@MelO4 wrote:
I thought the State Tax deduction rule was: if you deduct the State Tax this year (get a benefit) but then get a refund of it next year, then you are taxed on the State Refund (paying back the benefit).
I'm getting confused because it's an Estimated Payment and I'm hoping I get most of it back next year.
This is more fuzzy thinking. Suppose you paid $10,000 in estimated payments and only owe $2000 of actual tax (an extreme over-estimate). You can deduct the $10,000 now and save $2200 of income tax. Then your $8000 refund is taxable and would raise your tax next year by $1760. You still come out ahead.
Now, my imaginary examples is more complicated than that because of the $10,000 SALT cap. But in that case, you would apply the tax benefit rule and only part of your refund is taxable. For example, if you paid $4000 of property tax, your income tax deduction is capped at $6000 even if you paid more. So if you made a $10,000 estimated payment, you only get a $6000 benefit. If you get a refund of $8000, then your tax would have been $2000, and since you got a $6000 benefit, only $4000 of the refund is taxable. I know it sounds complicated, but Turbotax will calculate this for you.
There's no good reason to pay more tax now because of fear of a refund.
