With the Tax Cuts and Jobs Act expected to be signed by the President this week, state and local tax deductions are likely going to change. The Act has a provision that will limit an individual’s state and local tax deductions to $10,000 beginning in 2018 for the following:
Generally, it is advisable for individual taxpayers who typically incur more than $10,000 of state and local taxes to remit all 2017 taxes before year-end. Those individuals deducting sales tax in lieu of income tax should consider accelerating large purchases in order to recognize the related sales tax deduction in 2017.
One caveat you should discuss with your tax advisor is the application of Alternative Minimum Tax (AMT). If you have historically been subject to the AMT or near the threshold amount, accelerating state and local taxes may not result in a cash benefit as those deductions will not reduce your alternative taxable income. Additionally, the Act includes AMT relief provisions applicable beginning in 2018 that should be included in your planning.
To discuss the above or explore other tax planning strategies, contact our tax advisors today.
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