Tax Cuts and Jobs Act Addresses Prepayment of Taxes

December 18, 2017

By Timothy Speiss and Richard Shapiro

As you are probably aware, the new tax law will limit the deductibility of state and local income and property tax to $10,000 in the aggregate beginning in 2018.  Over recent days there has been a great deal of chatter, public as well as private, regarding the viability of prepaying state and local taxes, this taking place before last minute changes to the bill had been completed.  So, it should come as no surprise that the bill in final form addresses the prepaying of certain taxes.  The Joint Explanatory Statement of the Conference Committee says the following:

“The conference agreement also provides that, in the case of 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, the payment shall be treated as paid on the last day of the taxable year for which such tax is so imposed for purposes of applying the provision limiting the dollar amount of the deduction.  Thus, under the provision, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.” (Bold added)

As to the prepayment of taxes not explicitly covered by this provision, we suggest you contact your EisnerAmper tax advisor. 

About Timothy Speiss

Timothy Speiss is a Tax Partner in the Private Client Services Group and Vice President of EisnerAmper Wealth Planning LLC. He chairs our Asia Practice and is a member of the firm’s community service group, EisnerAmper Cares.

About Richard J. Shapiro

Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has more than 40 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.

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