Delay your tax payments to save money

December 10, 2021

Did you receive your winter real estate taxes that are due in February?  

Do you have fourth-quarter tax estimates that are ready to be paid?

Stop, don’t pay for those just yet! Wait until the 2022 due date.

Let me explain.  

In November, Congress passed the “Build Back Better Act.” If signed into law as written today, the State and Local Tax (SALT) deduction limitation would increase.

$10,000 is the current SALT deduction limit. Under the new law, it would increase to $80,000.

Keep in mind, the proposed bill isn’t law yet. But why not plan for the possibility?

If your total state and local taxes for 2021 exceed $10,000, then you may be able to reduce your federal income tax liability in 2022 by delaying some of your tax payments until after the new year.

Confused?  

Let’s review an example together.

Let’s say you have the following tax deductions for 2021:

You paid your Summer Real Estate taxes on 7/21	$5,000
Your W2 has State and Local Taxes withheld	$4,000
And, you paid quarterly State and Local tax estimates:
Quarter 1, due 4/21	$1,000
Quarter 2, due 6/21	$1,000
Quarter 3, due 9/21	$1,000
Total paid or withheld through December 2021:	$12,000

In total, you paid $12,000 in state and local taxes, but you will only be able to claim $10,000 of it this year as a deduction. 

Now let’s say you have your 4th Quarter estimate of $1,000 due January 15, 2022 and your Winter Real Estate Tax bill of $2,500, which is due February 28, 2022.  

You might be inclined to pay these amounts in December just to get them off your plate.

But wait! If you do, you will not receive any further deductions on your 2021 tax return because you have already reached the $10,000 maximum.  

Instead, pay them when they are due in 2022 (don’t forget, of course!)

By doing so, you give yourself the possibility of receiving an additional $3,500 in tax deductions on your 2022 return if the new tax bill passes with higher SALT deduction limits. 

To achieve the best possible deduction, it pays to look at the SALT limits. And the timing of when you pay your SALT taxes may save you money.