PROVIDENCE – The passage of the new tax overhaul has left some taxpayers – both businesses and individuals – seeking to take advantage of the old rules before the new ones kick in.
Companies appear to be delaying bonuses and invoices to the new year in order to reap the benefits of new 2018 tax breaks. For individuals and companies, the lower tax rates planned for 2018 argue for recognizing income next year, not in 2017.
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Alternately, tax-savvy individuals in high tax states, such as Rhode Island, look to capitalize on their last year with larger itemized deductions before the new rules that cap the state and local tax deduction at $10,000 go into effect.
The first thing to note is that the new bill specifically prevents citizens from benefiting from prepaying 2018 state and local income tax. Taxes will take effect as if taxes were paid on the last day of the year taxed, regardless of when the money was paid. In this way, there are no loopholes.
However, the R.I. Division of Taxation is accepting early payment of estimated personal income taxes – that is tax that is based on 2017 income but which can be finalized up until the April 15, 2018, filing deadline – regardless of why someone is filing early payments.
“If a taxpayer – whatever his or her motive – wants to prepay his or her state tax, we will accommodate the taxpayer,” said R.I. Tax Administrator Neena S. Savage.
The R.I. Division of Taxation also posted a blog post on how to approach prepaying taxes.
The guidelines for property tax deductions, however, are less clear in the bill.
The consensus thus far is that 2017 billed property taxes – which could include taxes assessed for the fiscal third and fourth fiscal quarters that end June 30 – may be paid before 2018. Anything beyond the billed property tax will not qualify for a tax deduction in 2017 and therefore will not benefit the taxpayer.
Director of Tax Services at Kahn, Litwin, Renza & Co. Ltd. Paul Oliviera said that while the new bill is unclear on pre-paid 2018 property tax deductions for the tax year 2017, he has been advising his clients to pay for all quarters of property tax that they have been billed for – with the worst-case scenario being that a client has paid their taxes a little early.
Oliviera said that what was clear, however, is that if a taxpayer is paying the alternative minimum tax, prepaying would have no effect on their taxes, as deductions are not allowed in this instance.
If the property tax deduction is in fact, allowed by the Internal Revenue Service for previously billed taxes, the payment would have to be filed or sent by Sunday, Dec. 31.
Oliviera also noted that consulting a tax adviser is the best course of action when considering whether to prepay taxes.
Chris Bergenheim is the PBN web editor.
