The new tax bill that takes effect in 2018 raises the standard deduction and caps certain itemized deductions. Therefore, if you will itemize your deduction in 2017, you may want to grab whatever you can this year to get the full value of those deductions. (This assumes you are not subject to AMT.) Here’s a brief summary of your options.
- State and Local Income Taxes. You can’t prepay 2018 state taxes in 2017. However, you should pay all your 2017 taxes in 2017. Specifically, if you make estimated quarterly tax payments, you should makes your 4th Quarter state/local payment by December 31, 2017 rather than wait until the deadline which is usually close to the federal deadline of January 18, 2018.
- Property Taxes. You can’t prepay 2018 property taxes in 2017. However, if you have property taxes based on 2017 assessments (partial or whole), you should make those payments by December 31, 2017. Basically, have you received a bill already? Pay it now. Some counties are actually trying to make things easier for you. See these NYT and WaPo articles for details. Things can get complicated if you usually pay via mortgage escrow.
- Charitable contributions. On a related note, you may want to make your charitable contributions by the end of 2017, as you may not be able to deduct your donations if you will fall under the standard deduction in 2018.
More: IRS Advisory, NY Times, National Law Review
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The property taxes are causing a lot of confusion. My County announced on Tuesday it was allowing residents to pre-pay 2018 taxes by making a payment equal to their 2017 taxes, which amounts to an estimate. On Wednesday, people lined up around the block in a 45-minute line to pay taxes early. Late Wednesday, the IRS released guidance clarifying that, as you said in your post, you need to have received a bill, not an estimate. No luck for people in my County. So, no soup for me, but at least I didn’t wait in line for 45 minutes.
It does seem confusing!
If there is an assessment, you can take it
in my town, they already billed NOV 17, and MAY 18 — but MAY 18 isnt due til MAY 18 — so u can prepay that
Yes, I think it is reasonable that if you received a bill in 2017 based on some part of 2017, you can pay it in 2017 even if the due date is not until later.
I think the IRS is even confused about this one. Causing quite the commotion with all this disallowing of prepayment talk.
not really a tax cut for me. more like a tax increase. bunch of BS from the gop. I pay more so the
wealthy can get a tax cut.
Hey, Jon,
For those who think they can no longer itemize, there will still be some ‘grouping’ possibility. It’s not tough to set up a charitable account thru Schwab or Fidelity, and donate, at the end of 2018 to gain the deduction, but use the account in 2019 to keep continuity for annual donations.
In my case, I’ll still be above the threshold to itemize, but now that I’m retired, I pay my own medical insurance in full. In Dec 2016, I paid the entire 2017 premiums to get over the 10% medical threshold, and will do this again in 2018. In effect, paying early lets me get a 25% ‘refund’ when paying each year had me under the limit to take medical at all.
Never thought of using charitable account for grouping.
Something to research about.
How is this compared to vanguard 2030.. or any target fund for that matter?
I think you meant to comment on my other post, but it is a good question that I have gotten before. I will put it down as a future post to write.
More and more I look at it, with the new tax bill, I think it makes more sense to just pay down the mortgage. With the market this high, and with no deduction benefit, might be better to tackle the 3% in hand than hope for something high from the market. Still debating, anyone in the same boat?
Same situation for me. Interested in others thoughts as well.