Prepayment of state taxes for 2017

Your Guide to State, Local, Federal, Estate + International Taxation

state taxes, tax law, tax reform, TrumpThe Tax Cuts and Jobs Act of 2017 (TCJA) is expected to be signed into law by President Trump before Christmas. The bill either eliminates and/or modifies many of the itemized deductions we currently have – including state taxes.

One of the items that affects many taxpayers and needs to be addressed immediately is the limitation of the deduction for state and local income, sales and property taxes. The deduction for the 2018 tax year is capped at $10,000 in total. This means that taxpayers (who are not in AMT) will want to pay their 2017 state tax liabilities including their 4th quarter state estimated tax payments before December 31, 2017.

There has been some debate up to this point as to whether taxpayers should prepay their 2018 state taxes in 2017 to avoid the limitation on deductibility. However, the bill addresses this potential loophole by throwing in an anti-abuse provision. That provision treats payments made in one tax year (including 2017) with respect to a later tax year as made at the end of the later tax year. So, any prepayment of 2018 state and local taxes in 2017 would not be deductible until 2018.

It is important to stay in contact with your tax professional over the next few weeks and months to stay ahead of any tax planning opportunities.

Stacy Redmond, CPA