When it comes to next year’s tax season, there are a lot of changes happening. With one of the biggest tax reforms in history getting passed in late 2017 by Congress, the new rules affect both businesses and individuals. So, whether you are filing for yourself or your business, it’s time to start familiarizing yourself with some of the key changes.
One of the major topics to cover is state and local taxes (SALT). People who live in states that require high income and property taxes (yes, this includes California) could end up paying more under the new tax plan.
Prior to this year, the SALT deduction was unlimited. However, filers had to choose between deducting either individual state income taxes or sales taxes. For most people, deducting their income taxes made the most sense because they are generally higher in the majority of states. Property taxes were also completely deductible under the old plan (not factoring in alternative minimum tax).
With the new tax bill, SALT deductions will be limited to a total of $10,000 including state income, sales and property taxes. Anyone with high state taxes will likely be affected by this change. However, there are some parts of the new tax plan that will help offset these limited SALT deductions. Expanded child care credits, a massively increased standard deduction and lower individual tax rates will certainly help, though they may not make up for what some people may lose with their previous SALT deduction amounts.
Who is Most Affected?
Those affected will most likely be taxpayers with an income of more than six-figures and those who live in states with high state and property taxes, such as California, New York, New Jersey, Illinois, Texas and Pennsylvania. They are the ones who currently benefit the most from SALT deductions. Only about a third of taxpayers itemize deductions and the government is expecting that number to go down under the new plan, thanks to the much higher standard deduction. Of those who itemize, just about all of them take advantage of SALT deductions. In fact, it is often the main reason filers are able to itemize.
Expert Tax Guidance
Now is more important than ever to work with a professional tax advisor who understands the changes and will help you maximize your tax returns. Even though these policy changes only affect your taxes for this year and beyond, it’s never too early to start planning. Contact Ferguson, Timar & Company today for your personal or small business tax consultation.