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Just finished making my estimated tax payment for state. Should you do it? Should you do it before the end of this year? [If you don't itemize your deductions or you are dead center in the AMT zone, you can hit delete on this posting and move on].

Generally both federal and state govt's have rules that say that if you withheld as much as last year, then you don't have to pay the penalty. I am simplifying - the rules are more complex - so don't rely on the previous statement. Using those rules, it is easy to fall into the trap of thinking that if I meet those rules, why should I pay my taxes early. Absolutely right on - except when it comes to state taxes.

Based on your income, you could be in one of three regions - 1) pre-AMT, 2) AMT, 3) post-AMT. Since tax deduction does not matter in AMT region, we are most concerned about the other two cases. In both pre-AMT and post-AMT regions of income, your deductions matter. So if you haven't fully paid your state taxes for the year, your deductions are less and you are paying federal taxes on the "reduced deduction". In theory, it can all even out because you pay taxes this year or next year - so you can deduct them somewhere. Except if you are in non-AMT region in 2016 and AMT region in 2017 - then the taxes for 2016 paid in 2017 cannot be deducted. In such a case, you are definitely better off making the estimated tax payment in 2016 so you can get a deduction for it.

To make things a mess, the state estimated tax due date is Jan 17, 2017 (at least for CA). So you may be tempted to make that payment by the state due date. But my understanding is that you have to make that payment in 2016 in order to deduct it in 2016 federal. I was trying to research this and ran into the following (mis)information:

TaxSlayer - estimated taxes

It says, "=12pt...you made an estimated payment of $1,000 in January of 2017. You are now filing your 2016 return. The $1,000 that you paid in January of 2017". [BTW - referring to business versus individual - so don't know if those rules are different].

However, from everything else that I have read (including IRS pubs), I am convinced that you have to make the 4Q state estimated tax payment in 2016 in order to deduct in 2016. Even if I am wrong, all we are talking about is a 17-day difference between the state due date and end of this year. So I decided to make sure I did the payment in 2016.

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In theory, you need to make quarterly tax payments. For me a lot of the variation comes from stock related income and I don't know how much income I have until the books are cooked on the last day. [Kudos to the guys at TD for already posting the gainskeeper gains/loss including my today's transactions]. OK - how do I estimate the taxes? I figured go get the tax software for 2016 and use that. Jumped on the alternative deal site recommendations on the CD ISO method for TaxCut and installed the software. All set to go. Hell NO - the software won't let me install the state software before Jan 5  . What a bunch of dimwits that work at this company that don't realize that people may actually want to do mock taxes before the year end in order to get a more accurate estimate of their tax liability and they are in the tax business   . I ended up using the 2015 tax software and all done with a day to spare.




 

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Yes - that is my understanding as well. You need to make the payment in 2016.

OP, I use TaxAct. It has already released a fully functioning version for personal as well as business taxes.

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Mail the check or pay online today if you want to deduct.
If you deduct state income taxes, state income tax refunds are 2017 taxable income to the extent that the deduction lowered your taxable 2016 income.

Example: If state taxes 1000, state refund 500, itemized deductions exceed standard deduction by 200, then 200 of your refund is taxable.

 

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PrincipalMember said:   What a bunch of dimwits that work at this company that don't realize that people may actually want to do mock taxes before the year end in order to get a more accurate estimate of their tax liability and they are in the tax business   . I ended up using the 2015 tax software and all done with a day to spare.




 

  It's tax preparation software, not tax planning software. They're not dimwits, it's just not what the software is designed for. If you want to plan, set up an excel workbook or hire someone. There may be tax planning software you can purchase also, but again, it's a different type of software. Also, not all states finalize by the end of the year.  

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jetsfan92588 said:   
PrincipalMember said:   What a bunch of dimwits that work at this company that don't realize that people may actually want to do mock taxes before the year end in order to get a more accurate estimate of their tax liability and they are in the tax business   . I ended up using the 2015 tax software and all done with a day to spare.




 

  It's tax preparation software, not tax planning software. They're not dimwits, it's just not what the software is designed for. If you want to plan, set up an excel workbook or hire someone. There may be tax planning software you can purchase also, but again, it's a different type of software. Also, not all states finalize by the end of the year.  

  
Do you work for these guys? Have you tried setting up an excel spreadsheet? It is almost impossible these days - there are so many rules to follow - limits on deductions, some deductions don't make it to the state form, AMT taxes, taxes on LT cap gains, medicare taxes on investment income - just a whole bunch of stuff that you can make a mistake on. So even if the states don't finalize by the year, most of the things don't change from year to year - so update the numbers from one year to next and release a preliminary version and slap "Preliminary" across the form. Once the tax season is done in Apr, these guys have like 8 months to get ready for the next year and the best they can do is to release the software after the year is over - pathetic.

