The Tax Cuts and Jobs Act, which was passed by the President and by Congress, is going to change how families and individuals file for deductions.
In general, states hitch their wagons on to federal tax laws, to a certain extent, for their personal and corporate income taxes. What this practically means is that states closely pay attention to federal tax law and with the new tax bill that’s been passed, the number of state tax deductions you can file is likely to go down. It remains to be seen which deductions, in particular, will be gotten rid of.
State and local income and property taxes comprise the vast majority of deductions that are filed (roughly 60% and 35%). The state and local tax (SALT) deduction is among one of the largest federal tax expenditures in America (with the total cost amount nearing $96 billion in 2017).
Nearly one-third of filers choose to itemize deductions on their federal income tax returns, and almost all the individuals who do this claim a deduction on their local and state taxes. Additionally, high-income households benefit from these deductions to a greater extent than lower-income households. About 10% of filers who have incomes of less than $50,000 a year claimed the SALT deduction; as compared to 81% of filers with incomes of $100,000. The state and local tax deduction provide a federal subsidy to state and local governments, in an indirect way.
The SALT deduction varies in usage depending upon the state. For example, only 17% of filers in South Dakota used this deduction, where in Maryland that number is closer to 45%. Again, this deduction has a great impact on higher-income individuals, and states with lower family incomes are less likely to use the deduction.
Whether you owe money to the IRS or you have a State tax debt, our staff of Enrolled Agents and Tax Attorneys can help. We have over 50 years of experience in negotiating with the IRS in all 50 States.