Nonbusiness Taxes

State & Local Income Taxes. While state income taxes constitute a large chunk of nonbusiness taxes, there are ways to benefit:

1. You may deduct your state and local income taxes on your federal return up to a combined total of $10,000 in 2021 (including property taxes) if you itemize deductions.
2. If you pay the estimated state income taxes, (typically due on January 15) by December 31, you will gain a larger Federal deduction for the current year.

NOTE: If you are subject to the alternative minimum tax (AMT) this year, you may not benefit from nonbusiness tax deductions because you cannot deduct state/local taxes for AMT purposes. Please consult with us before prepaying any taxes.

If you do not make estimated tax payments, you may want to ask your employer to withhold more state tax during the year, which can increase your deduction. If you overpay, intentionally or not, the IRS will tax any refund you receive from the state up to the amount of the benefit from your Federal deduction in the prior year.

Property Taxes. Property owners must pay personal property taxes on the value of their property. While property taxes can be burdensome, they are deductible up to a combined total of $10,000 (including state and local income taxes) on your Federal tax return. While paying property taxes before December 31 could give you a greater deduction in the current year, be aware of any AMT implications.

Real estate taxes are deductible. However, registration, licensing, and other fees are not deductible. Special real estate assessments are also not deductible because you derive specific benefits from them.