I couldn’t find the previous thread where we discussed the new tax law but I know we have some posters here in the states implementing the workaround.
These state workarounds are very suspect. The very essence of a charitable contribution is that the donor receive no consideration in exchange for the contribution.
Here, the issue is that these state tax workarounds generally involve dollar for dollar tax credits that effectively allow a taxpayer to satisfy her state and local tax liability through “charitable contributions.” These “contributions” are then allowable as itemized deductions for Federal tax purposes. In essence, the taxpayer has gained a valuable Federal tax deduction at no net cost (as the “contribution” dollar for dollar offset preexisting state and local tax liability).
The states are trying to implement a pretty transparent tax dodge. My bet is that it is disallowed, and that these proposed regs will be implemented, and upheld if challenged. The blue states are just going to have to live with the SALT limitations. The limitations only affect a limited number of taxpayers anyway; I have seen estimates of fewer than 10% of taxpayers in the most impacted states.
Exactly! The law concerning deductibility of charitable contributions changed in 1980s. Deductable amount is reduced by any benefits you received for the donation. If you contribute $50 to an art museum and they give you $50 membership for free, you don’t get to deduct a penny. States can create charitable funds for taxpayers to direct their taxes to. When tax payers file their taxes, they will have to answer, Did you receive any gifts for your contribution? You answer yes and how much. If I were in those states, I would vote out any lawmaker who initiated the effort. I am sure they knew it won’t work and still carryied on with the charade.
I think it is going to affect way more than 10%, heck we deducted over the new standard deduction and we didn’t live in high real estate area. Basically once you’re reach a certain income level your state and local taxes are substantial.
Oh well, we are renting now and may not ever buy again.
The affected states could lower their tax rates…just saying…
I like what our taxes get us.
Schemes that let you make a charitable contribution that also got you a 50-100% reduction in state income tax have been around for 20+ years. They’re mostly a red state thing, because they basically let you pick and choose what your tax dollars pay for.
It never made any sense that your Federal taxes should be lower just because you pay more taxes to your state. They fund two different sets of services.
And before anyone asks, I live in a higher tax state.
I am against all deductions except the standard deduction. You benefit more if your marginal tax rate is 40% than if it were 10%. The standard deduction is the opposite. The less you make, the greater the benefit. That’s the way it should be imo.
Then it would be simpler to get rid of all deductions (including the standard deduction) and just have a 0% tax bracket up to what the standard deduction would have been.
A lot of tax rules don’t make sense depending on who you ask and benefit one group over another(AMT, perks for certain industries, EITC, etc)
That works, too. I don’t have an objection to the standard deduction. It is simple enough.
I went to a presentation where they suggested that with the new tax laws - higher standard deduction and low allowance for state taxes - the percentage of filers who itemize will go down to something like 5%. Previously in high real estate/income tax states it was the majority who itemized.
We will be one of those not itemizing with the new tax laws. For the first time in my life. We have always itemized for the last 40 years. If we can’t deduct SALTs, there isn’t enough to deduct to exceed $24,000.
We have itemized for our entire married life. I don’t believe we will with SALT, so that should make things easier. The cpa will figure it out, with all the details.
I’m very curious to see how this shakes out next year. I have a friend that adopted 6 Kids, then had two of her own, she is definitely going to lose out.
^Agreed about people with multiple dependents losing out.
The real surprise for many is going to be the loss of personal exemptions in the new tax law. The benefit from doubling the standard deduction will be undone for many 2+ children families who now lose their personal exemptions.
Didn’t the Child Tax Credit double to $2000 for children under 17?
^ You’re right, @silverlady. Coupled with the enormous increase in the phaseout for the child tax credit (now starting at $400K for married couple filing jointly), the loss of exemptions should then not be a big deal for families with children.
So, really the only people being targeted in the new tax law are the high income people who pay high state income and local property taxes.
I disagree, the personal exemption had been 4050, and 1k phased out child credit. If you have a lot of kids you lose out.