Are local tax prepayment benefits worth it?
TAX BLOG |
Many states and localities offer taxpayers rate reductions and other benefits for prepayment of taxes. For example, the City of Philadelphia real estate tax is due on March 31; however, taxpayers that pay their bill on or before the last day of February receive a one percent discount on the total tax due.
So, should you prepay? The answer to that question depends on a number of factors, including:
- Whether the actual cash benefit is material
- Whether you hold cash for taxes in reserve in the month prior to payment
- Whether the prepayment benefit outweighs the value over time of having the cash available for investment for an additional month
- Whether you have the cash flow to support prepayment without hardship
By analyzing these and other factors, you can weigh whether prepayment of taxes makes sense, and take appropriate steps to implement a prepayment plan of action. But, before you can do any of that, you need to review the taxes you pay to the states and localities in which you do business, and determine what prepayment benefits are available.