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Tax Mo's - Can I prepay California SALT for 2018? 2019?
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Date: December 13th, 2017 8:24 PM Author: boyish school cafeteria Might be willing to give the CA Govt like $200k extra to preserve deductions if I can get credit against 2018 SALT. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34912772) |
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Date: December 13th, 2017 8:56 PM Author: startled exhilarant theater No. There’s a lot of law on stuff like this and it won’t work, you’d be using a method of accounting (deducting in 2017) that doesn’t clearly reflect income. Up to you if you want to play the “audit lottery” though. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34913022) |
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Date: December 14th, 2017 6:10 AM Author: Greedy Sinister Sanctuary Scourge Upon The Earth PwC is suggesting the strategy to its partners and their accounting methods guys think it works. A MWE tax partner has an article that suggests it works - https://www.mwe.com/en/thought-leadership/publications/2017/12/new-salt-implications-proposed-tax-reform-bills. Not sure I agree, but lots of people are going to be doing this. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34915706) |
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Date: December 14th, 2017 6:27 AM Author: startled exhilarant theater Stand by my assessment. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34915717) |
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Date: December 14th, 2017 12:27 PM Author: Greedy Sinister Sanctuary Scourge Upon The Earth I agree with you based on the case I cite below. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917874) |
Date: December 13th, 2017 9:01 PM Author: swashbuckling painfully honest hairy legs one trick you can do is prepay your jan 2018 mortgage in 2017 and get the interest deduction this year. just pushes everything back a month though (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34913064) |
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Date: December 13th, 2017 9:13 PM Author: Tantric tank Aren’t existing mortgages grandfathered in? (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34913173) |
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Date: December 13th, 2017 9:41 PM Author: startled exhilarant theater Yes. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34913414) |
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Date: December 14th, 2017 11:32 AM Author: Gold learning disabled center Yes, but that assumes you would still itemize given the higher standard deduction (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917507) |
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Date: December 14th, 2017 12:31 PM Author: swashbuckling painfully honest hairy legs i meant generally, you can get a month of Jan 2018 interest deduction for your 2017 taxes (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917912) |
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Date: December 14th, 2017 2:31 PM Author: histrionic pearly trailer park Wrong (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919011) |
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Date: December 14th, 2017 2:32 PM Author: swashbuckling painfully honest hairy legs *shrugs* it's what my CPA told me and what ive been doing
why is it wrong? |
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Date: December 14th, 2017 2:37 PM Author: histrionic pearly trailer park I could be wrong. Talking out my ass as usual. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919065) |
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Date: December 14th, 2017 2:46 PM Author: swashbuckling painfully honest hairy legs (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919136) |
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Date: December 14th, 2017 2:35 PM Author: Tantric tank I never thought to do that since I always have it on autopay. Will pay it now!
You just got me an extra $800 refund this year instead of next! Also marginal rates will be lower next year so the refund will be less. I owe you a drink. |
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Date: December 14th, 2017 2:46 PM Author: swashbuckling painfully honest hairy legs (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919135) |
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Date: December 14th, 2017 2:27 PM Author: histrionic pearly trailer park What? Interest accrues over time. You could prepay it, but they wouldn’t give you credit for prepaying it. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34918955) |
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Date: December 13th, 2017 9:01 PM Author: dark adventurous sweet tailpipe juggernaut you would get a refund in the following year for the overpayment which woukd be includable as income on your federal return to the extent you took a deduction for it in the prior year. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34913065) |
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Date: December 13th, 2017 9:03 PM Author: startled exhilarant theater In some places that’s not the case, it would just be held “on deposit” for future liabilities. Even still it wouldn’t work for reasons I mentioned above. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34913085) |
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Date: December 14th, 2017 6:21 AM Author: Greedy Sinister Sanctuary Scourge Upon The Earth https://www.bogleheads.org/forum/viewtopic.php?f=2&t=233726 has an exhaustive discussion of this. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34915713) |
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Date: December 14th, 2017 11:59 AM Author: Tantric tank I’m having trouble finding CA specific info on this. What’s the consensus? I owe $75k in CA taxes this year and likely more for 2018. I’m fine prepaying like $80k for 2018 now if it means I can deduct $150k+ this year (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917692) |
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Date: December 14th, 2017 12:26 PM Author: Greedy Sinister Sanctuary Scourge Upon The Earth Having looked at the issue some more I don't really think it works. https://ustaxcourt.gov/InOpHistoric/HOFFMAN.TCM.WPD.pdf on p. 6-7 addresses the specific case of prepayment of the subsequent year's property tax liability and concludes that because the tax wasn't owed when paid the deduction isn't permissible in the current year. A TCM case isn't binding authority, but it's unhelpful. There's probably a sufficient basis (and safety in numbers) for just taking the position and crossing your fingers on audit though. As to CA specifically, it depends on whether they allow you to make estimated 2018 payments this year - I know that NY does. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917872) |
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Date: December 14th, 2017 12:33 PM Author: Tantric tank CA allows 2018 estimated payments right now...this state is bankrupt and will gladly take your money as early as possible no questions asked. I am also owed a modest CA refund that I can apply to my 2018 liability. I guess the risk is just on IRS audit.
