up on charitable contributions this year because with the higher SD starting in 2018, I will likely never again be itemizing.
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Old 12-21-2017, 04:50 PM   #31
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... these would be last ditch efforts to play by expiring rules?
Yup.
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Old 12-21-2017, 05:17 PM   #32
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I read that there is an IRS opinion that this won't work.
Reference? I haven't heard that. I own three (count 'em) houses and was planning to pay at least part of next year's taxes on all three.


Edit: Or I would have if any of them had been billed yet. Nothing to pay, so that's one dodge down.
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Old 12-21-2017, 05:23 PM   #33
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Here's a quick video/article I found on the topic: Tax moves to make before 2018 - Video - Personal Finance
They completely missed the concept of future contributions not being deductible due to the lack of itemizing and only focused on the difference in tax rates for the charitable contributions. No mention of DAFs. Of course, the entire thing was only 1:18 long, so maybe I was expecting too much.
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Old 12-21-2017, 05:24 PM   #34
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Reference? I haven't heard that. I own three (count 'em) houses and was planning to pay at least part of next year's taxes on all three.
Read my subsequent posts. I read a CNBC article that had an error in it. I have $10K of property tax prepayments sitting here on my desk ready to go.
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Old 12-21-2017, 05:28 PM   #35
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I'm not doing anything, because I never have enough deductions to itemize now that I am retired, mortgage free, in a low SALT state, and with what I regard as low taxes already
How about medical expenses (premiums, deductibles and co-pays)? We also purchase LTC and those premiums are deductible. Of course, there is a floor of 10% of AGI before deductability can occur.

We are prepaying January's estimated state taxes.
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Old 12-21-2017, 05:36 PM   #36
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Read my subsequent posts. I read a CNBC article that had an error in it. I have $10K of property tax prepayments sitting here on my desk ready to go.
For some reason the whole page didn't load, so I didn't see your subsequent posts. Sorry.

So, those of you that are pre-paying, are you just paying an estimated amount based on this year's bill? Or do your counties show what is due next year? Because mine don't.
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Old 12-21-2017, 05:36 PM   #37
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Paid off one draw on the HELOC. Arguable that it was used for rental expenses, but the rate is now variable and is now over 5 percent.

Paid the second installment of my California property taxes.

Estimated the 2017 state income tax and paid the difference between what was withheld and what I think I will owe.

That's about all I can think of. Even if a sinkhole swallows Washington and the bill is never signed, no big deal.

ETA: Property taxes on the rentals are business expenses and continue to be deductible as such. No prepayment needed.
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Old 12-21-2017, 05:40 PM   #38
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We are donating more heavily than normal.
Planning to do a bigger Roth conversion next year due to the lower brackets below 25%.
Looking forward to using the SD every year, vs every second year, as honestly it was a pain to skip itemizable expenses every other year, and the net effect was pretty small as we have no mortgage.

I am a bit OCD, in that I will go through many steps/clicks/tracking, etc to save $100 off my tax bill, so the bigger SD solves that for me.
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Old 12-21-2017, 05:42 PM   #39
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Transferring appreciated ETF shares to my alma mater. I'll get a 2017 tax deduction. But the college will internally apply half to my 2018 and half to my 2019 pledge. (I had already made my 2017 contribution.)

Edited to add: With new tax law I won't be itemizing going forward.
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Old 12-21-2017, 05:47 PM   #40
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How about medical expenses (premiums, deductibles and co-pays)? We also purchase LTC and those premiums are deductible. Of course, there is a floor of 10% of AGI before deductability can occur.

We are prepaying January's estimated state taxes.
I don't have enough to deduct! I have no deductibles or co-pays with Medicare and my insurance, and premiums for both are small. My state taxes last year were a whopping $667 for the whole year. I do have quarterly estimates automatically deducted from my checking account, to make sure I don't forget to pay them. So anyway, my estimated tax payment for January is just $170, not enough to push my deductions up high enough to itemize. I did my own taxes for 50+ years before I started using TurboTax, and so I am aware that if deductions are not high enough you shouldn't use Schedule A and that is the basis for my decision not to itemize. Right now 10% of my AGI is a whole lot higher than what all possible deductions would add up to.

Just a different tax situation than some have, I guess.
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