AUBURN — The normal, year-end rush for tax accountants has some added complications this year.
With the new federal tax bill set to take effect Jan. 1, Americans have many questions about how they can utilize tax deductions that will change in 2018.
Currently, individuals are allowed to deduct from their federal taxable income any state and local taxes paid that year, including real estate or property taxes. The new tax bill sets a cap, which only allows people to deduct up to $10,000 in state and local taxes, including property taxes.
That change has led people across the country to prepay their property taxes, hoping to take full advantage of the property tax deduction one last time.
But, with one business day left in 2017, is it worth it for most people to rush to their local town office?
Steve Bosinger, a certified public accountant and partner at Austin Associates in Auburn, said Thursday that clients in recent weeks have had a steady stream of questions and sought clarrification concerning the new tax laws.
“We typically have a fair amount of that at year-end anyway, but this has kind of thrown everything up in the air,” he said, referring to the federal tax overhaul. “There’s an awful lot of cloudiness still.”
After taxpayers had a few weeks with little direction, the Internal Revenue Service issued guidance Wednesday that said only taxes on property assessed and paid in 2017 are deductible this year. That means that those who might benefit from paying early can pay the second half of their 2017 tax bill now, rather than in early 2018 when it is due.
However, eligibility also depends on where you live. According to the IRS, if your municipality has not informed you of what property taxes you owe in 2018, you cannot take advantage of the deduction.
Bosinger said clients’ attention has largely been on the new limitations beginning next year.
“We had been advising people to be prepared to pay those taxes at the end of 2017,” he said.
But, Bosinger said, the worth of prepaying property taxes should be decided on a case-by-case basis. If you do not normally itemize your tax deduction, it will have no benefit for you.
It also likely has no benefit if you pay less than $10,000 in state and local taxes.
According to a Washington Post story from Wednesday, following the IRS directive, people who stand to benefit most are those who itemize their tax deductions and pay substantially more than $10,000 in state and local taxes, including property taxes, and have already received a 2018 property tax assessment.
Judith Gervais, a certified public accountant in Lewiston, said Thursday she is trying to make her advice to clients as simple as possible.
She is telling them that if their deductions are going to be higher than the $10,000 cap, they might want to pay their property tax bill for the second half of 2017 now.
She is also making sure it is clear that they cannot pay any more than the rest of their 2017 tax bill.
“There really isn’t anything else significant that people can do right now,” she said.
Bosinger said confusion remains over how the IRS will determine “what has been assessed and not assessed.” He pointed to news stories about Fairfax County, Va., this week, which received some $16 million in tax payments from people hoping to receive the deduction.
The IRS statement, he said, has now called into question how many of those payments will end up being deductible, because people were also prepaying for 2018 assessments.
“The upshot is, they fast-tracked this legislation through, and it’s sloppy,” he said of the GOP-led tax bill.
While the greatest impact of the changing deduction will likely be felt in places with higher income tax rates and property tax rates, Bosinger said it is not out of the ordinary for people in the Lewiston-Auburn area to reach $10,000 in local and state taxes.
He used an example of someone paying roughly $3,000 per year for property taxes and $7,000 in state income tax. He said most of their clients will be impacted, because the majority have taken advantage of itemized deductions.
Multiple calls and messages to the tax collectors in both Lewiston and Auburn were not returned Thursday.
Bosinger said its been tough trying to give advice lately.
“It’s a difficult environment to give people advice in,” he said. “We can just give them the best guidance we can based on what we know right now.”
Regardless, Bosinger, an Auburn resident, said he paid his property taxes early last week. The line was not long at all, he said.