States responses to IRS tax caps

[Chuckanut]

But I doubt that states could function successfully on a "general tip jar" approach to their finances.

I can hear it now. "Mr. Second, I see your want the potholes fixed on your street, now, let's see..... Hmmm.. you have never contributed to the city's charity fund... Looks like a long wait to get those potholes fixed."

 

[pb4uski]

I think what they would say that since you get a credit against your state tax obligation that the $4,000 payment is deductible.... but as a state income tax and not a charitable contribution... and therefore subject to a $10,000 SALT limitation.... you remember.... substance over form TP.

 

[Chuckanut]

FWIW, I have heard, and this may be false, that the charitable deduction for minimum withdrawals from tax deferred accounts was not affected by this changes to the tax law.

 

[kjpliny]

A better plan for blue states to get around the SALT changes would be to get the state legislatures to change the state income tax by shifting the employee portion to the employer since employers can still deduct them.

How liberal states can torpedo the GOP tax bill - Baltimore Sun

 

[43210]

Two words.

Step doctrine.

 

[Texas Proud]

I think what they would say that since you get a credit against your state tax obligation that the $4,000 payment is deductible.... but as a state income tax and not a charitable contribution... and therefore subject to a $10,000 SALT limitation.... you remember.... substance over form TP.

Devil is in the details.... looking at this article, they get a credit if they contribute to a PRIVATE charity... the IRS cannot stop that from being a deduction in current law... the question then becomes what kind of charity will the state allow a credit... and how does that benefit the state...

These programs allow individuals and corporations to allocate a portion of their owed state taxes to private nonprofit scholarship-granting organizations that issue scholarships to K-12 students.
​

http://www.ncsl.org/research/education/school-choice-scholarship-tax-credits.aspx


Using this example, they do not have to pay to educate the students which saves them money... I do not see many other areas of gvmt where that will help...

 

[pb4uski]

It really doesn't matter.... if the state gives you a credit against your state income tax obligation for any contributions... no matter who to.... it is deductible but as state income tax since that is the substance of the exchange.

 

[FIRE'd@51]

It's only a deductible charitable contribution if it is made to an organization designated as a 501(c)(3) entity. I can't imagine the IRS approving this designation for a state or local government.

 

[jazz4cash]

A better plan for blue states to get around the SALT changes would be to get the state legislatures to change the state income tax by shifting the employee portion to the employer since employers can still deduct them.

How liberal states can torpedo the GOP tax bill - Baltimore Sun

This is the idea I mentioned earlier but I never heard the rationale of nudging Congress to re-reform the tax code. The article never mentions the lack of benefit for 1099 income, though.

 

[MichaelB]

State taxes are not a partisan issue, so let’s please be careful to avoid discussion and links that frame it as such.

 

[gerntz]

State taxes are not a partisan issue,

?

 

[joeea]

I'm all for my state finding creative ways to reduce my federal taxes while maintaining the level of services I want.

I have to believe most people feels the same?

 

[gerntz]

If you live in Puerto Rico, your federal tax obligation is zero. Unless you are a Federal worker.

(please correct me if I'm wrong, as this subject is hard to find out about. Otherwise everyone would move there )

PR's own income tax rate is 33%.

 

[gerntz]

Or maybe that's what you meant? I guess upon re-reading, maybe you are saying we shouldn't get to deduct any local taxes? I guess it depends on which way you view "impact"? Did you mean by giving a deduction for local taxes in the first place, or by limiting the deduction now?

-ERD50

Yes, I meant why should anyone anywhere get a SALT deduction. What's in that for the Fed Gov?

 

[Senator]

I'm all for my state finding creative ways to reduce my federal taxes while maintaining the level of services I want.

I have to believe everyone feels the same?

Absolutely. There are many ways to avoid taxes. I would suspect that you could form a company, put all your assets in the company name, and take a distribution from the profits, less 20%. Could you send pension checks to the company too?

Put any after tax money in a LLC, S-Corp or other Company investment account. The company would be an investment company. Leave it invested. Take standard business write-offs against the dividend income.

The earnings would be subject to the 20% deduction. Would the investment dividend income be active income? That's the kicker.

You can forget about the >$10K state tax deduction. You will not need it if you can do the above.

 

[Senator]

Yes, I meant why should anyone anywhere get a SALT deduction. What's in that for the Fed Gov?

