Posted August 24, 2018
One of the biggest changes resulting from the new tax law signed in December 2017 is a severe limit imposed by the Republican-controlled Congress on state and local tax (SALT) deductions. Under the previous law, these deductions were unlimited for individuals and families. The limit now is set at $10,000 per tax return. For example, Fred is single and owes $6,000 for state income tax and $6,000 for local property tax. For 2017 he was entitled to deduct $12,000, but for 2018 his deduction is limited to $10,000.
This change will hit taxpayers hardest in the six states where SALT deductions, as a percentage of income, are highest: New York, New Jersey, Connecticut, California, Maryland, and Oregon. Because these are states that lean heavily blue, and this new tax law is Republican legislation with almost no support from Democrats, it is easy to argue that this is not a coincidence — i.e. that “Red State” Republicans found a way to punish “Blue State” Democrats.
The new limit on SALT deductions will harm married couples who file jointly more than it harms singles, as the $10,000 limit is per tax return and not per person. Married couples can file separate returns, but according to the new tax law, each spouse would only qualify for $5,000 in state and local tax deductions. To qualify for two $10,000 deductions, the couple would have to divorce.
Beyond the broad-reaching limit on SALT deductions, which will affect taxpayers across various income brackets even outside those six states, Congress also eliminated deductions for miscellaneous expenses often incurred by high-income taxpayers. Those eliminated include unreimbursed employee expenses for travel, meals, and entertainment; union dues; subscriptions; safe deposit box fees; tax preparation fees; and investment advisory fees. Qualifying for the miscellaneous expense deductions was never easy for most taxpayers because total eligible expenses had to exceed 2% of income. However, the elimination of the miscellaneous expense deduction does hurt many taxpayers with high professional fee expenses.
To get the latest news and updates from us, please fill out the form and click "Subscribe" to receive our e-newsletter.
The 2018 tax season is now upon us, and with that comes tax documentation to assist you in filing your return. All official tax reporting information will come directly from Schwab. Please see below for timelines (varies by document type). 1099 – Paper Mailing For retirement accounts, you should have already received your Form 1099-R. …Read More