Prepayment of SALT Taxes? [State and Local]

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jebmke
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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sat Dec 09, 2017 2:52 pm

abuss368 wrote:
Sat Dec 09, 2017 2:13 pm
One may want to consider the prepayment (if not subject to AMT) with the possible pending changes for next year.
This raises an interesting question. If one pays them this year and they are disallowed as a deduction for 2017, since they were not paid in 2018 would they then not be deductible in 2018?
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Re: Prepayment of SALT Taxes? [State and Local]

Post by boglesmind » Sat Dec 09, 2017 4:44 pm

Chip wrote:
Fri Dec 08, 2017 1:25 pm
bsteiner wrote:
Fri Dec 08, 2017 11:06 am
The only relevant one that I found was TAM 9303003: http://www.legalbitstream.com/scripts/i ... l4d2/2/doc. That one allowed the deduction, though the tax was with respect to the earlier year but otherwise payable in the later year.
Thanks, Bruce.

IANAL, but it seems one particularly relevant bit from the TAM is this:
TAM 9303003 wrote:The fact that the state authorities accepted the advance payment and credited it to the taxpayer's account was determined to be within the rule laid down by the United States Tax Court allowing a deduction for advance payments of state taxes under statutes authorizing the payment.
CA accepts estimated tax payments for 2018. Let's say if one could fairly accurately estimate the 2018 state income tax and pay 50% of that before 31 Dec 2017, where would one enter this in "State and Local Tax Deduction Worksheet" line 22 of which is carried over to Schedule A, line 5?

Line 7 of the worksheet?
"Other amounts paid in 2017 (amended returns, installment payments, etc.)"

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Last edited by boglesmind on Sat Dec 09, 2017 4:49 pm, edited 1 time in total.

DrGoogle2017
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Re: Prepayment of SALT Taxes? [State and Local]

Post by DrGoogle2017 » Sat Dec 09, 2017 4:48 pm

You don’t have to break them out for which year. It’s in Schedule A, 5 or 8. There is no need for worksheet even.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sat Dec 09, 2017 5:10 pm

jebmke wrote:
Sat Dec 09, 2017 3:53 pm
Without a change in the tax law that is absolutely not true. So how can you make that statement? It might not even be true with a change in the tax law since we don't know what is in the law that will have been passed by then - or not.
Sure! In fact the best thing that a smart investor can do at present is assume that the tax law won’t change and do all of his/her planning for the future based on that.
boglesmind wrote:
Sat Dec 09, 2017 4:44 pm
CA accepts estimated tax payments for 2018. Let's say if one could fairly accurately estimate the 2018 state income tax and pay 50% of that before 31 Dec 2017, where would one enter this in "State and Local Tax Deduction Worksheet" line 22 of which is carried over to Schedule A, line 5?

Line 7 of the worksheet?
"Other amounts paid in 2017 (amended returns, installment payments, etc.)"
Taxes paid in 2017 for 2018 would be added to taxes paid in 2017 for 2017. There would not be anywhere a separate entry, afaik.
Which worksheet are you referring to, anyway ?
Also, estimate has to be fair, not accurate. Depending on individual situation the two not being the same may bring some advantages.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sat Dec 09, 2017 5:20 pm

Thesaints wrote:
Sat Dec 09, 2017 5:10 pm
Sure! In fact the best thing that a smart investor can do at present is assume that the tax law won’t change and do all of his/her planning for the future based on that.
You can make and act on any assumption you want. It just can't be discussed here.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by pshonore » Sat Dec 09, 2017 5:25 pm

Thesaints wrote:
Sat Dec 09, 2017 5:10 pm
jebmke wrote:
Sat Dec 09, 2017 3:53 pm
Without a change in the tax law that is absolutely not true. So how can you make that statement? It might not even be true with a change in the tax law since we don't know what is in the law that will have been passed by then - or not.
Sure! In fact the best thing that a smart investor can do at present is assume that the tax law won’t change and do all of his/her planning for the future based on that.
boglesmind wrote:
Sat Dec 09, 2017 4:44 pm
CA accepts estimated tax payments for 2018. Let's say if one could fairly accurately estimate the 2018 state income tax and pay 50% of that before 31 Dec 2017, where would one enter this in "State and Local Tax Deduction Worksheet" line 22 of which is carried over to Schedule A, line 5?

