We're going to cover today how you can get a tax deduction for something
you're already paying with your state taxes,
where in the past you've not been able to get a deduction for that
anyway. So to start with the problem, the problem is that there's a cap
on how much state and local taxes you can deduct on your personal taxes.
That cap changed in 2018, and the max amount you can deduct is $10,000.
So if you have property taxes or state income taxes that you pay and
it's over. Over $10,000, you're not getting any benefit for paying those taxes.
Well, you pay it because you owe it,
but you're not getting any tax deduction for paying the excess over the $10,000.
So here's the solution for that. So after 2018,
some states started to, they started to change some of their laws because the
federal cap, they capped the $10,000 limit,
but some states, they wanted to help get around the limit,
so right now, there's somewhere between 35 and like 34 to 37
states that allow this specific strategy that I'm going to be talking about,
and this is prepaying, the strategy is simply just prepaying your state taxes,
your personal taxes, but paying it through your business.
So if you have a partnership, like an LLC partnership,
or an LLC S corporation, or regular S corporation,
this strategy will work for you, but you need one of those entities.
You need a- pass-through entity. So the strategy is called the pass-through entity tax
payment. And the pass-through entity is a partnership or an S corporation.
So a regular corporation wouldn't work, trust wouldn't work.
So make sure you have one of those entities. First. So the way that
it works. So I'll give you an example of it. So if you have
an S corporation or a partnership and you make a hundred thousand dollars through
that, that company right now as a pass-through entity.
That hundred thousand dollars is going to be passed to you as the owner
on a K-1 and personally, you're going to be paying tax on that hundred
thousand dollars of income. You'll pay federal tax,
you'll pay state tax. And remember, the state tax is going to be cash.
It's going up to that $10,000 limit. And if you're already capped it out
somewhere else, there's no benefit for you paying that. But now,
if you pay it this way, before, it has to be before the end
of the year, and it has to be through your business,
has to be paid by your owner. So,
you might have other state taxes. Your spouse might have other,
have other income, so if you have other income and other taxes,
like state taxes that you can prepay, you can do that through your past
serenity. So this example I'm giving you is prepaying $20,000 of
state taxes. So if you did that, what happens instead of paying tax on
$100,000, like with your S corporation income,
your $100,000 of income comes down by your prepayment of state taxes,
so now it comes down to $80,000.
And you're saving tax because now that $80,000 of income remaining,
it goes to you personally still, goes on a K-1,
you pay tax at the $80,000, you don't have to pay income tax,
federal or state income tax. On that $20,000,
so depending on your tax rate, you might be saving $5,000,
$6,000, $7,000, $8,000 of actual money,
like, actual additional tax because of that deduction.
So to do that, to make sure you do it before the end of
the year, and we're really, we're going off of estimates.
So something to watch out for here. Like your tax return,
we're in 2023, your tax returns haven't been filed.
We don't know how much your state income tax is yet,
but if you look at the prior year, or if you do,
I've talked about the income tax projections there in the Wealth Game Basics and
Wealth Game Alliance, I've got those tax projection worksheets,
I'd go through one of those, just make sure you fill it out and
just get a rough feel for how much tax,
like calculated state tax you might have. So if you're,
you're in Wyoming, Texas, Florida, like a state with no income tax,
this wouldn't work for you. You wouldn't want to prepay state taxes because you
don't have them. But just watch for,
because if you, if you overpay on your taxes,
like specifically in Utah, every state is a little different,
but specifically in Utah, if you overpay on your taxes we
can only carry forward that overpayment for five years.
So there is some risk if you overpay it and you never,
you don't have to use that. Like you didn't actually have state taxes of
that amount. We wouldn't actually get the deduction or you actually.
Wouldn't get the credit and then the credit could expire after five years.
So just watch for that. But remember, when you pay it through,
but if you've got to pay it through your business, every state has a
specific website and I've got these I've got these websites.
If you go, you got to go to the Beeman and Company website.
So the CPA firm website, right on the home page,
right at the top, I've got a, it's a,
it just says, don't forget state tax prepayment deduction,
but deduction. Bye-bye. Right at the top, you'll see it there,
or if you're listening to it later, we, we take this down.
It's beemintcompany.com forward slash prepay dash state dash
taxes. We have the United States map.
All the links to all the different states. Right now,
it's 36 states that allow the deduction,
and we've got all the links to that and how to file it online.
Again, it's gonna be pretty basic, but you just, as long as you prepay
the tax with your business account, it'll get the deduction,
apply it to your social security number. Those are the main,
the main recommendations I'd have for that. So,
I would do that. Remember, this is, this is great for people that have
state tax. Like one, you, you gotta have state tax or enough in your
income where state tax is being calculated. So,
if you and your spouse, however much income you make,
however much is taxable, multiply that by your tax rate,
that's your state tax. All that state tax,
no matter where it comes from, you can prepay it through your past serenity,
through your partnership of your S corporation and get the deduction for it.
And make sure you're not in a state that doesn't have income tax,
that wouldn't work for you. So, you've got to have a business, past serenity,
we've got 10 days till the end of the year. Either you can still
create a business, create a past serenity,
partnership, LLC, S corporations, and do this by the end of the year.
Uhm, but just make sure, yeah,
just, I'd go through the, go to the wealth game at a minimum,
go to the wealth game basics, just that free course I've got,
and fill out your income tax projection to get a feel for where you're
at as far as income and taxes go, or look at your prior year
state tax return and see how much tax was calculated on that.
That makes sense to prepay that. But thank you for listening.
Hopefully this is a good strategy for you.
I highly recommend it to practically everybody.
Like if you have a business and you have state taxes,
in my opinion it's a great strategy to implement. You get a tax deduction
for something that you wouldn't have gotten a tax deduction for anyways.
So have a great rest of the day and Merry Christmas.