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Moves Before 12/31 May Cut Your Tax Bill!

Moves Before 12/31 May Cut Your Tax Bill!

| December 13, 2017
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Although it is still too early to tell what the final changes to the tax code will be, it looks like both the House and Senate proposals remain consistent regarding the loss or reduction of deductions for state income taxes and property taxes (as of 12/12/17). This will negatively impact higher income earners in high income tax states like New York and New Jersey to a significant degree.

In light of this pending legislation, you may want to consider "pre-paying" as much of these 2018 tax liabilities as possible before the end of this year. There is no way to tell if there will be provisions in the Bill that anticipate and disallow the "pre-payment" 2017 deduction of these payments, but other than the hassle of coming up with extra cash and getting the payments completed by 12/31, I don't think there is any downside to this move. Be aware, however, it is possible your local taxing authority for property taxes does not allow for the pre-payment of these taxes. Furthermore, I know of no clear IRS ruling that allows or disallows the pre-payment of state income taxes before the liability is actually created. Either way, other than being out the cash for tax liabilities that you know will be coming due in 2018, just the likelihood of of recapturing these soon to be lost deductions may be worth it. 

Implementing this strategy may mean taking your property taxes off escrow (as I initiated today) so you can make a payment directly to your taxing authority instead of through your monthly payments. You can always change back to "escrowing" the taxes into your monthly mortgage payment later. If you are paying estimated state income taxes, if possible, pay as much of the anticipate 2018 liability as possible (mail and postmark before 12/31). Make sure you clearly designate the payment is for your 2018 state income taxes - not the 4th quarter 2017 estimated payment. 

As always, it's always recommended that you consult with your CPA or tax professional regarding anything affecting your income taxes.

Have a great Holiday Season and a Happy New Year!

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