I made an excessive state tax estimated payment at the end of 2014. My income is highly variable, and I had a very high income in 2014. In December 2014 I realized I had underpaid my state estimates, so I paid what I thought I owed plus some extra just in case, but then I tacked on a huge estimated payment to cover my state taxes for 2015. The amount of the tacked on payment was around
35% of my entire state liability. I figured I'll be set for a good chunk of
2015, and it's good tax planning b/c I take the deduction in 2014 and who knows what my income will be in 2015.
I read the 1040 instructions, searched via the internet to make sure this was OK and didn't see any problems. On the contrary, the articles I read talked about accelerating next years state payments as good tax planning. Now I've discovered it's definitely not OK. 2015 turned out to be a miserable year and half my income was the state tax refund.
Is there a way to remedy this? I've been reading on these forums that I wouldn't be able to amend 2014 to lower the state tax deduction and I would have to pick up the income from the refund in 2015 in any case. I benefited from the tax bracket differential from 2014-2015 and it's a pretty big number. I was thinking of writing the IRS a letter outlining the predicament.
I should mention there's no issue with AMT b/c in 2014, I was way into the highest bracket (so no AMT) and in 2015 I won't be subject to the AMT.