Line 7 of the worksheet?
"Other amounts paid in 2017 (amended returns, installment payments, etc.)"
Taxes paid in 2017 for 2018 would be added to taxes paid in 2017 for 2017. There would not be anywhere a separate entry, afaik.
Which worksheet are you referring to, anyway ?
Most software wants details entered on a worksheet. I don't believe TT allows input on line 5 of Sched A (unless you want to mail it in; no e-file). Looks like TT only allows input for 2016 and 2017 estimated taxes paid in 2017 unless you use Line 7 which look like a catchall and may not be correct. Remember TT would have to split out the 2018 payment when doing your State return (unless you want it refunded next April)
Last edited by pshonore on Sat Dec 09, 2017 5:28 pm, edited 1 time in total.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sat Dec 09, 2017 5:27 pm

Then the 60c to mail a paper copy may turn out to be the best investment of 2017 :)

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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sat Dec 09, 2017 5:28 pm

pshonore wrote:
Sat Dec 09, 2017 5:25 pm
Most software wants details entered on a worksheet. I don't believe TT allows input on line 5 of Sched A (unless you want to mail it in; no e-file). Looks like TT only allows input for 2016 and 2017 estimated taxes paid in 2017 unless you use Line 7 which look like a catchall and may not be correct
Also, if you just put it in somewhere like this, it might get lumped in with the 2017 payments and refunded on the state return. If it shows up on the 1099-G that would not be an optimal outcome for this strategy.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sat Dec 09, 2017 5:42 pm

jebmke wrote:
Sat Dec 09, 2017 5:28 pm
pshonore wrote:
Sat Dec 09, 2017 5:25 pm
Most software wants details entered on a worksheet. I don't believe TT allows input on line 5 of Sched A (unless you want to mail it in; no e-file). Looks like TT only allows input for 2016 and 2017 estimated taxes paid in 2017 unless you use Line 7 which look like a catchall and may not be correct
Also, if you just put it in somewhere like this, it might get lumped in with the 2017 payments and refunded on the state return. If it shows up on the 1099-G that would not be an optimal outcome for this strategy.
Are we talking of federal, or CA tax filing ? The fedearl government won’t refund you extra state tax paid and CA knows which year you paid for.
Assuming I paid 6k in state withholdings for 2017 and made a 5k estimated payment for 2018, I’ll report 11k on schedula A and 6k on the CA tax form where it asks how much tax one has paid already for the year.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sat Dec 09, 2017 5:44 pm

State

You would need to make sure it doesn't appear on the state return. Most tax software will drop the State estimated payments entered on the Federal return to the state return. Just need to make sure that the state return doesn't have anything that should not be refunded.

Edit - I just entered a dummy number in HRBlock and I put it in local taxes; I don't think that value would fall to the state return but since I can't see the state returns yet, I can't verify. It does get combined with the state estimates and is part of the single entry on the Schedule A.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sat Dec 09, 2017 5:50 pm

If I don’t write it in, it’t won’t appear. That much is certain.
Let me rephrase my consideration about the cost of first-class stamps: The price for the 2017 edition of Turbo-tax may turn out to be thousands of dollars for some.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sat Dec 09, 2017 5:53 pm

Thesaints wrote:
Sat Dec 09, 2017 5:50 pm
If I don’t write it in, it’t won’t appear. That much is certain.
True.

As I have indicated before, it would probably be a last resort pull forward for me. Other bunching items gain me benefit on my state return whereas this would not. Best of luck.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by DrGoogle2017 » Sat Dec 09, 2017 6:11 pm

Thesaints wrote:
Sat Dec 09, 2017 5:27 pm
Then the 60c to mail a paper copy may turn out to be the best investment of 2017 :)
I never do efile anyway.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Leesbro63 » Sat Dec 09, 2017 6:13 pm

I just played with Turbotax too. It appears that you have to make TT FEDERAL think that you made the 2018 state income tax prepayment as being FOR your state for tax year 2017 (even though it's for 2018). Then when you do the state return, you need to remove that amount so that your 2017 state return doesn't think your 2018 prepayment is to be applied to 2017 and doesn't know about it. Then next year when you do taxes, you will need to do the reverse. Be sure to add the 2018 prepayment to your state tax estimates paid but delete it so as not to deduct it from 2018 Federal (assuming that such deductions might still be allowed).
Last edited by Leesbro63 on Sat Dec 09, 2017 6:51 pm, edited 1 time in total.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by mcraepat9 » Sat Dec 09, 2017 6:57 pm

