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.
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).
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.
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:
- Itemize deductions
- Have two dependents under age 17
- Earn annual income in excess of $180,000
- Have nonwage income (dividends, interest or capital gains) of $20,000 or more
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.
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.
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.
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.
Content prepared by Kara Stefan Communications.
1 Mitchell A. Drossman. U.S. Trust. Sept. 6, 2018. “The State of Taxes in America” https://www.ustrust.com/articles/the-state-of-taxes-in-america.html. Accessed Oct. 31, 2018.
3. Ray Martin. CBS News. Sept. 10, 2018. “Millions of taxpayers could wind up owing for 2018.” https://www.cbsnews.com/news/millions-of-taxpayers-could-wind-up-owing-for-2018/. Accessed Oct. 31, 2018.
4 IRS. Oct. 2, 2018. “IRS Withholding Calculator.” https://www.irs.gov/individuals/irs-withholding-calculator. Accessed Oct. 31, 2018
5 Fred Imbert. CNBC. Oct. 30, 2018. “Yellen says rising deficit is unsustainable: ‘If I had a magic wand, I would raise taxes’.” https://www.cnbc.com/2018/10/30/yellen-says-rising-us-deficit-unsustainable-if-i-had-a-magic-wand-i-would-raise-taxes.html. Accessed Oct. 31, 2018.
6 Scott Horsley. NPR. Oct. 16, 2018. “Federal Deficit Jumps 17 Percent As Tax Cuts Eat Into Government Revenue.” https://www.npr.org/2018/10/16/657790901/federal-deficit-jumps-17-percent-as-tax-cuts-eat-into-government-revenue. Accessed Oct. 31, 2018.
Advisory services offered through Lake Point Wealth Management, LLC, an SEC Registered Investment Adviser. Insurance products and services offered through Lake Point Advisory Group, LLC. It is important that you do not use e-mail to request, authorize or effect the purchase or sale of any security or to effect any other transactions. The information transmitted herein and any attachments or files transmitted herewith may contain proprietary, confidential and/or protected, non-public information, are covered by applicable state and federal laws and are intended solely for the use of the individual or entity named above as the intended recipient. If the reader of this message is not the above-named intended recipient, or his/her/its agent, be advised that any review, disclosure, dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify the sender by telephone or e-mail and destroy the material forwarded in error. Nothing in this communication shall constitute an offer to sell or solicit any offer to buy a security or any insurance product. Recipients should be aware that all emails exchanged with the sender may be archived and may be accessed at any time by duly authorized persons and may be produced to other parties, including public authorities, in compliance with applicable laws.