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  • Prepaying State Taxes

    I just got an email from my CPA recommending that I prepay my 2018 state taxes (California) by the end of this month, and take the deduction in the 2017 year. Is this what most people who live places with high state income taxes are doing, in light of the looming elimination of SALT deductions?

  • #2
    I plan to. Some states won't take a 2018 tax payment. I called Utah. They'll take a payment for 2018, 2019, and 2020 if you want. But I think I'm only going to do 2018.

    This is very controversial, by the way. Not everyone is convinced it is deductible. But I like to call the gray areas in my favor. Sounds like I'd get along well with your accountant.

    And of course, it's still just a bill.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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    • #3




      I just got an email from my CPA recommending that I prepay my 2018 state taxes (California) by the end of this month, and take the deduction in the 2017 year. Is this what most people who live places with high state income taxes are doing, in light of the looming elimination of SALT deductions?
      Click to expand...


      It is tax deductible but you need to ask your CPA to run a tax projection first. We have been running them for all of our physicians. A few, but not many, are able to use the deduction because of the impact on AMT taxes. And it looks like there may be a possibility of up to $10 SALT or property tax deduction in 2018.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4







        I just got an email from my CPA recommending that I prepay my 2018 state taxes (California) by the end of this month, and take the deduction in the 2017 year. Is this what most people who live places with high state income taxes are doing, in light of the looming elimination of SALT deductions?
        Click to expand…


        It is tax deductible but you need to ask your CPA to run a tax projection first. We have been running them for all of our physicians. A few, but not many, are able to use the deduction because of the impact on AMT taxes. And it looks like there may be a possibility of up to $10 SALT or property tax deduction in 2018.
        Click to expand...


        I calculated I could pay several times what I plan to pay before I would have to worry about AMT.  I agree it could be a major issue for some docs. But what is there to lose? Worst case scenario is you lose the interest on that money for a few months. Obviously make sure you still have $10K worth of taxes to deduct, but from the sounds of it, lots of forum readers are paying more than that in property taxes alone.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #5


          I calculated I could pay several times what I plan to pay before I would have to worry about AMT.  I agree it could be a major issue for some docs. But what is there to lose? Worst case scenario is you lose the interest on that money for a few months. Obviously make sure you still have $10K worth of taxes to deduct, but from the sounds of it, lots of forum readers are paying more than that in property taxes alone.
          Click to expand...


          I hadn't thought about AMT. This will be our first year where that might be an issue. I'll have to follow up and see what she says.

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          • #6
            Thanks a lot for giving me something else to worry about guys.

            Illinois....

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            • #7
              i remember last year vaguely that both the state and federal owed me money.  i make payments quarterly for some reason.  anyhow, they both gave me an iou (credit) last year instead of a check.  is that weird?  that's never happened before.

               

               

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              • #8




                i remember last year vaguely that both the state and federal owed me money.  i make payments quarterly for some reason.  anyhow, they both gave me an iou (credit) last year instead of a check.  is that weird?  that’s never happened before.

                 

                 
                Click to expand...


                I just tell them to use it on the next quarterly estimate.

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                • #9
                  Might be a silly question, but how do I run a tentative AMT calculation myself?  Can I just fill out form 6251 with and without "prepaying" 2018 state taxes?  Or do I need to use TT to run an entire sample tax return with and without prepaying taxes.

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                  • #10
                    I used tax caster and just kept bumping up how much state income tax I paid. When it got to the point where I'd paid tax for 2016, 2017, 2018, 2019, and 2020 and I still wasn't getting hit with the AMT, I figured I was probably good.
                    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                    • #11




                      Might be a silly question, but how do I run a tentative AMT calculation myself?  Can I just fill out form 6251 with and without “prepaying” 2018 state taxes?  Or do I need to use TT to run an entire sample tax return with and without prepaying taxes.
                      Click to expand...


                      I did both a full sample return in TT and Taxcaster. Both had similiar AMT estimates. (too close to AMT for us to prepay though, I think, alas).

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                      • #12
                        This apparently will not be permitted as a strategy to reduce 2017 tax burden.

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                        • #13
                          Correct. Note that you can still prepay property taxes, as far as we can tell.
                          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                          • #14
                            Yes - my understanding is that property taxes can be prepaid.

                            I earn too much to be hit by the AMT, and given the balance on my mortgage and prefunded DAF, we will take the standard deduction next year.  Prepaying my 2018 property taxes is a no-brainier for our situation.

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                            • #15
                              My understanding is that you recoup the money you prepay in 2017 as income in 2018 and then get charged the lower tax rate by the Fed in 2018. So if your in the 39.6% tax bracket in 2017 and you prepay 2018, then you will be charged 37% in 2018 when you recoup the money as income? Is that worth it vs. investing the money? How much do you stand to save vs. not gain in the market?

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