The boglehead thread has somebody quoting the IRS publication :
You should not prepay more than a good faith estimate of your tax liability. From Pub 17: Pub17 Page 152 wrote: Estimated tax payments. You can deduct estimated tax payments you made during the year to a state or local government. However, you must have a reasonable basis for making the estimated tax payments. Any estimated state or local tax payments that aren’t made in good faith at the time of payment aren’t deductible.
Sounds like if I know my tax liability will be at least $75k based on my 2017 liability, I should be fine paying that amount.
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Date: December 14th, 2017 12:38 PM Author: startled exhilarant theater I’m a tax lawyer. This doesn’t work. Even if literally possible you are putting yourself on an accounting method that does not clearly reflect income. This is subject to adjustment, and, potentially, penalties.
Not legal advice* |
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Date: December 14th, 2017 1:02 PM Author: Tantric tank I’m curious why taxes paid and deductions taken have to be an accurate reflection of income made that year? Not challenging you but just wondering. Also, what is the difference between prepayment and applying any overpayment to next year’s taxes? In a normal tax year, I’m owed anywhere from $2-$15k back from CA because my comp is bonus-heavy and I always deduct the entire amount withheld that year. Are you saying I can’t deduct the overpaid amount the same year I paid it because it doesn’t accurately reflect my income?
The MWE article above says as a cash basis taxpayer it would work?
The IRS has not addressed this issue in published guidance, but rulings suggest that a cash-basis taxpayer can deduct state income taxes when paid if the payments are based on a reasonable estimate of tax liability (Rev. Rul. 71-190, 1971-1 C.B. 70; Rev. Rul. 82-208, 1982-2 C.B. 58). Section 461 of the Internal Revenue Code, which generally addresses the timing of deductions, would not seemto apply to this situation. Of course, prepaying state or local income taxes could be done only if it were permitted by the laws of the applicable jurisdiction.
Also, assume there is no tax plan happening, it seems like in any given year, there is no reason you can’t deduct estimated payment of taxes and they keep citing to rev ruling 71-190:
Section 164(a) provides for the deduction of the following taxes paid or accrued within the taxable year: (1) state and local real property taxes, (2) state and local personal property taxes, and (3) state and local income taxes. A payment of estimated income tax pursuant to state law constitutes the payment of a tax within the meaning of § 164(a)(3) when the amount is based on a reasonable, good faith estimate of the taxpayer’s actual tax liability. See Rev. Rul. 71-190, 1971-1 C.B. 70; Rev. Rul. 82-208, 1982-2 C.B. 58. |
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Date: December 14th, 2017 12:32 PM Author: boyish school cafeteria Update. My tax accountant is confident this works (and he is basically always right)). I'm going to pay my estimated 2018 CA state taxes and my second installment of property taxes for 2017-2018 by end of this year. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917917) |
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Date: December 14th, 2017 12:36 PM Author: Tantric tank Awesome. I’m going to check with my accountant today and see if he agrees. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917939) |
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Date: December 14th, 2017 12:37 PM Author: boyish school cafeteria update the thread when you do.
BTW, AMT might eliminate a lot of the benefit, so ask him if it really helps you that much necessarily even if you can. |
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Date: December 14th, 2017 1:18 PM Author: Bronze Trip Psychic Cruise Ship This is my concern, emailing my accountant now. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34918352) |
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Date: December 14th, 2017 2:24 PM Author: Tantric tank My accountant told me a lot of his clients are doing this year due to the tax plan but that prepaying next year’s state taxes and deducting them on this year’s taxes is a strategy that people use for various reasons before and is legal. In fact, he says that taxes are only deductible in the year in which they’re paid, and this includes estimated taxes. So assuming the tax laws aren’t changing, you do not have the option to pay estimated 2018 taxes now and then wait to deduct them on your 2018 return. He says the worst that can happen is that he IRS sends you a letter to show backup documentation that you indeed paid these taxes in 2017.
Also, for property taxes, he says that if you’ve already been assessed a 2018 bill due in 2018 and not in 2017, you cannot deduct the payment of the 2018 bill. You can only deduct an ESTIMATED tax liability or a 2018 property tax bill due in 2017. For example, my property tax bill due in November was for 6 months 12/1/17-5/30/18. I can deduct that one but I cannot deduct the bill due in may for 6/1/18-11/30/18 in 2017 because I have already received this bill and it is not an estimate. He says there is a tax case discussing this specifically.
