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Tax tip: Prepay state and local taxes by year-end

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in Small Business Tax,Small Business Tax Deduction Strategies

In the tax world, the early bird often gets the worm. This is particularly true for property and income taxes imposed by state and local tax authorities.

Strategy: Pay tax installments in December that are due early next year. That will increase the deduction for state and local taxes on your federal 2008 return.

However, don’t prepay these taxes if you expect to owe the AMT for 2008. Reason: State and local taxes are not deductible for AMT purposes.

Tip: The new federal housing law authorizes a new property tax deduction for nonitemizers in 2008.The deduction can be claimed in addition to the standard deduction. But it can't exceed the lesser of $1,000 ($500 for single filers) or the taxes paid for the year. To qualify for this tax break, property taxes must be reported on 2008 returns.

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