I've been playing with Turbotax. The very short answer that seems to be the case for me, is that if you are subject to AMT solely because of SALT deductions, I'm not sure that prepaying 2018 taxes (assuming it can be done) helps much. FWIW, I am I have an AGI of ~$400,000 and deductible SALT taxes of around $38,000. Has anyone with similar stats come to the same conclusion (or determined that I've gone awry)?
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Re: Prepayment of SALT Taxes? [State and Local]

Post by boglesmind » Sat Dec 09, 2017 7:37 pm

Leesbro63 wrote:
Sat Dec 09, 2017 6:13 pm
I just played with Turbotax too. It appears that you have to make TT FEDERAL think that you made the 2018 state income tax prepayment as being FOR your state for tax year 2017 (even though it's for 2018). Then when you do the state return, you need to remove that amount so that your 2017 state return doesn't think your 2018 prepayment is to be applied to 2017 and doesn't know about it. Then next year when you do taxes, you will need to do the reverse. Be sure to add the 2018 prepayment to your state tax estimates paid but delete it so as not to deduct it from 2018 Federal (assuming that such deductions might still be allowed).
Thank you. I was afraid of this. For 2017, there appears to be a workaround - don't know if it is kosher. To make TurboTax do the expected thing, specify the 2018 CA estimated tax payment in line 7 of "State and Local Tax Deduction Worksheet" (you have to enter forms mode to do this). This carries over correctly to Line 5 of Schedule A but is not treated as 2017 CA income tax payment. Of course the alternative is to do Federal and state returns separately as Leesbro63 says. In any case, one needs to remember the 2018 CA Estimated tax payment when doing 2018 CA return.

Edit: BTW, I too file paper returns only. No e-file ever. I read somewhere (Fortune or some such magazine, not some random internet site) that IRS uses legacy systems for manual (or semi-automated using scans) data entry of paper returns and the legacy systems (apparently extremely old, pre-dates internet :-) are not connected to internet. The IRS systems that handle e-file are newer systems, by necessity, and are connected to the internet.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by boglesmind » Sat Dec 09, 2017 7:46 pm

mcraepat9 wrote:
Sat Dec 09, 2017 6:57 pm
I've been playing with Turbotax. The very short answer that seems to be the case for me, is that if you are subject to AMT solely because of SALT deductions, I'm not sure that prepaying 2018 taxes (assuming it can be done) helps much. FWIW, I am I have an AGI of ~$400,000 and deductible SALT taxes of around $38,000. Has anyone with similar stats come to the same conclusion (or determined that I've gone awry)?
Not in that AGI range but same effect for me in 2015 and 2016 -- SALT deductions didn't help at all due to AMT. The upshot is that state tax refunds in subsequent years were not taxed as income since I had to pay the same federal taxes with or without the SALT deductions. Turbotax filled out "State and Local Income Tax Refund Worksheet" and Form 1040 Line 10 came out to 0.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by eye.surgeon » Sat Dec 09, 2017 7:58 pm

Similar question-- wouldn't those subject to AMT be better off NOT pre-paying property tax and state income tax in 2017, given that the AMT is likely to go away in 2018 thus allowing deductions in 2018 that would have been negated by AMT in 2017?
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sat Dec 09, 2017 8:01 pm

Definitely. Although the ability of deducting may be going away as likely as the AMT will.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by mcraepat9 » Sat Dec 09, 2017 8:15 pm

eye.surgeon wrote:
Sat Dec 09, 2017 7:58 pm
Similar question-- wouldn't those subject to AMT be better off NOT pre-paying property tax and state income tax in 2017, given that the AMT is likely to go away in 2018 thus allowing deductions in 2018 that would have been negated by AMT in 2017?
Interesting thought. I think the problem I have under that scenario (and almost everyone I know has the same problem) is that if they are doubling the standard deduction and eliminating SALT deduction (or capping it at some number below the standard deduction), then it's hard to fathom ever itemizing deductions again. I am re-upping my DAF contributions this year, since I cannot imagine I would be itemizing in the foreseeable future if SALT deductions are gone.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by MisterBill » Sat Dec 09, 2017 10:53 pm

