States who Itemize - 2018

[Randall]

I'm in Kentucky with Sch A itemized deductions.  I've been telling clients who will probably not need to itemize for Federal in 2018 to continue to bring in their info.  Any others in states who allow itemize deductions thinking about this?

[Abby Normal]

I've asked MD to consider it before, but they replied that they would then have to verify 1098s and they didn't have that info. Nothing else on Sch A is really verifiable with information forms and the states usually don't allow state income tax as a deduction.

MD standard deduction has been unchanged for decades. That's the real problem.

[jklcpa]

Delaware has always allowed taxpayers to choose between itemizing or using the state's standard deduction while using the standard for Federal, so this is not something new for me. We are also a state that hasn't adjusted the standard deduction in years.

There was a failed attempt last year to eliminate state itemizing altogether that may be revisited. Now with passage of TCJA and because DE piggybacks the federal income and deductions with very limited adjustments, it's going to be interesting to see what other  changes will be proposed.  

[Possi]

Wow, I never even considered the impact on the state returns. I have military clients, lots of different state returns to do. Hmmmmmmm

[jklcpa]

One more thing that I'm not 100% sure about is how the DE will be handling the add-back of state income taxes included Fed Sch A for those that are subject to the $10K cap on SALT.  I'm guessing that the state will apply a similar calculation like was used for those subjected to the Pease limitation, but nothing is certain at this point. 

[TAXMAN]

I think some of these state will get a tax increase without having to ask for it due the different items and the way they calculate tax.

[Lee B]

1 hour ago, jklcpa said:

Delaware has always allowed taxpayers to choose between itemizing or using the state's standard deduction while using the standard for Federal, so this is not something new for me. We are also a state that hasn't adjusted the standard deduction in years.

 

Oregon is very similar to Delaware except that it does increase the standard deduction, although it is still very low.

I often do Oregon returns for the high school children  of clients who didn't make enough to file a federal return.

[BulldogTom]

Another consideration is the 20% passthrough deduction.   I wonder if the states are going to allow that as a deduction?

One other thing that came up in an update seminar that I was at last week was the SALT limitation for mid-sized pass through entities.   When the income passes through to the state, the taxes paid will be limited to the 10K cap.   If you are in CA, and you are passing 1MM onto your 540 return from your business, the tax is going to be about 139K.   There is no federal deduction for that state tax hit.

I did not think about that, but all these S Corps and LLC's are going to lose benefit of the state taxes paid on their corporate or partnership earnings.

Tom
Modesto, CA

[jklcpa]

43 minutes ago, BulldogTom said:

Another consideration is the 20% passthrough deduction.   I wonder if the states are going to allow that as a deduction?

One other thing that came up in an update seminar that I was at last week was the SALT limitation for mid-sized pass through entities.   When the income passes through to the state, the taxes paid will be limited to the 10K cap.   If you are in CA, and you are passing 1MM onto your 540 return from your business, the tax is going to be about 139K.   There is no federal deduction for that state tax hit.

I did not think about that, but all these S Corps and LLC's are going to lose benefit of the state taxes paid on their corporate or partnership earnings.

Tom
Modesto, CA

Excellent points, and Tom just described one of my nightmare clients with the SALT limitation, although I haven't to run through detailed calculations to see the overall effect to include the interplay with the AMT.  In any case, I'm definitely not looking forward to meeting with those affected by the limitation.

 

 

[BulldogTom]

On 2/10/2018 at 12:39 PM, jklcpa said:

Excellent points, and Tom just described one of my nightmare clients with the SALT limitation, although I haven't to run through detailed calculations to see the overall effect to include the interplay with the AMT. 

I did not even think about States that might have their own AMT?   Are there states that have AMT, or is that federal only?

Tom
Modesto, CA

[jklcpa]

1 hour ago, BulldogTom said:

I did not even think about States that might have their own AMT?   Are there states that have AMT, or is that federal only?

Tom
Modesto, CA

I was talking about the federal AMT with the adjustment for SALT flowing from Sch A.

Because most of the Sch A deductions for the client I was referring to comes from the SALT deduction and with this couple being higher income, they are always in the AMT so the Sch A never benefits as much as they think.  Because of the SALT cap, it is most likely that the standard deduction + over 65 allowances will exceed the Sch A, and it will be interesting to see how much effect all of this has once I have his information and run the planner.  

 

[Abby Normal]

The standard deduction is completely disallowed for AMT. With itemized you at least get partial.

[SaraEA]

Connecticut has AMT (along with gift and inheritance tax, $2mm exclusion).