As confusing as the Trump Tax Plan is for federal taxes, you also need to consider how it will impact for your state income tax.
First of all, which states do you need to watch? Don’t assume that it’s just the state you live in. With recent tax law changes, states can reach beyond their borders to reach you if you meet certain parameters. Learn what your nexus (connection) is with other states based on where you may have employees, do business, have inventory, own property or even just make sales.
We’re still waiting for a lot of the states to weigh in, but we should hear soon. States have a fiscal year that begins July 1, 2018, so they have probably been doing a lot of number crunching to decide what they’re going to do.Here’s where we stand so far:
California: CA has tried to convert tax payments into charitable contributions in order to maintain federal deductions for residents’ state taxes beyond the $10K cap.
Colorado: CO will follow the federal law.
Connecticut: CT has tried to convert tax payments into charitable contributions in order to maintain federal deductions for residents’ state taxes beyond the $10,000 cap.
Georgia: GA is going to follow the federal tax law.
Idaho: ID enacted a nonrefundable child tax credit and created cuts to the personal and corporate tax rate.
Indiana: IN has kept the personal exemption.
Iowa: IA went even further than the federal tax changes, making it even more attractive for residents.
Kansas: KS is in limbo. They didn’t pass the conformation to federal law bill and at the same time didn’t vote to decouple from federal tax law.
Kentucky: KT is not going to allow the pass-through income reduction.
Louisiana: LA is going to follow the federal law limiting deductions specifically because they have allowed a lot of itemized deductions and an allowance for federal income taxes in the past. The lower amount allowed for itemized deductions and lower federal taxes will mean more LA taxes.
Maine: ME is following the pre-Trump Tax Law.
Maryland: MD will be mostly following the federal tax changes. They have increased the state Earned Income Tax Credit (EITC) for workers without children in the home, increased the standard deduction and expanded tax benefits for retired veterans and public safety employees.
Minnesota: MN had a bill that would have conformed to the federal bill but the governor has vetoed it. They also did not say they would decouple. In other words, MN is in limbo.
Missouri: MO reduced the federal income tax deduction and has a reduced pass-through income deduction.
Nebraska: NE kept the personal exemption credit and increased the standard deduction, but will not follow the federal inflation change that would maintain the value of the benefits over time.
New Jersey: NJ has tried to convert tax payments into charitable contributions in order to maintain federal deductions for residents’ state taxes beyond the $10,000 cap.
New Mexico: NM has not acted on the Trump Tax Plan.
New York: NY has tried to convert tax payments into charitable contributions in order to maintain federal deductions for residents’ state taxes beyond the $10,000 cap. Additionally, they have created an optional payroll tax deduction so that NY residents can deduct beyond the cap.
North Dakota: ND legislature has not met yet.
Oregon: OR will allow a smaller reduction for pass-through income.
South Carolina: SC has adopted much of the federal changes except for the federal pass-through deduction.
Utah: UT will follow the federal changes impacting residents and also reduced the state’s income tax rate.
Vermont: VT has decoupled from the federal tax law. The state’s tax code will have their own specific set of tax parameters. The bill eliminates itemized deductions, creates a charitable credit, increases the state Earned Income Tax Credit, and retains the independent standard deduction and personal exemption amount.
Virginia: VA will have a special summer session to determine what to do.