This thread got me to thinking about my situation. I retired at the end of August but have a large estate capital gain that I need to pay taxes on this year. I'd already determined (thanks to a thread I created here) that I only need to worry about paying the full amount of my 2016 Federal income tax (which is more I've paid, since I only worked 2/3 of the year) in order to avoid a penalty on my 2017 taxes, and then just worry about paying the rest of the taxes next year. I had not thought about state taxes, but I'm now thinking that it makes sense to pre-pay what I think I will owe to NY this year, including the capital gain. That way I can take advantage of the state tax deduction in 2017 while it's worth more, since my 2018 taxable income is likely to be much less than 2017 due to retirement and no estate capital gain (plus the whole question of deductibility in 2018).

I was already planning to pre-pay my local property taxes that are due in January, that's a no-brainer.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Chip » Sun Dec 10, 2017 6:38 am

pshonore wrote:
Sat Dec 09, 2017 5:25 pm
Most software wants details entered on a worksheet. I don't believe TT allows input on line 5 of Sched A (unless you want to mail it in; no e-file). Looks like TT only allows input for 2016 and 2017 estimated taxes paid in 2017 unless you use Line 7 which look like a catchall and may not be correct. Remember TT would have to split out the 2018 payment when doing your State return (unless you want it refunded next April)
I think the simplest thing to do in TT that will make both the fed & state returns accurate is to enter the state estimated tax payment for 2018 on Line 3 of the TT SALT deduction worksheet. This line is "2016 state estimated taxes paid in 2017". This will transfer to Schedule A, Line 5 of the federal return but will not transfer to the 2017 state return.

To actually get that entry on Line 3 without an override requires entering the value on Line 22 of the "Tax Payments Worksheet". This line is labeled "2016 estimated tax paid after 12/31/16".

The estimated payments in 2017 for 2017 state income taxes would still be on Line 2 of the SALT deduction worksheet, also carrying over from the Tax Payments Worksheet.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Biglaw Investor » Sun Dec 10, 2017 6:49 am

mcraepat9 wrote:
Sat Dec 09, 2017 6:57 pm
I've been playing with Turbotax. The very short answer that seems to be the case for me, is that if you are subject to AMT solely because of SALT deductions, I'm not sure that prepaying 2018 taxes (assuming it can be done) helps much. FWIW, I am I have an AGI of ~$400,000 and deductible SALT taxes of around $38,000. Has anyone with similar stats come to the same conclusion (or determined that I've gone awry)?
I'm in the same boat. Subject to AMT because of the SALT deductions such that prepaying 2018 taxes doesn't help.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by mikep » Sun Dec 10, 2017 9:48 am

In H&R block at home deluxe, there's a checkbox for 'other".

- Other state income taxes paid in 2017 not already covered

I think that is the best category for 2018 estimates.. anything there shouldn't show up on the state return. You could be paying them for 2018, 2016 or even from an audit in 2015 for instance. Although, I don't have the state module yet so can't verify for sure.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by abuss368 » Sun Dec 10, 2017 9:54 am

Biglaw Investor wrote:
Sun Dec 10, 2017 6:49 am
mcraepat9 wrote:
Sat Dec 09, 2017 6:57 pm
I've been playing with Turbotax. The very short answer that seems to be the case for me, is that if you are subject to AMT solely because of SALT deductions, I'm not sure that prepaying 2018 taxes (assuming it can be done) helps much. FWIW, I am I have an AGI of ~$400,000 and deductible SALT taxes of around $38,000. Has anyone with similar stats come to the same conclusion (or determined that I've gone awry)?
I'm in the same boat. Subject to AMT because of the SALT deductions such that prepaying 2018 taxes doesn't help.
My point earlier was that because of possible changes, it appears that we may lose this deduction in 2018.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sun Dec 10, 2017 9:56 am

I thought I raised this question before but could not find it. Apologies if this is a repeat.

If one pays and deducts the 2018 estimated tax in 2017 and the deduction is subsequently disallowed, how would this affect the ability to deduct it in 2018? Normally the requirements for a deduction are that the tax must be paid in the tax year when the deduction is taken.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Chip » Sun Dec 10, 2017 10:01 am

jebmke wrote:
Sun Dec 10, 2017 9:56 am
If one pays and deducts the 2018 estimated tax in 2017 and the deduction is subsequently disallowed, how would this affect the ability to deduct it in 2018? Normally the requirements for a deduction are that the tax must be paid in the tax year when the deduction is taken.
In my opinion this would fall into the Catch-22 category. I can imagine the IRS saying something like this:

"You can't deduct 2018 estimated state income taxes paid in 2017 on your 2017 return because of XXXXXX."

