Case Study accompanies blog on “Control the timing of income and deductions to your tax advantage.”
When he filed his 2019 tax return, he was surprised to find that he could not longer deduct all of his state and local income and property taxes. Why? Last year, Justin earned a promotion along with a significant salary increase and bonus, and his state income tax liability increased accordingly. This meant that prepaying his 2019 property tax bill due to early 2o20 hasn’t helped him. He’d always done his income taxes himself, but he decided it was time to consult a tax professional.
She told Justin that, through 2025, under the TCJA, his entire itemized deduction for state and local taxes – including property tax and either income or sales tax – is limited to $10,000 ($5,000 for married taxpayers filing separately). The downside of Justin’s raise and bonus was that his 2019 state and local tax liability exceeded $10,000, so a portion of his liability was no longer deductible.
The tax advisor went on to explain that the limit significantly impacts higher-income taxpayers with large state and local income tax and/or large property tax bills. She advised that Justin take this into account in his income and deductions timing strategies going forward.
Learn more about Tax Strategies for 2020 taxes by downloading our Tax Planning Guide!