The Tax Cuts and Jobs Act of 2017 reduced federal income tax liability for some, but not all, Americans. Wealthy residents of California, New York and other high-tax states could face a higher tax bill when they file their 2018 return.1
While cutting tax rates on ordinary income, increasing the standard deduction and doubling the federal estate and gift tax exemptions, the tax legislation also capped the deduction for state and local taxes (SALT). While once open-ended, the SALT deduction is now limited to $10,000 ($5,000 if married, filing separately).2
These state and local taxes are higher in some locations and, in the past, this has represented a significant deduction for high-income filers. For example, in California the tax for the highest income bracket is 13.30 percent, in Hawaii it is 11 percent, and residents of Oregon and Minnesota pay nearly 10 percent. To help offset their tax liability going forward, these filers could engage strategies ranging from relocating to another state to transferring wealth to heirs or trusts.3
However, any strategy to reduce one’s tax bill requires the advice of an experienced tax advisor, especially one who is knowledgeable within your particular state. Once you’ve gauged your position in relation to taxes, if you’d like help assessing your financial strategy with the goal of better positioning it for future success, regardless of the tax or stock market environment, please give us a call.
The Government Accountability Office (GAO) recently reported that another group, those who itemize deductions, may owe additional taxes for 2018. Specifically, filers who are:4
The reason this group, comprising more than 4.5 million taxpayers, may owe additional taxes in April is because they may not have properly adjusted their withholding amounts.5
The IRS recommends taxpayers use the Withholding Calculator at the IRS website for a “paycheck checkup.” Simply enter the estimated value of your 2018 income, number of dependents, your itemized deductions and the amount of federal tax withheld from your paychecks to help you assess whether your current withholdings will miss, meet or exceed your anticipated tax bill. The results can help you adjust your income tax withholding. As with any financial calculator, the results received are only as accurate as the information entered.6
The national debt topped out at $779 billion in fiscal 2018, representing a 17 percent increase over 2017. In a recent interview, former Federal Reserve Chair Janet Yellen observed that she expects this situation to worsen in the future, given the number of baby boomers retiring and the subsequent increased burden on government retirement and health care programs. She also noted that the current tariff war could impact economic growth.7
Since lawmakers cut the corporate tax rate to 21 percent from 35 percent, 2018’s corporate tax collections fell 31 percent in the fiscal year ending Sept. 30. Overall tax receipts shrank to 16.5 percent of GDP, from 17.2 percent the prior year.8
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