"You can't deduct 2018 estimated state income taxes paid in 2017 on your 2018 return because you are a cash-basis taxpayer. Only payments made in 2018 are deductible on your 2018 return."

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Re: Prepayment of SALT Taxes? [State and Local]

Post by abuss368 » Sun Dec 10, 2017 10:03 am

Chip wrote:
Sun Dec 10, 2017 10:01 am
jebmke wrote:
Sun Dec 10, 2017 9:56 am
If one pays and deducts the 2018 estimated tax in 2017 and the deduction is subsequently disallowed, how would this affect the ability to deduct it in 2018? Normally the requirements for a deduction are that the tax must be paid in the tax year when the deduction is taken.
In my opinion this would fall into the Catch-22 category. I can imagine the IRS saying something like this:

"You can't deduct 2018 estimated state income taxes paid in 2017 on your 2017 return because of XXXXXX."

"You can't deduct 2018 estimated state income taxes paid in 2017 on your 2018 return because you are a cash-basis taxpayer. Only payments made in 2018 are deductible on your 2018 return."
This is my understanding as well.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sun Dec 10, 2017 10:08 am

Chip wrote:
Sun Dec 10, 2017 10:01 am
jebmke wrote:
Sun Dec 10, 2017 9:56 am
If one pays and deducts the 2018 estimated tax in 2017 and the deduction is subsequently disallowed, how would this affect the ability to deduct it in 2018? Normally the requirements for a deduction are that the tax must be paid in the tax year when the deduction is taken.
In my opinion this would fall into the Catch-22 category. I can imagine the IRS saying something like this:

"You can't deduct 2018 estimated state income taxes paid in 2017 on your 2017 return because of XXXXXX."

"You can't deduct 2018 estimated state income taxes paid in 2017 on your 2018 return because you are a cash-basis taxpayer. Only payments made in 2018 are deductible on your 2018 return."
I think you are correct. Always good to look for the "what could possibly go wrong" scenario. :P
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Re: Prepayment of SALT Taxes? [State and Local]

Post by MikeG62 » Sun Dec 10, 2017 10:49 am

Interestingly, my state's (NJ's) online system does not offer the ability to make a payment for 2018 "yet". However, I found the NJ1040ES for 2018 online (see below):

http://www.state.nj.us/treasury/taxatio ... 40es18.pdf

What I wonder is whether NJ will actually apply the payment to 2018 if it is paid 4 months early. Clearly the form states it is for 2018, but whether the person processing the payment actually applies it that way is the question. Perhaps I could drive it down to the state office and see if I can get some assurance from the window clerk that it will be processed as a 2018 prepayment.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Leesbro63 » Sun Dec 10, 2017 11:00 am

It’s actually only 3 weeks early. Don’t confuse deadline with first allowable date.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by MikeG62 » Sun Dec 10, 2017 11:04 am

Leesbro63 wrote:
Sun Dec 10, 2017 11:00 am
It’s actually only 3 weeks early. Don’t confuse deadline with first allowable date.
True, but who would pay the tax in early January when it is not due until April 17? Assuming few if anyone, then there is the risk it gets misapplied despite using the 2018 voucher.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Leesbro63 » Sun Dec 10, 2017 12:28 pm

MikeG62 wrote:
Sun Dec 10, 2017 11:04 am
Leesbro63 wrote:
Sun Dec 10, 2017 11:00 am
It’s actually only 3 weeks early. Don’t confuse deadline with first allowable date.
True, but who would pay the tax in early January when it is not due until April 17? Assuming few if anyone, then there is the risk it gets misapplied despite using the 2018 voucher.
But the risk is minimal. The worse thing that can happen is it gets applied to your 2017 state tax and you get a state tax refund in April and have Federally taxable income of that amount in 2018. You lose nothing (unless you'll be in a much higher Fed tax bracket in 2018) for trying but could gain a valuable deduction that may not be available going forward. I will add a "sticky" note to my 2018 State tax coupon "Please be sure to apply to tax year 2018, NOT 2017".