I can’t deduct property taxes anyway due to AMT. |
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Date: December 14th, 2017 2:58 PM Author: Greedy Sinister Sanctuary Scourge Upon The Earth This doesn't make sense to me. The reason you can't pay and deduct 2018 property taxes in 2017 is that you don't have a liability for those taxes in 2017, and a prepaid estimate of a future liability isn't sufficient for deduction under section 164. This is what the tax court case I cited above concludes. Why would the treatment of 2018 income taxes be different? It's the same code section for both state and local property taxes and income taxes. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919244) |
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Date: December 14th, 2017 3:26 PM Author: Tantric tank I was typing too fast and mixed up the SALT and property tax deductions. He says 164(a)(3) specifically allows for estimated state taxes to be deducted under a good faith reasonable basis whereas164(a)(1) for property tax deductions does not. The estimated taxes does not specify that it has to be estimated taxes for that specific year. So you can’t prepay estimated property taxes either in 2017 for 2018. He says people have used 164(a)(3) to deduct estimated state taxes for the next year forever, it’s just going to be super common this year due to the tax change. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919473) |
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Date: December 14th, 2017 4:33 PM Author: Greedy Sinister Sanctuary Scourge Upon The Earth Section 164 and the regs thereunder don't say anything about estimations and good faith reasonable basis and don't make any distinction between income and personal property taxes, so that Tax Court case is a real problem. The rulings apply the good faith standard to current year - not future year - tax liability. I agree lots of people do it, but the IRS could easily deny the deduction. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34920109) |
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Date: December 14th, 2017 4:45 PM Author: frozen sneaky criminal associate I agree with this analysis 100%.
TIP for all of you taxmos: the best way to go about arguably grey areas like this is to simply do it, give your tax accountant the ol' "wink, wink, nudge, nudge" and let it do. By specifically asking your tax accountant about shit like this, you are constraining your ability to take aggressive positions and, heaven forbid you are actually audited, creating an evidentiary basis for elevated penalties for intentional tax avoidance. The latter is assuming you are not getting a signed CYA position letter from your tax accountant on this position. |
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Date: December 14th, 2017 5:36 PM Author: Tantric tank My accountant pointed me to IRS topic number 503 for deducting “any estimated taxes you paid to state or local governments during the year” and estimated tax payments section in publication 17 for the reasonable and good faith language. He says this is extrapolated from the revenue ruling cited above and this is incontroversial in any other year where a tax change is not coming into effect. Of course he says there is the risk that the IRS figures all the people doing it this year are doing something funky but he’s not too worried because it’d be extremely aggressive of the IRS to step on the toes of states that allow future year tax payments when the law does not limit it to current year estimated taxes. In CA, there’s never any “estimated” property taxes because the bills come out like 9 months in advance. He’s not a very aggressive accountant and due to amt, I can’t deduct a significant amount for 2018. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34920608) |
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Date: December 15th, 2017 5:31 PM Author: Shaky toilet seat pervert I hope you get audited and fucked. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34929706) |
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Date: December 14th, 2017 2:27 PM Author: Lascivious indigo lay black woman just gtfo of cali already. let that shithole burn. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34918965) |
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Date: December 14th, 2017 2:35 PM Author: histrionic pearly trailer park OP is a faggot lib who is against other people’s taxes going down but frantically trying to reduce his own (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34919051) |
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Date: December 15th, 2017 12:12 PM Author: histrionic pearly trailer park Sat on a call in the last 24 hours with a BIG 4 firm. They recommended paying 2018 SALT in 2017 for Californians.
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Date: December 15th, 2017 12:22 PM Author: histrionic pearly trailer park sounds like you can also prepay a reasonable estimate of your income tax. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34927169) |
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Date: December 15th, 2017 5:29 PM Author: boyish school cafeteria isn't that the same thing? (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34929679) |
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Date: December 15th, 2017 8:37 PM Author: histrionic pearly trailer park Lmao yeah was an unnecessary post (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34930831) |
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Date: December 15th, 2017 7:18 PM Author: Supple meetinghouse Always wait until after the bill passes to start talking about loopholes.
https://twitter.com/jimtankersley/status/941811458790383618 |
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Date: December 15th, 2017 8:33 PM Author: Electric ceo That just means you have to pay it before Jan 1 2018. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34930805) |
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Date: December 15th, 2017 8:43 PM Author: Supple meetinghouse https://twitter.com/jimtankersley/status/941836022677102592
No, it looks like they are changing the rules, so the advice you got earlier today would be incorrect. May want to try to cancel your 2018 payment if you can. |
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Date: December 17th, 2017 6:39 PM Author: startled exhilarant theater note that The conference bill specifically states that any pre-payment of taxes prior to December 31, 2017 shall be treated as paid on the last day of the taxable year when the tax is imposed. |
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Date: December 18th, 2017 5:35 PM Author: Beady-eyed box office Prepayment of income taxes. Doen't say anything about prepayment of property taxes. Where have xo Accountingmos come out on whether you can do this if you've already received a bill with a second installment due date in 2018 but that you can pay now if you wish. if you pay now will it count toward 2017? (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34951433) |
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Date: December 18th, 2017 6:34 PM Author: Sable Gaming Laptop Church you can prepay property tax. especially rock-solid if it's paying a bill for property tax accrued in 2017 but only due in 2018. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34951787) |
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Date: December 18th, 2017 5:42 PM Author: boyish school cafeteria yeah, fucking ass holes. The final F U to the states that pay a majority of federal taxes. (http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34951476) |