Tax Mo's - Can I prepay California SALT for 2018? 2019?
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Date: December 14th, 2017 12:33 PM Author: vigorous corn cake
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.
(http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34917924)
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Date: December 14th, 2017 1:02 PM Author: vigorous corn cake
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.
(http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34918204) |
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Date: December 14th, 2017 2:24 PM Author: vigorous corn cake
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.
(http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34918923) |
Date: December 15th, 2017 12:12 PM Author: Supple Adulterous Hall Useless Brakes
Sat on a call in the last 24 hours with a BIG 4 firm. They recommended paying 2018 SALT in 2017 for Californians.
(http://www.autoadmit.com/thread.php?thread_id=3828093&forum_id=2#34927089)
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