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Re: Prepayment of SALT Taxes? [State and Local]

Post by MikeG62 » Sun Dec 10, 2017 1:06 pm

Leesbro63 wrote:
Sun Dec 10, 2017 12:28 pm
MikeG62 wrote:
Sun Dec 10, 2017 11:04 am
Leesbro63 wrote:
Sun Dec 10, 2017 11:00 am
It’s actually only 3 weeks early. Don’t confuse deadline with first allowable date.
True, but who would pay the tax in early January when it is not due until April 17? Assuming few if anyone, then there is the risk it gets misapplied despite using the 2018 voucher.
But the risk is minimal. The worse thing that can happen is it gets applied to your 2017 state tax and you get a state tax refund in April and have Federally taxable income of that amount in 2018. You lose nothing (unless you'll be in a much higher Fed tax bracket in 2018) for trying but could gain a valuable deduction that may not be available going forward. I will add a "sticky" note to my 2018 State tax coupon "Please be sure to apply to tax year 2018, NOT 2017".
That is a good suggestion Leesbro63 - may use a yellow highlighter to bring attention to the "2018" on the voucher as well.

I think I will mail it in too as that way it will get to the people who are accustomed to handling the estimated tax payments versus risk it getting messed up by a CS rep at the local branch office (or as the state calls them, regional information centers).
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Re: Prepayment of SALT Taxes? [State and Local]

Post by LadyGeek » Sun Dec 10, 2017 1:37 pm

MikeG62 wrote:
Sun Dec 10, 2017 1:06 pm
Leesbro63 wrote:
Sun Dec 10, 2017 12:28 pm
...I will add a "sticky" note to my 2018 State tax coupon "Please be sure to apply to tax year 2018, NOT 2017".
That is a good suggestion Leesbro63 - may use a yellow highlighter to bring attention to the "2018" on the voucher as well.

I think I will mail it in too as that way it will get to the people who are accustomed to handling the estimated tax payments versus risk it getting messed up by a CS rep at the local branch office (or as the state calls them, regional information centers).
No human will ever see modifications, the process is completely automated. The computer reading those receipts only knows to look for numbers in the right box. Extra text is ignored.

I strongly recommend contacting the state for the proper procedure to apply your taxes to the right year.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Leesbro63 » Sun Dec 10, 2017 3:50 pm

LadyGeek wrote:
Sun Dec 10, 2017 1:37 pm

No human will ever see modifications, the process is completely automated. The computer reading those receipts only knows to look for numbers in the right box. Extra text is ignored.

I strongly recommend contacting the state for the proper procedure to apply your taxes to the right year.
Good point. But I think it's state dependent. It might be that a sticky note causes an automated payment to kick out for a human to examine. Sort of like the opposite of what we USUALLY want regarding taxes.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Leif » Sun Dec 10, 2017 5:20 pm

I read the link in the second post by LadyGeek from TurboTax. That says prepaying the state tax is deductible in the current year. However, what I did not see (or missed), in this thread is what happens if the state income tax becomes non-deducible (for whatever reason) in the following year. It seems really problematic at that point. It seems to me the worst case might be that deduction is disallowed and penalty and interest is applied due to underpayment of federal taxes.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sun Dec 10, 2017 5:35 pm

areyou referring to a change in the tax law, or to your mistake ?

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Re: Prepayment of SALT Taxes? [State and Local]

Post by abuss368 » Sun Dec 10, 2017 5:56 pm

Leif wrote:
Sun Dec 10, 2017 5:20 pm
I read the link in the second post by LadyGeek from TurboTax. That says prepaying the state tax is deductible in the current year. However, what I did not see (or missed), in this thread is what happens if the state income tax becomes non-deducible (for whatever reason) in the following year. It seems really problematic at that point. It seems to me the worst case might be that deduction is disallowed and penalty and interest is applied due to underpayment of federal taxes.
This is what I wrote in earlier posts. I noted to the effect if there are “changes” next year one may not be able to deduct at all and will have paid early. Political points are not allowed so I carefully choosing my words!
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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Sun Dec 10, 2017 5:58 pm

