MDNews - Long Island

WHAT DOES THE NE W FEDER AL CAP ON STATE AND LOCAL TA X DEDUCTIONS ME AN FOR YOU? HAVE YOU ROUTINELY itemized your federa l ta x deductions? In 2018, you may decide to take the standard deduction instead. One possible rea son: the new limit on state a nd loca l ta x deductions set by the federa l government. The SALT deduction is now capped at $10,000. The standard deduction is now $12,000 ($24,000 for a married couple). So, your incentive to ta ke the SA LT deduction might be gone. Even if you live in a wealthy suburban area, a high-ta x state, or a state that cha rges no income ta x, you might not see the benefit to ta ke it. The Ta x Policy Center estimates that 3.5 million households will quit itemizing in 2018 simply because of this one revision to the Interna l Revenue Code. High-earning households have usually claimed SALT deductions. Research from the TPC's Briefing Book shows that 93 percent of households earning $200,000-$500,000 took the deduction in 2014. In fact, more than 40 percent of taxpayers in Connecticut, Mar yland and New Jersey made use of the ta x brea k that year. In 2015, the average SA LT deduction for taxpayers in California and New Jersey was around $18,000 and in New York it topped $22,000. The change may not a•ect some taxpayers. The TPC projects that households earning $150,000 or more could be hit hardest by this, but it a lso believes that just 40 percent of those households will actua lly see higher ta xes as a result of the SA LT cap. W hy? Many households earning between $200,000-$500,000 will be subject to the Alternative Minimum Ta x, so they will not benefit from a SA LT deduction. The average ta xpayer in the top 1 percent, though, is positioned to see a federa l tax increase of about $30,000 due to the new deduction limit. Some state governments are crafting responses. In California's state legislature, a bill proposes the creation of a new state charity, the California Excellence Fund, to which taxpayers could pay some of their state taxes into. Residents could contribute a portion of their state tax bill exceeding the $10,000 federal cap to the proposed fund, and all their SALT taxes would be deductible. (To help facilitate this, these taxpayers would need to meet with their CPA or tax preparer in December rather than spring.) New York state lawmakers are also advancing a plan to create a new state charity, in the vein of the California bill. Maryland state legislators are proposing something similar, whereby taxpayers could make charitable donations to public schools once they were over the $10,000 SALT deduction limit. Another idea making rounds in New York's state legislature is to have workers accept a pay cut in exchange for a SALT brea k. Employers would shoulder a new statewide payroll tax, and presumably reduce employee pay. In compensation, however, workers would get a wage credit equivalent to their pay cut. This way, the worker's pay would stay the same. For example, an employee could see a $10,000 salary cut but pick up a $10,000 tax-deductible wage credit at the same time. Will the $10,000 ceiling on the SALT deduction rise in future years? Unfortunately, no. It is not indexed for inflation. Should you still itemize in 2018, even with the new SALT deduction cap? You should make that decision (and others) with input from the tax preparer you know and trust. There are many variables that can potentially impact your federal tax return, and you will want to take a thorough look at them before you make a move. Our firm does not render legal or tax advice. This article was written for our firm and provided courtesy of MarketingPro. Investments in securities and insurance products are: NOT FDIC-INSUR ED/NOT BANK-GUAR ANTEED/MAY LOSE VALUE Rao Wealth Partners is an independent firm with securi- ties o'ered through Summit Brokerage Services, Inc, member FINR A and SIPC. Advisory services are o'ered through Summit Financial Group, Inc, a registered investment adviser. Summit is an independent broker-dealer with client assets held at First Clearing, LLC (a wholly owned Wells Fargo subsidiary). Summit and its a•liates are under separate ownership from any other named entity. ■ Less SALT for Taxpayers to Subtract BY DAVE RAO 2 0❱❱❱❱❱ F I N A N C I A L C H E C K U P Dave Rao 2 0

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