States responses to IRS tax caps

[jazz4cash]

Haven't seen it mentioned here (may have missed it) but I understand some are considering taxing employers instead of employees. Some believe an employer payroll tax would qualify for a business deduction. This won't help retirees, though.

[USGrant1962]

Quote:

Originally Posted by jazz4cash Haven't seen it mentioned here (may have missed it) but I understand some are considering taxing employers instead of employees. Some believe an employer payroll tax would qualify for a business deduction. This won't help retirees, though.

That approach would also cause more businesses to move out. Perhaps to Florida and Texas https://www.bloomberg.com/view/artic...r-gop-tax-plan. I don't think it will go as far as this author suggests, but there will be effects.

And shifting to payroll taxes would require actual gross salary/wage cuts for workers - not going to happen IMO.

[GrayHare]

Quote:

Originally Posted by misanman Normally, value received must be subtracted from a charitable contribution. Credit against a tax owed seems clearly to be value received. I can't imagine that this kind of proposal would get by even casual scrutiny.

Often a portion of SALT paid does not result in a value received. For example, even if a taxpayer has no school age children some portion of his taxes fund the schools.

[Texas Proud]

Quickly read the article and some who say it will not work appear to be wrong...

The one that is in existence now they talk about is a scholarship program... if you donate to that scholarship fund you get an offsetting state tax credit...

So, say you have a $10,000 state tax liability, you can donate $4,000 to the fund and take a $4,000 credit from your state taxes and pay $6,000... so far it seems like the IRS has not challenged that..

I think the problem is that it has to be a charity... the one mentioned is specific to schools... I do not think you can have one for 'general state spending'.... therefore, the amount of money going into any particular fund will not be set by the state but might be determined by who contributes... that is if everybody picks one charity and skips the other, that one will have more money than it needs and the others are asking for money from the state...

I also think that if it becomes too big, Congress will just pass a law not allowing charitable deductions to certain charities that get special tax credits....

[gayl]

Just looked at the final page of the 2016 tax form (540) and there are 24 places to contribute to .... possibility reviewed this week in Sacramento, article apparently just used 1 as an example

Plus this would only be utilized by people who owe more than 10,000 between State and property tax. I realized a lot of people on this board may owe more than that, but most people don't

[Chuckanut]

Quote:

Originally Posted by SecondCor521 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]

Quote:

Originally Posted by 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.

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/educati...x-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]

Quote:

Originally Posted by 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

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]

Quote:

Originally Posted by MichaelB 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]

Quote:

Originally Posted by Sunset 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]

Quote:

Originally Posted by ERD50 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]

Quote:

Originally Posted by 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 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.