I think the worst case might be taking the deduction in 2017, having it disallowed and be unable to take a (still permitted) deduction in 2018 because the tax was paid in 2017.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sun Dec 10, 2017 7:31 pm

jebmke wrote:
Sun Dec 10, 2017 5:58 pm
I think the worst case might be taking the deduction in 2017, having it disallowed and be unable to take a (still permitted) deduction in 2018 because the tax was paid in 2017.
I’m pretty sure IRS cannot disallow it in both years.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Leif » Sun Dec 10, 2017 8:28 pm

abuss368 wrote:
Sun Dec 10, 2017 5:56 pm
I noted to the effect if there are “changes” next year one may not be able to deduct at all and will have paid early.
Paid early, to my mind, as not as bad as having the deduction in 2017 disallowed and having to pay interest and penalties for underpayment of my 2017 taxes. The risk, to me, seems too great. I think I'm probably on safe ground in paying my Jan. 15 estimated in December, and perhaps even upping the estimated a bit. I expect a lower tax rate for 2018 (assuming current tax law), so adding an overpayment back in on my 2018 taxes would not be a problem.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by MarkNYC » Sun Dec 10, 2017 9:16 pm

Thesaints wrote:
Sun Dec 10, 2017 7:31 pm
jebmke wrote:
Sun Dec 10, 2017 5:58 pm
I think the worst case might be taking the deduction in 2017, having it disallowed and be unable to take a (still permitted) deduction in 2018 because the tax was paid in 2017.
I’m pretty sure IRS cannot disallow it in both years.
If the 2018 tax is paid in 2017, it absolutely cannot be deducted in 2018. If the IRS finds reason to deny the deduction for 2017 then the 2017 payment cannot be deducted at all.

I think Chip's various posts above have presented a good case for the allowance of the deduction in 2017, assuming the state allows the prepayment and the amount paid is a good faith estimate. I will add one more thing that strengthens the argument, which is the language of the law itself, in this case Internal Revenue Code Section 164(a)(3):

"Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued: state and local, and foreign. income, war profits and excess profits taxes." The section provides no limitation on the year(s) FOR which the tax is paid.

The IRS could challenge the deduction, and it's possible the court would rule in favor of the IRS, but I would be surprised given the specific language of the law.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sun Dec 10, 2017 10:25 pm

MarkNYC wrote:
Sun Dec 10, 2017 9:16 pm
Thesaints wrote:
Sun Dec 10, 2017 7:31 pm
jebmke wrote:
Sun Dec 10, 2017 5:58 pm
I think the worst case might be taking the deduction in 2017, having it disallowed and be unable to take a (still permitted) deduction in 2018 because the tax was paid in 2017.
I’m pretty sure IRS cannot disallow it in both years.
If the 2018 tax is paid in 2017, it absolutely cannot be deducted in 2018. If the IRS finds reason to deny the deduction for 2017 then the 2017 payment cannot be deducted at all.
Than it would be a ruling against the existing law, which says state taxes are deductible. They can rule in which year you might be allowed to itemize them, but cannot say you can’t never itemize.

For the record, I’m more than reasonably sure one can deduct in 2017. It is the letter of the law, which was written with the opposite case in mind (paying a tax balance in 2018 for the 2017 year taxes), but in a language that also covers the case at hand.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by MarkNYC » Sun Dec 10, 2017 10:41 pm

Thesaints wrote:
Sun Dec 10, 2017 10:25 pm
MarkNYC wrote:
Sun Dec 10, 2017 9:16 pm
Thesaints wrote:
Sun Dec 10, 2017 7:31 pm
jebmke wrote:
Sun Dec 10, 2017 5:58 pm
I think the worst case might be taking the deduction in 2017, having it disallowed and be unable to take a (still permitted) deduction in 2018 because the tax was paid in 2017.
I’m pretty sure IRS cannot disallow it in both years.
If the 2018 tax is paid in 2017, it absolutely cannot be deducted in 2018. If the IRS finds reason to deny the deduction for 2017 then the 2017 payment cannot be deducted at all.
Than it would be a ruling against the existing law, which says state taxes are deductible. They can rule in which year you might be allowed to itemize them...
No, the law only allows for the tax to be a deducttion "for the taxable year during which paid."

