11 million Americans could be affected by a big change in Trump's tax plan, and a CPA says he's getting frantic calls about it
- The 2019 tax season is the first to observe President Donald Trump's Tax Cuts and Jobs Act (TCJA).
- The tax law made sweeping changes to the US tax code, including limiting the annual deduction amount for state and local taxes (SALT) to $10,000.
- The Treasury Inspector General for Tax Administration said the new limit could affect nearly 11 million taxpayers this year.
- The majority of calls to 1-800Accountant, a nationwide virtual accounting firm, are from residents of high-tax states, like California and New York, who are worried about the SALT cap, says CEO Mike Savage.
The first tax season under President Donald Trump's new tax law is underway, and a new rule isn't sitting well with some taxpayers.
SALT, as it's known, allows taxpayers to deduct taxes paid to state and local governments, including property, income, and sales taxes, on their federal tax return if they itemize. Claiming the deduction lowers federal taxable income, potentially reducing your overall tax bill.
As Americans begin to file their 2018 tax returns ahead of the deadline on April 15, residents of high-tax states who would typically deduct more than $10,000 in state and local taxes are finding the new limit isn't favorable for them, said Mike Savage, a CPA and the CEO of 1-800Accountant, a nationwide virtual accounting firm.
"Some people living in high-tax states will be adversely affected by the SALT limitation," said Savage, who has been getting frantic calls from taxpayers in California and New York, most of whom earn $80,000 a year or more. According to a report from the Treasury Inspector General for Tax Administration, about 10.9 million taxpayers could be affected this year by the new SALT deduction cap.
When filing a tax return, you can either claim the standard deduction or itemize - you can't do both. The TCJA eliminated personal exemptions and increased the standard deduction to $12,000 for singles and $24,000 for married couples filing jointly.
It's now generally more beneficial for most taxpayers to take the standard deduction, with a few exceptions. Taxpayers with high medical bills, mortgage interest, charitable contributions, or high state and local income and property taxes may consider itemizing - but only if their total itemizations are higher than the standard deduction amount, Savage said.
As Business Insider's Akin Oyedele previously reported, this is why rich homeowners in blue states - including California, New York, Connecticut, and Hawaii - were among the biggest losers of the TCJA.
"High-income households are more likely than other income groups to benefit from SALT and claim the deduction, the Tax Policy Center research found. Among households earning $200,000 to $300,000 a year, 93% claimed the SALT deduction, compared with 39% of households earning $50,000 to $75,000," Oyedele wrote.
To be sure, wealthy taxpayers have benefited from the TCJA in several other ways, from private school tax breaks and higher exemption amounts on estate and gift taxes to significantly lower federal tax brackets.
"The 2017 Tax Cuts and Jobs Act is a series of trade-offs, for want of a better term," Savage said. "Overall, most people should experience some benefit. It will ultimately be a matter of degree."
- Indian startup founders celebrate Paytm’s success as company posts first operating profit
- Zookeepers were stumped when a female gibbon got pregnant while alone in her cage. 2 years later they say there was a tiny hole that she and a neighboring male used to copulate through.
- Not just LIC, 32 mutual fund houses have exposure to Adani Group stocks
- Over 16 lakh people renounced Indian citizenship since 2011
- TRAI's move to display callers' names endangers privacy, imposes costs says industry body IAMAI
- This V-day, Indians want ChatGPT to play Cupid & write their love letters
- Rate hikes will not impact collections efficiency of NBFCs: ICRA
- No new Covid variants emerged during China's recent outbreak: Lancet study