I’m NOT your advisor!

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Let me repeat that.  For most of you, I am not your financial professional.  I suggest you contact your professional to discuss what I am proposing here.

Most of my clients have already been told- thrice- to consider prepaying their property taxes early.  But, that’s only if their state tax and property tax (combined, called SALT) are significantly higher than $10,000 a year.  Because, as you all have heard, the GOP tax (non-reform) bill has been fashioned to benefit those folks living in Red States and harming those living in Blue Ones.

Yes, the new bill limits all state and local taxes to $ 10,000.  That is the combination of state income tax, local income tax, and property taxes.  And, since the bill also eliminated the personal exemptions (roughly $ 4K per dependent, or $ 16 K for a family of four), while change the standard deduction from $ 10K to $ 24 K, that means the family of four just lost $ 2K of deductions.  And, since we’ve called this a “standard deduction”, it’s going to mean (as far as i can tell right now), folks are going to need $ 25K in deductions or more to justify filing a Schedule A.  (That is the form we use to itemize deductions.)

Since SALT is limited to $ 10K, one is going to have to be donating at least $15K to charity- or some combination of horrendous medical expenses (this year set at 7.5% of gross adjusted wages, and 10% hereafter) and charity to be able to itemize.

So, folks like my son, who live in Manhattan, where there is a state tax (fairly steep, because it’s New York) and a local tax (one of the highest local tax rates in the US), all of his taxes won’t be deductible.  And, while I hope he can afford to donate $ 20K to charity someday soon, right now that’s out of the question.  (Come on folks- he’s just 26!)  So, he is taking a big hit on his taxes.

But, back to the property tax issue.  After I advised my clients to prepay their taxes, here’s what the IRS had to say.

Except….  First of all, many jurisdictions are like DC.  When folks came in to prepay their tax (they had to bring in their 2017 bill), DC actually provided a good-faith bill to the taxpayer.  And, they are certain that will hold up to IRS scrutiny.

Prepay Property Taxes

Here’s another fact.  Sending out the tax bill is a mechanical act.  Assessing the property is the key- and crucial- issue.  And, most municipalities and counties have already done that.  The assessment means your property has been evaluated and given a property tax rate, you bill (the mechanical act) will arrive.   I used to get my assessment in October- the year before my tax bill arrives.  I’m sure most of you have received your assessments, too.

Property Tax Bill

But, that’s only part of the story.  Because the bill (it was HR-1; it’s now PL 115-97; a public law) that was signed by TheDonald specifically stated that taxpayers could NOT prepay their state or local INCOME taxes in 2017 and get credit on their taxes.  But, there was ZERO mention of prepayment of property taxes.

Read that again.

That’s right.  The IRS has no standing to interpret the law to disallow the prepayment of real estate taxes.  Because, if Congress had meant that to be the law, they wouldn’t have singled out the exclusion of income tax prepayment.  Or, they could have used the term e.g. (exempli gratia).   Which would mean this was but one example.

Nope.   Congress did NOT exclude the prepayment of real estate property taxes.  So, the IRS can’t make law and say they should have.  Because there’s lots of things the Congress should have done and hasn’t.  That doesn’t make it law.

Yes, I know it’s already Saturday night.  So, I suggest you consider writing your check and getting to a MAIN post office. (For example, in Alexandria, there are some eight post offices.  But, the main post office on Wythe Street is open 24 hours a day.  (No, it’s not manned or womanned- 24 hours a day.   It’s opened for mailing, for weighing, and for folks like me to get my mail.)

Just go to that post office.  With your check- and a copy of your tax notice or assessment- already in an envelope.  Go up to the machine.  Provide the zip code of the taxing authority.  Pay your fee.  Your receipt will prove the time and day of mailing- and the destination zip code (as is shown below).  Voila.

Postal Receipt

If you are still worried (or you use someone else for your tax advice- SHAME ON YOU!), you should double up on your charitable contributions.  And, consider doing so every other year.  So, at least you will have the chance to itemize and have the Federal government share in the cost of your charity.  (You and I still shell out money for charity, but dependent upon your bracket, you may be extending your charity by 24, 35, or 37% (the income tax amount on that charitable donation that itemizing has provided you).

Roy A. Ackerman, Ph.D., E.A.

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7 thoughts on “I’m NOT your advisor!”

  1. I have a tiny bit of knowledge when it comes to taxes, deductions, etc. but all these changes are making my head spin! Thanks for the great explanation Roy.

  2. Well, we got our tax bill (upstate New York) in the mail yesterday. I was one of the lucky ones who was able to look up their taxes online, on a NY website, and get the amount in advance. Yet, after some thought, we decided not to prepay. So many Americans don’t have the money lying around. We could have…we just didn’t.
    Alana recently posted..The Word for 2018

  3. Yes,Roy.you are right.I believe that you are not our financial professional but some how you are our best guideline.I am happy to see this post and I hope it will help me a lot.Thank you.

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