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Re: Prepayment of SALT Taxes? [State and Local]

Post by Thesaints » Sun Dec 10, 2017 10:45 pm

MarkNYC wrote:
Sun Dec 10, 2017 10:41 pm
No, the law only allows for the tax to be a deducttion "for the taxable year during which paid."
Ok, then it is deductible in 2017.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by MikeG62 » Mon Dec 11, 2017 9:05 am

LadyGeek wrote:
Sun Dec 10, 2017 1:37 pm
MikeG62 wrote:
Sun Dec 10, 2017 1:06 pm
Leesbro63 wrote:
Sun Dec 10, 2017 12:28 pm
...I will add a "sticky" note to my 2018 State tax coupon "Please be sure to apply to tax year 2018, NOT 2017".
That is a good suggestion Leesbro63 - may use a yellow highlighter to bring attention to the "2018" on the voucher as well.

I think I will mail it in too as that way it will get to the people who are accustomed to handling the estimated tax payments versus risk it getting messed up by a CS rep at the local branch office (or as the state calls them, regional information centers).
No human will ever see modifications, the process is completely automated. The computer reading those receipts only knows to look for numbers in the right box. Extra text is ignored.

I strongly recommend contacting the state for the proper procedure to apply your taxes to the right year.
LadyGeek,

You are correct. Spoke with a rep at my state this morning and the processing of the mail-in voucher is automated.

The good news is my state has available on their web site the 2018 vouchers. So the rep told me to just use the one for April 17, 2018 and it should be picked up correctly and applied to my 2018 taxes.

Now I need to read though the posts above which describe how to get this payment into TT and counted as a 2017 state and local tax payment.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Mon Dec 11, 2017 9:08 am

Thesaints wrote:
Sun Dec 10, 2017 10:45 pm
MarkNYC wrote:
Sun Dec 10, 2017 10:41 pm
No, the law only allows for the tax to be a deducttion "for the taxable year during which paid."
Ok, then it is deductible in 2017.
Probably, yes. You could call the IRS and ask them. I'm sure this has come up before. The phone answer isn't definitive but it might give an indication of how they would treat it if it popped up on an audit flag.
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Re: Prepayment of SALT Taxes? [State and Local]

Post by Allocationist » Mon Dec 11, 2017 9:44 am

I understand the points of view about attempting to pay some or all 2018 State taxes in 2017 as well as the various means to deal with the process in TurboTax. IMO, both of these steps are feasible but I am concerned about the unintended consequences. Please let me explain.

Let's fast forward to 2019 or 2020 when the IRS sends out their "you owe us $xx,xxx in taxes, penalties and interest" letters for 2017 and 2018. Will claiming the 2018 estimated payment in 2017 cause a problem with the IRS because the State reporting documents don't match the modified TurboTax return numbers?

Perhaps I am a bit sensitive as I received one of the IRS computer-generated letters earlier this year. It advised me I owed over $10,000 for the 2015 tax year. The letter raised several issues most of which were based on their document matching program. Fortunately I was able to resolve all concerns and had to pay no additional tax.

It is not clear to me how the States will report 2018 tax payments in 2017. Nor do I understand how the IRS document matching program will compare the State reporting document with the (modified) TurboTax return. Any insights would be appreciated.

This thread has been very useful to me. I appreciate everyone's contributions. Thank you.

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Re: Prepayment of SALT Taxes? [State and Local]

Post by jebmke » Mon Dec 11, 2017 9:57 am

Allocationist wrote:
Mon Dec 11, 2017 9:44 am
It is not clear to me how the States will report 2018 tax payments in 2017. Nor do I understand how the IRS document matching program will compare the State reporting document with the (modified) TurboTax return. Any insights would be appreciated.
I don't think there is any active matching on estimated tax payments. I think the more likely scenario is that the IRS audit filters see a jump of perhaps 2X on the income tax deduction on Schedule A compared to prior year, without any increase in income and kicks out a letter requesting documents supporting the deduction. I have had two Schedule A audits triggered each time by one single entry. In both cases they requested documents supporting all entries on Schedule A. Keep in mind that getting a letter or audit of a schedule isn't that big a deal if the schedule is correct and supporting documents are in order. It can be a bit time consuming to assemble the details but if everything is in order, my experience has been that they sign off without a lot of fuss.

One of mine was a bit out of the ordinary because it wasn't a typical deduction and was quite large (Claim of Right) and it took some time to educate the agent on the relevant code section. The IRS staff are not experts on every nuance of the code and they don't pretend to be. But my general sense is that they are pretty reasonable.
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