Tax planning opportunity: Pay Q4 state tax estimates by Dec. 31

With the increase in the federal state and local tax (SALT) deduction limitation beginning in 2025, tax professionals may want to revisit a familiar planning strategy that now has renewed relevance. In some cases, accelerating a client’s fourth quarter state estimated tax payment into December, rather than waiting until the Jan. 15 deadline, can increase the amount of SALT deduction available for the year.

For clients who itemize and are near the higher SALT cap, this timing shift may allow more state and local taxes paid to be deducted on 2025’s federal tax return than would otherwise be available.

How the SALT deduction works

The SALT deduction is claimed as an itemized deduction on Schedule A (Form 1040), Itemized Deductions, and includes the combined total of state and local income taxes, plus real and personal property taxes paid during the year.

For tax years beginning in 2025, the One Big Beautiful Bill Act (OBBBA) temporarily expanded the SALT deduction cap from $10,000 to $40,000 ($20,000 for married taxpayers filing separately), with annual inflation adjustments through 2029. The expanded cap is subject to income-based phaseouts and is scheduled to revert to $10,000 beginning in 2030.

Taxpayers who take the standard deduction do not receive a separate SALT benefit, regardless of how much they pay in state or local taxes. As a result, the expanded cap primarily affects taxpayers who itemize and whose total deductions exceed the standard deduction.

Why timing matters for state estimated tax payments

State estimated tax payments are generally deductible for federal purposes in the year they are paid, not the year to which they relate. When the fourth quarter estimate is paid by the standard Jan. 15 deadline, the deduction is taken in the following tax year.

Paying that installment by Dec. 31 instead allows the deduction to be claimed in the current tax year, provided the taxpayer itemizes deductions.

Under the long-standing $10,000 SALT cap, this timing strategy often produced little or no benefit for many taxpayers. With the SALT limitation increased beginning in 2025, however, the timing of state estimated tax payments has become meaningful again for clients whose total state and local taxes approach or exceed the higher cap.

Putting the SALT timing strategy to work

A married client who itemizes deductions expects to pay $32,000 in combined state income and property taxes for 2025, excluding their fourth quarter state estimated payment of $8,000 due Jan. 15, 2026. If the client waits until January to make that payment, only $32,000 counts toward their 2025 SALT deduction. By paying the fourth quarter estimate in December 2025 instead, the full $40,000 can be included on the 2025 return, maximizing the available deduction under the expanded cap.

Who should consider this strategy?

This planning opportunity is most relevant for clients who:

• Itemize deductions, or are close to the standard deduction threshold
• Pay significant state income taxes or local taxes
• Are not already fully capped under the revised SALT limitation
• Have sufficient cash flow to accelerate the payment
• Do not have known alternative minimum tax (AMT) exposure

Taxpayers in higher-tax states may see the greatest impact, particularly professionals, business owners and retirees with sizable state tax liabilities.

Planning considerations and cautions

Before recommending this strategy, advisors should evaluate several key factors.

1. SALT cap interaction
   Accelerating the payment only helps if the additional payment actually increases the client’s allowable SALT deduction for the year.
2. Alternative minimum tax exposure
   State and local tax deductions are not allowed for alternative minimum tax purposes. Clients who are subject to, or close to, AMT may see limited or no benefit.
3. Cash flow and liquidity
   Even when the tax benefit is real, clients must be comfortable paying cash earlier than required.
4. Documentation and timing
   Payments must be made, or at least postmarked, by Dec. 31 to be deductible in that tax year.

Advisor takeaway

The increase in the SALT deduction cap beginning in 2025 reopens a planning conversation many advisors set aside over the past several years. Accelerating the fourth quarter state estimated tax payment into December may once again be a valuable year-end strategy for certain clients.

As always, this decision should be evaluated in the context of the client’s broader tax picture. Still, it’s a timely reminder that payment timing can matter, even in an environment with deduction limits.

NATP helps members stay ahead of evolving planning opportunities like this with timely education, practical guidance and year-round tax resources.  Explore NATP’s Tax Planning for Individuals On-Demand Webinar to strengthen year-end planning conversations as tax law changes continue to unfold.