Exactly, but I feel the same way towards a child care tax credit. I get tired of subsidizing other peoples kids.

If the kids actually eventually get a job, and pay plenty of SS, I may be OK with it. Unfortunately, I suspect that I will be subsidizing most of the kids for their entire life...

 

[Independent]

It's only a deductible charitable contribution if it is made to an organization designated as a 501(c)(3) entity. I can't imagine the IRS approving this designation for a state or local government.

I'd guess that the IRS already approves deductions for contributions to public schools.

Let's suppose I made my wealth in computer software and want to donate computers to local (or distant) public schools. I think they would allow that.
Or, consider someone who donates money for playground equipment, or sports teams. I think people in my community have done that.

Certainly, contributions to state owned universities are deductible.

I think that under current law (or precedent) the IRS would have to allow this contributions to public schools.
The state law could specifically provide a credit contributions to public schools. That's the bulk of local taxes.


(That's my guess on the legality, not on the public policy wisdom.)

 

[misanman]

I'd guess that the IRS already approves deductions for contributions to public schools.

Our local school district has a companion charitable foundation that allows for tax deductible contributions to benefit the schools. It's been a significant factor for funding "over and above" local needs. The foundation is separate from the schools, however, and there is no tax credit received if you contribute.

 

[43210]

I'm all for my state finding creative ways to reduce my federal taxes while maintaining the level of services I want.

I have to believe everyone feels the same?

Not only is is not compulsory that you believe that, but it is absolutely impossible that you believe that.

In fact I think the majority would be opposed to special interests enriching themselves at the expense of the national interest, but I certainly would never imagine that "everyone feels the same".

 

[Texas Proud]

I'd guess that the IRS already approves deductions for contributions to public schools.

Let's suppose I made my wealth in computer software and want to donate computers to local (or distant) public schools. I think they would allow that.
Or, consider someone who donates money for playground equipment, or sports teams. I think people in my community have done that.

Certainly, contributions to state owned universities are deductible.

I think that under current law (or precedent) the IRS would have to allow this contributions to public schools.
The state law could specifically provide a credit contributions to public schools. That's the bulk of local taxes.


(That's my guess on the legality, not on the public policy wisdom.)

Our local school district has a companion charitable foundation that allows for tax deductible contributions to benefit the schools. It's been a significant factor for funding "over and above" local needs. The foundation is separate from the schools, however, and there is no tax credit received if you contribute.

Not sure what the public school district has, but I know each local school has a PTA or similar group that will buy the equipment for the school...

 

[joeea]

Not only is is not compulsory that you believe that, but it is absolutely impossible that you believe that.

Good point! I never say never! And if I've said it once, I've said it a million times - don't exaggerate!

Clearly instead of "everyone" I should have said "many people". I'll go back and edit my post now.

Thanks for the heads up!

In fact I think the majority would be opposed to special interests enriching themselves at the expense of the national interest, but I certainly would never imagine that "everyone feels the same".

We'll have to agree to disagree on the "enriching themselves at the expense of the national interest" part. Based on recent elections and the resulting "enrichments" my sense is exactly the opposite.

 

[Senator]

Most of the states that have high taxes have both income taxes and sales taxes. These are the states that people are worried about.

All the states have to do is raise their sales tax and lower the income and property tax to a net of $0 revenue loss/gain. Easy peasy. Problem solved.

 

[Texas Proud]

Most of the states that have high taxes have both income taxes and sales taxes. These are the states that people are worried about.

All the states have to do is raise their sales tax and lower the income and property tax to a net of $0 revenue loss/gain. Easy peasy. Problem solved.

Sales tax is considered SALT also....

 

[joeea]

Most of the states that have high taxes have both income taxes and sales taxes. These are the states that people are worried about.

All the states have to do is raise their sales tax and lower the income and property tax to a net of $0 revenue loss/gain. Easy peasy. Problem solved.

I believe Sales Taxes are part of the L in SALT.

Besides, this regressive solution wouldn't be so easy peasy for those on a fixed income.

This problem needs a more creative solution than this.

 

[USGrant1962]

Sales tax is considered SALT also....

In the old law you could deduct sales tax or income tax, never both. I don't think that changed under the $10K limit. Rebalancing income taxes to sales taxes might help a little with Federal income taxes - by shifting the state tax burden from the "rich" to others...