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jetsfan92588 said:   
PrincipalMember said:   What a bunch of dimwits that work at this company that don't realize that people may actually want to do mock taxes before the year end in order to get a more accurate estimate of their tax liability and they are in the tax business   . I ended up using the 2015 tax software and all done with a day to spare.




 

  It's tax preparation software, not tax planning software. They're not dimwits, it's just not what the software is designed for. If you want to plan, set up an excel workbook or hire someone. There may be tax planning software you can purchase also, but again, it's a different type of software. Also, not all states finalize by the end of the year.  

  Huh.?  If you buy a tax preparation software, why do I need another planning software.
  The prep. software should do everything that the planning software will do (and much more).
  If TaxCut forces you to wait till Jan 5, that is ridiculous.
 

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For state income taxes, I simply estimate $0. i've paid $0 every year since I moved to Texas 23 years ago.

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lonestarguy said:   For state income taxes, I simply estimate $0. i've paid $0 every year since I moved to Texas 23 years ago.
  
You make up for it by paying one of the highest property tax in the nation.

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lonestarguy said:   For state income taxes, I simply estimate $0. i've paid $0 every year since I moved to Texas 23 years ago.
  
I moved from Austin(TX) to CA several years ago. I got a 40% raise - pays for my increased mortgage and state taxes several times over.

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PrincipalMember said:   
jetsfan92588 said:   
PrincipalMember said:   What a bunch of dimwits that work at this company that don't realize that people may actually want to do mock taxes before the year end in order to get a more accurate estimate of their tax liability and they are in the tax business   . I ended up using the 2015 tax software and all done with a day to spare.




 

  It's tax preparation software, not tax planning software. They're not dimwits, it's just not what the software is designed for. If you want to plan, set up an excel workbook or hire someone. There may be tax planning software you can purchase also, but again, it's a different type of software. Also, not all states finalize by the end of the year.  

  
Do you work for these guys? Have you tried setting up an excel spreadsheet? It is almost impossible these days - there are so many rules to follow - limits on deductions, some deductions don't make it to the state form, AMT taxes, taxes on LT cap gains, medicare taxes on investment income - just a whole bunch of stuff that you can make a mistake on. So even if the states don't finalize by the year, most of the things don't change from year to year - so update the numbers from one year to next and release a preliminary version and slap "Preliminary" across the form. Once the tax season is done in Apr, these guys have like 8 months to get ready for the next year and the best they can do is to release the software after the year is over - pathetic.

  Haha, I don't. And I have set up a spreadsheet for corporate taxes for my own use, but that's not the point (and this is my career so it's not really a fair comparison). Tax planning involves dynamic changes which need to calculate consistently and would need to disallow typing in certain amounts in various areas to ensure that when you're testing decisions, you're not using amounts that would result in over-contributions, etc... This dynamic calculation and comparison is beyond the scope of the software as it's designed solely to take in the information you input and reproduce it on the forms.

Anyway, there are spreadsheets available for personal income taxes if you're interested in that. An example is excel1040.com (and no, I'm not this guy and don't work for him either). I used it last year just to test TT, and there wasn't a difference that I noticed, but the creator doesn't guarantee accuracy so obviously be cautious.

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avalon6 said:   
lonestarguy said:   For state income taxes, I simply estimate $0. i've paid $0 every year since I moved to Texas 23 years ago.
  
You make up for it by paying one of the highest property tax in the nation.

  That's like saying bonds are overtaxed because you pay ordinary rates on them...  It's still almost nothing when the bonds earn almost nothing.  Same way lots of places have higher property tax rates, but if their property values are much lower like TX, it's still cheap.

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I'll pay about $4300 in local property taxes on 2300 square foot house and a 4/10 acre lot. The house is valued around $210K. i am in a suburb just north of Austin. I'd think a similar sized house / land anywhere in the bay area or LA to San Diego would cost more and have higher taxes. And people in California, still pay income taxes, plus have higher fees on many things. Our car registration is about $65/year for instance. Plus unlike some states, we have no property tax on cars.

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lonestarguy said:   I'll pay about $4300 in local property taxes on 2300 square foot house and a 4/10 acre lot. The house is valued around $210K. i am in a suburb just north of Austin. I'd think a similar sized house / land anywhere in the bay area or LA to San Diego would cost more and have higher taxes. And people in California, still pay income taxes, plus have higher fees on many things. Our car registration is about $65/year for instance. Plus unlike some states, we have no property tax on cars.
  
Personally, the property taxes and vehicle license fee are peanuts compared to state income taxes. For me, the real issue is what kind of salary/job you can get in one location versus the other, how do you like the place (both weather and people around you), and what benefits that the state provides (in my case substantial for my disabled child and I got zero benefits when I was in TX). TX to CA move worked out very well for me - so can't complain about the state taxes.

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