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Year End Tax Moves


ETax847

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For anyone else that wants to read directly about what is being asked without searching through the entire conference report for it, that section is in the quote box below (and full report here: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

Quote

SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND LOCAL, ETC. TAXES.

(a) IN GENERAL

—Subsection (b) of section 164 is amended by adding at the end the following new paragraph:

‘‘(6) LIMITATION ON INDIVIDUAL DEDUCTIONS FOR TAXABLE YEARS 2018 THROUGH 2025

.—In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026—

‘‘(A) foreign real property taxes shall not be taken into account under subsection (a)(1), and 8

‘‘(B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 $5,000 in the case of a married individual filing a separate return).

The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.’’.

(b) EFFECTIVE DATE

.—The amendment made by this section shall apply to taxable years beginning after December 31, 2016.

 

 

 

Edited by jklcpa
formatting only, 2nd edit to underline
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Judy, I read that section too and I agree. Plus I have seen tax experts posting the same point.

I do have some clients that I will encourage to make their 4th quarter estimated payments prior to January 1st,

plus other clients who pay their 2017 property taxes 1/3 in February and the last 1/3 in May, who I will encourage 

to pay as much as possible before January 1st.

Myself, I am going to pay both my 2017 and 2018 charitable contributions this month.

 

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Our local property taxes are due 1 January 2018 (for my town, half; for some towns, one quarter).  Except for my clients deep in AMT, most would be paying this month, December 2017.  The tax is for property on the rolls as of 1 October 2017.  So, is that a tax IMPOSED in 2017 allowed to be deducted on our 2017 income tax returns?  What's the definition of Imposed?

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Back to the discussion of state estimates - Now I'm confused; time for more coffee!  

If the 4th quarter 2017 state estimate due by 1/15/18 is paid before 12/31/17, the tax year for which that tax is imposed IS 2017 and IS being paid in the tax year for which it is imposed, shouldn't it still be deductible in 2017 with the way the conference report is worded? 

Ah, I think cbslee was editing his post above to clarify and confirm what I expressed here.

Headed for the coffee pot now. Sorry for my confusion! 

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I have a client who is bugging the snot out of me on what to do.  Last year, AMT and Reg tax were $200 apart.   He has major changes to his income this year, most likely going to be in AMT.   The 10K SALT limit is going to hurt him next year any way he goes about it (Prop taxes will take most of it and CA Taxes will far exceed 10K).   Without current income, I can't tell him if he will be in AMT this year or not, so I can't tell him how much to pay in 2017 for his 4th qtr estimate.   I went with 110% of last year on his es forms to keep him out of penalty, but he wants a better number for the last payment.  

So much for enjoying the holidays before tax season ramps up.   I will be working up estimates for this client.

Tom
Modesto, CA

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"it is impossible to pay the tax on New Years Day since it is a legal holiday."

A check can be used, with a check date of 1/1.  Or if online, payment can be done (or maybe scheduled for) 1/1.

For the possible rule change, for this one, I look at the intent - what the politicians likely intended.  The intent seems to be to keep people who have the means to, from prepaying to squeeze in more deductions before the new limit kicks in.  I have faint memory of a talking head pointing out this item was revenue positive, on purpose, to "pay" for cuts elsewhere.

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2 hours ago, BulldogTom said:

I have a client who is bugging the snot out of me on what to do.  Last year, AMT and Reg tax were $200 apart.   He has major changes to his income this year, most likely going to be in AMT.   The 10K SALT limit is going to hurt him next year any way he goes about it (Prop taxes will take most of it and CA Taxes will far exceed 10K).   Without current income, I can't tell him if he will be in AMT this year or not, so I can't tell him how much to pay in 2017 for his 4th qtr estimate.   I went with 110% of last year on his es forms to keep him out of penalty, but he wants a better number for the last payment.  

So much for enjoying the holidays before tax season ramps up.   I will be working up estimates for this client.

Tom
Modesto, CA

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Just read a commentary on the website Tax Pro Today, that says the the bill specifically prohibits prepaying and deducting 2018 state and local income taxes,

but it does not prohibit prepayment and deduction of 2018 property taxes.

On the other hand, there is an article on the AICPA website that says, there is no authority supporting the prepayment and deduction of any of these taxes.

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I think we're all getting confused about when taxes are imposed and the due date.  For property taxes, if you already have the bill the taxes have been imposed.  You can pay them anytime you want up to the due date.  In our state RE tax bills are sent out July 1.  You can pay them all at once or half by July 31 and half by Jan 31.  In FL, RE tax bills are sent out in November and are due by the end of March.  In both cases, the taxes have been imposed.  I am definitely going to pay my RE bill due in Jan by the end of the year.  After all, I could have paid it all in July if I was so inclined.

As for ES payments, the IRS uses quarters and as far as I know so do the states.  The taxpayer self-assesses his or her tax liability and typically pays it quarterly. Some people make one payment in April so they don't have to remember it three more times.  Some go away for the winter and make their forth-quarter payment in December so it doesn't get forgotten.  The payment is due by the end of the quarter, but that doesn't mean it has to be paid the last day.  It can be paid anytime during the quarter.  Think about it:  If someone makes their 3rd quarter ES on Sept 16, it's applied to the 4th quarter.  Although the tax is self-imposed, I would say it is due anytime during the quarter.  I am making my final state ES payment in Dec, two whole weeks before the due date.

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I agree with what SaraEA said above.

Taking this discussion into the realm of ridiculousness, my state operates on a 6/30 fiscal year and our school and county real est. taxes that were due by 9/30/17 are for the fiscal period 7/1/17 through 6/30/18.  Many years ago I had someone try to tell me that our Sch A deduction for that had to be converted to a calendar year basis. No one here does that, no one, and certainly not for a cash basis individual return.

It's going to be interesting to see how the piggyback states handle their tax law changes to not have a loss of revenue from something like the pass-through deduction.  Also, I know that Delaware tried and failed to scrap the concept of itemizing altogether, but since DE allows itemizing while using the standard for Federal purposes, we will still be calculating Sch As here until the state makes some change to that provision.

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In Cook County Illinois as well as surrounding counties, property taxes are imposed in one year and billed in the subsequent year.  In other words, the taxes imposed for the privilege of liviing in your home for they year 2017 are payable in 2018.  If you sell your home on Dec 31, 2017 you have to provide the purchasers with the money to pay the real estate taxes that YOU incurred during the whole year 2017.  Furthermore, if you were to sell yor home on Dec 31, that payment to the purchasers gets added on to the real estate tax you paid during 2017 to give you a 2017 deduction of two years of tax payments.  Since prepayment is thus required in the case of a sale, I see no reason why prepayment is not an option at any time.  Cook County only allows you to prepay 1/2 of your current tax bill, but the collar counties mostly allow full prepayment of an amount equal to the amount you paid during the current year.

I have advised my non-AMT clients who can afford to do so to prepay as much of their property tax as the county will allow.

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