TAG Tax: State & Local Tax (SALT)



Current Law:

The Tax Cuts and Jobs Act of 2017 limits individual taxpayer's state and local tax (SALT), itemized deduction to $10,000 (including real estate taxes). The previous law allowed an unlimited deduction. This change may be detrimental to many individual taxpayers who relied heavily on these deductions in the past.

State Work-Arounds:

Some states have considered "work-arounds" to combat this limitation. Select states (California, Connecticut, Illinois, New York and New Jersey, thus far) have created state funds for Local Schools, Colleges or other community-based activities. By contributing to these funds, taxpayers will receive a 100% charity contribution deduction (which has no limitation) on their federal tax return as well as a credit on their state income tax return. Essentially, a taxpayer would pay into these funds instead of using payroll withholdings, creating a charitable contribution deduction and receive a credit on their state tax return.

Read more: Be Wary of States Circumventing the $10,000 SALT deduction limitation

Authors: Terence Avella, J.D., LL.M. and Jesse S. Cohen, J.D., LL.M.

While the recently enacted Tax Cuts and Jobs Act (TCJA) has tax practitioners and taxpayers alike eager to see the federal implications carried out, federal tax reform will also have far-reaching effects on state taxation. Generally, business or individual state income tax computation begins with federal taxable income or adjusted gross income. Therefore, any and all TCJA provisions that alter the federal tax base will affect state tax liabilities.

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Contact: Wayne Berkowitz CPA, J.D., LL.M.

Because that's what she did last year. Yes lawyers, accountants get insulted too, and the worst insult that can ever be hurled at us is to be called a business historian. Or at least that's what I used to think. Cutting edge ideas are great. But who is going to help you decide when you've gone over the edge? That's right, it's us.

Based on my historical observations, tax cases often end up in court for one of two reasons: Either someone had a cutting edge idea the taxing authorities didn't like, or someone took a bleeding edge position (knowingly or not) and is now backed into a corner. Sometimes the taxpayer is lucky enough to get out of the corner, but as most lawyers know (I'm one as well so I get twice the insults), bad facts make bad law, sometimes overturned on appeal, but always making headlines (not of the NY Times variety but more along the lines of State Tax Notes).

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Author: Matthew T. Fuller

Effective July 1, 2017, the Illinois individual income tax rate goes from 3.75% to 4.95% and the corporate income tax rate from 7.75% to 9.50% (inclusive of the replacement tax). 

Because the tax rate increased in the middle of the tax year for calendar year taxpayers, it is likely that the state will again permit taxpayers to figure their tax based on the specific accounting method.  Under the specific accounting method, a taxpayer can treat their income or loss and state modifications as though they were earned in two different taxable years.  For an individual, the amount earned prior to July 1, 2017, is taxed at 3.75%.  The amount earned on or after July 1, 2017, is taxed at 4.95%.  The two tax amounts are then added together to get the total tax liability.

Read more: FGMK Tax Alert: Illinois Increases Individual and Corporate Income Tax Rates

Contact: Wayne Berkowitz CPA, J.D., LL.M.

There is a joke that starts with three mothers sitting around discussing the professions of their respective sons. The first mother bragged about her son the doctor and all were impressed. The second mother chimed in that her son was a lawyer and everyone smiled. The third mother sheepishly stated her son was an accountant. All shrugged and one of the mothers interjected, that's ok, he always was a little slow.

Read more: SALT TALK: "I'm Just a Bill" - Mobile Workforce Legislation (Re)Introduced