Your facts are good but your conclusion is IMO nonsense.
You get to deduct your state’s withholding and estimated taxes paid this year, but then offset that next year with any state tax refund you got. The net result over 2 federal years is that you get to deduct what you actually owed and paid the state in that one year.
That’s sensible because any alternative procedure would result in your federal taxes depending on the amount of your state taxes and your state taxes of thst same year depending on the amount of your federal taxes. Holy Catch-22, Batman; there’s no way to compute this!!
There is no sense that you’re over or underpaying in the long run. All overpayments / refunds and underpayments / taxes owed all wash out over the course of a couple years.
What conclusion, I didn’t draw any? Though if I had one, I’d say it’s better not necessarily because of tax implications but because it’s less of a pain in the ass.
Right, it’s a recapture of a previous over-deduction, but you also aren’t guaranteed to be in the same tax bracket next year, or need to itemize in the future/past. Ideally you pick itemizing or standard based on the best result (barring some uncommon situation like forced itemizing if MFS spouse does it). Then it’s the taxpayer’s responsibility to keep track of it, but for example if they switch accountants and don’t know what they did last year? Or at least in the past they sent 1099G to everyone, which doesn’t imply you actually need it.
If you switch to deducting sales taxes, for example then you don’t have to do that anymore. Of course that brings a disadvantage if it’s less, and also there have been multiple tax years where that provision wasn’t renewed and it disappeared for a bit, so I don’t know if it’s guaranteed to always be an option.
Also, if you amend a past year return, I think this means you have to amend another year too? I’m not sure of that one, maybe any increased refund is income on the year its received so potentially the 1099G is entered a few years later.
Some years ago a coworker invested heavily in the stock market. One year he did really well and his quarterly estimate was short. He owed the IRS something over $800 and California around $60. He was prepared for this and had enough money in his checking account so duly filled out the forms and enclosed the checks.
But he got the checks in the wrong envelopes. After a few weeks he got a letter from the IRS returning the check and saying, 1) This isn’t ours and 2) we were wanting more money.
The California Franchise Tax Board cashed the check it got.
He didn’t have an extra $800 available so he immediately wrote the CFTB wanting it back. They dragged their feet for over ten weeks and meantime he was getting demands from the IRS that were more and more insistent. He told me he was going to give an extra bump in his estimates from that point forward.
For sure taxes, and especially tax payments, are easier to get right the first time than to repair later. Here’s a story from long long ago about that:
that’s surprising and a little wild that a bank allowed the CFTB to cash a check made out to the IRS. Not so surprising that they then took 10 weeks to give him his money back
The phrase “nothing is certain except death and taxes” is famously attributed to Benjamin Franklin, although Daniel Defoe also expressed a similar idea over 60myears earlier.
It would’ve been more likely circa 1994 to pass through a human’s hands, but even so a state agency isn’t walking up to a teller window. There is some automated process, reading the account, routing, and check numbers has been automatic since the 1980s. Rudimentary OCR for the written parts? Or trust now, verify later. The delay should have been expedited but then it still has to go through human hands.
Int he years my late wife was a banking attorney I was given to understand it’s entirely that. The industry assumes all checks are unaltered, signed by somebody authorized, and deposited by an entity entitled to do so. There is no checking of any of those things.
Until somebody in the chain of holders and banks complains about something.
Then everybody goes and looks at what records they have to figure out what went wrong. Then they fight about who’s fault it was. Then eventually justice is done the biggest bully wins.
Now with “check truncation” (post 2004) the institution accepting the check for deposit scans both sides and that’s the “official” record of what the paper said before it was then promptly shredded. Before truncation, the physical cancelled check was sent back through the Fed bureaucracy to the bank it was drawn on and then perhaps to the account holder of record.
you make excellent points but still, if one entity can just cash a check made out to a completely different entity without anyone stopping the process, well that’s not very encouraging and just another reason you should probably not be writing checks these days if you can avoid it.
No, they credited the CFTB’s account with it. You could go through the banking process and attempt to have that credit reversed (and the corresponding debit to your account, which is what you really want). If someone not an account holder at a bank walks in with a check made out to someone else and wants to cash it, the bank is going to want to see ID in the name of the payee at least and probably will not cash it for that person anyway.
We have always deposited checks made out to the wrong entity in every supermarket company I’ve worked for. e.g. the customer writes the check out to Kroger while they are in Safeway and no one notices.
Kroger deposits the check and it clears 99.99% of the time (using some check verification service). And 99% of the time the customer will never notice. And if they do, they have little to gain from trying to reverse it.
I bet if I sent the IRS a check made out to the Massachusetts Dept of Revenue for the correct amount of my Federal liability. The IRS would deposit the check and credit my account.
There are plenty of stops, I can’t comment much on the back-office electronic/ACH side, but I have retail and business banking experience, albeit 15+ years back. There were multiple levels of checks, but ultimately while many parts of banking are because the industry is slow to adapt and archaic, others work weird for a very good reason, namely because they can’t operate by being overly nitpicky and need to rely on some trust based on risk to operate.
From retail: say someone comes into a bank with a very large check and wants to do something like cash it out. Do you go one extreme and hand this person a large amount of cash? Or do you tell them you can’t, risking an *unhappy customer? Ultimately they assess risk factors, including history like years as a customer and responsible transaction history, a revolving balance that’s not too off the mark of the current transaction, etc. For example, a long-term customer ran a check cashing business so would show up every day with a bag of checks and a written sheet with the total value, we would give them a pre-made bag of cash matching the amount they requested earlier. At no point during the regular banking day was cash counted or checks scanned, that would have been unnecessarily disruptive. Any discrepancies were likely to be honest mistakes rather than anything nefarious, and would have been investigated and solved to all parties’ satisfaction.
*People who were intentionally trying to pass a bad check would often use potential discomfort of the tellers to their advantage, including anger, threats of taking business elsewhere, accusations of racism, etc. to try to get the transaction resolved quickly so they could be gone before their actions are discovered. But automated checks exist even in-house, including lower limits for less experienced employees, multi-employee verifications, and if it was sufficiently risky the account holder would be contacted and the transaction possibly refused if they could not be contacted. However: physical government checks have a specific format and were generally easy to verify, unless there were signs it was actually fake we accepted those even if risk were high, and if the system suggested funds should be held it was overridden for gov’t checks. There might be law behind this, if not just policy.
Yes, banks are much more stringent about a non-account holder exchanging a check for cash than they are some old lady on social security who maybe gets an atypical $50,000 check and wants to put it in savings. Actually for her, the risk is not in the bank being scammed by the customer but in both the bank and customer being scammed by Nigerian princes.
yep, you and others make a good point. I was a bit sloppy in my language. But the fact remains that the issue described by the OP only make me more reticent to use checks