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Mon Dec 4, 2017, 10:24 PM

A thought - Prepay state and local income taxes now while you can

In December and you can write them off in 2017.

Just occurred to me. Since any State and Local gets deducted this year, but not next, there is an an opportunity.

If you send in an estimated payment for 2017, an extra large one....you'll get it refunded back in ~April (or not owe as much). However you can deduct it all in 2017.

The refund/reduction in April would normally offset the benefit for 2018, but since 2018 won't allow for state/local deductions, it won't be nullified as usual.

This should also apply for prepaying property taxes if they would normally exceed $10k. Pay them now and get them deducted before the limits set in.

This might be the only way for middle-class to actually benefit from this bill.

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Reply A thought - Prepay state and local income taxes now while you can (Original post)
fescuerescue Dec 2017 OP
onenote Dec 2017 #1
Ms. Toad Dec 2017 #2
fescuerescue Dec 2017 #3
Ms. Toad Dec 2017 #4
fescuerescue Dec 2017 #6
Ms. Toad Dec 2017 #7
mnhtnbb Dec 2017 #8
Ms. Toad Dec 2017 #9
mnhtnbb Dec 2017 #10
Ms. Toad Dec 2017 #11
MiniMe Dec 2017 #5

Response to fescuerescue (Original post)

Mon Dec 4, 2017, 11:04 PM

1. The state tax refund you get in 2018 will be taxable on your federal return in 2018.

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Response to fescuerescue (Original post)

Mon Dec 4, 2017, 11:11 PM

2. That's a risky move.

Assuming there still is a schedule A, If you deduct state and local taxes on schedule A to lower your federal taxes, then don't itemize the next year, you must include the state and local tax refund as income next year.

It is possible that Schedule A will be entirely eliminated (although I don't think so). If it isn't it will likely be treated the same way as choosing to go from itemizing to not (i.e you're just shifting income form this year to the next).

Property taxes and contributions should work - since they don't get included in next year's income if they create a refund this year.

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Response to Ms. Toad (Reply #2)

Mon Dec 4, 2017, 11:22 PM

3. I think the risk is pretty low actually

Worst case is that you are paying your taxes ahead of time and you lose access to the money for ~4 months.

Second worst is that you pay income on the refund, but at the new rates (which stand a chance of being lower). Probably a minor benefit, but a benefit nonetheless.

But there's a likelihood, that since S/I are not longer deductible, refunds on S/I would not be considered taxable income.

In any event, it's just a thought that was worth sharing, and will depend on the details of the bill (of which details seems to be sadly lacking so far)


Finally, I suspect high income folks will be accelerating deductions into this year, and delaying income. That's typical for any year, but you can bet that giving the timing of the bill (December), this will be super charged this year.

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Response to fescuerescue (Reply #3)

Mon Dec 4, 2017, 11:30 PM

4. I've spent a lot of time doing taxes for people who made choices

that benefitted them now (from tax or other perspectives), without recognizing the tax consequences.

I is risky to shift income to another year if you don't recognize that is what you are doing - and don't plan for it.

Your initial suggestion didn't indicate any awareness that the state income tax deductions might be treated as income next year, and taxable.

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Response to Ms. Toad (Reply #4)

Tue Dec 5, 2017, 12:01 AM

6. That's great

Unlike many folks, I find taxes to be really interesting and it sounds like you do as well.

I'm very anxious to get more details about this whole tax bill. It seems like every conversation from the right, as well as the left over simplifies, and cherry picks aspects (usually rumored aspects) they like or dislike about the bill. That's nature of these things I suppose. I don't believe this bill is good for America, but it sure would be nice if we had better information on it.

Your point is well taken though - income shifting should be done with guidance, with the recognition - that next eventually comes

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Response to fescuerescue (Reply #6)

Tue Dec 5, 2017, 12:42 AM

7. They are a nice puzzle.

It's been a while since I got paid to play - but when I did H&R Block revised a couple of their forms because I found errors i the CRUT, for one. (I was looking for a way to be out of the home for a few hours a day when I had a daughter ages 0-5 . . . We mutually used each other - I did good work for them for a pittance; they gave me "free" courses until I qualified to become an enrolled agent. And I got to have fun and some adult time.

Ohio taxes are particularly fun for married couples with very different incomes - I can usually save $500-$1000 by shifting deductions and income around between the couple. Ohio treats the second spouse's income as being earned on top of the first - so unlike the Federal taxes where there is a substantial portion of both spouse's income taxed at the lowest rates, the second spouse's income is taxed at the marginal (Ohio) tax rate - and higher - of the first. Of course, the MFS penalties a the Federal level sometimes throw a monkey wrench into that juggling.

But you're right about the rumored aspects of this tax bill - my "favorite" is that the loss of the deduction for unreimbursed employee business expenses will mean Schedule C businesses will be taxed on gross profits, rather than net. (They aren't saying it that way - but that is the gist of it when they say the are going to lose their business write-offs)

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Response to Ms. Toad (Reply #7)

Tue Dec 5, 2017, 05:11 AM

8. The bill from what I've seen really decimates Sch C

deductions. And takes out home office deductions. My husband ( from whom I recently separated) is a semi retired psychiatrist who sees about 12-15 hours of patients in his home office. I have been trying to get him to fully retire the last couple of years. If these tax changes don't push him into retirement, I'll be surprised. I do our taxes. I told my attorney I'm willing to file jointly this year, but no way next year, especially if he doesn't close his practice.

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Response to mnhtnbb (Reply #8)

Tue Dec 5, 2017, 10:18 AM

9. I believe you are confusing schedule A deductions

With schedule C business expenses.

A schedule C business is just a business that isn't a corporation. What they were decimating were deductions that compete with the standard deduction - which would be a home office deduction for an employee- not one for a business owner.

https://www.inc.com/erik-sherman/stop-panicking-tax-bills-dont-eliminate-your-business-expenses.html

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Response to Ms. Toad (Reply #9)

Tue Dec 5, 2017, 10:31 AM

10. No, I am not confusing Sched A and Sched C

What might be confusing is the reporting on what these guys are actually removing as eligible expenses to deduct from income
generated by his principal business (profession).

In my husband's case, he is able to list his home office expense as a business expense on Sched C (along
with a lot of other business expenses). Will he be able to under a new bill? I don't know. The reporting
isn't clear to me.

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Response to mnhtnbb (Reply #10)

Tue Dec 5, 2017, 10:50 AM

11. If you believe the bill cuts business expenses

You are confusing business expenses schedule C expenses with unreimbursed employee business deductions (schedule A).

Only schedule A deductions (personal expenses an employee incurs that their employer does not reimburse) were cut, not the ordinary operating expenses of a business. Your husband is not an employee -so he does not have unreimbursed business expenses - his expenses are all costs of running a business, that reduce the (taxable) net profit of the business.

Read the article. You are not the only one confused by bad communication about what is in the bill-but believing that the costs of running a business were decimated by this bill is the result of confusing changes to schedule A deductions (slashed) with schedule C costs of running a business (not slashed)

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Response to fescuerescue (Original post)

Mon Dec 4, 2017, 11:59 PM

5. My accountant already told me that

She said to pay whatever taxes you can this year, so I plan on paying my estimated taxes that are due in January in December

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