The Tax Cuts and Jobs Act: The States Response

        As more people begin to gain a real understanding about how the Tax Cuts and Jobs Act (TCJA) will affect their taxes, some are unhappy with the changes. As a result, certain states have taken action to get around some of the provisions laid out in the TCJA. One key issue that has come up is in the area of State and Local Tax (SALT) deductions. In states with a high income tax, Taxpayers were able to deduct that from their Federal income tax for the full amount. This ability is now limited to $10,000, but some states are responding with their own laws.
         
          A few states feel they have been impacted the most and three of them were first in line to write some very unique legislation. New Jersey signed their law on May 4. It gives cities in that state the ability to start their own charitable funds. Since limit for SALT deductions does not cover charitable donations, the plan is to donate to these municipal charities to be able to make up the difference. There is a similar plan in Connecticut. The state of New York is taking a different approach. They will offer the same type of charitable donation arrangement as the other states, but there is also a volunteer Payroll Tax system that can be used to help employees. Under this plan, a worker’s pay and state income tax would be reduced at the same time. In theory, this would not harm the employee’s overall income. The employer would have to volunteer to join this program.

          While there are a variety of plans and forecasts, nothing is certain at this time. The main reason for this is because the IRS has not given any official direction on its views of these workarounds. In the end, it is really their point of view that matters. This would be a good time to make an appointment with your Tax Professional to make a plan for what to do this year.

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