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Tax reform and state conformity

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  • jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6929
    Joined: 01/09/2016

    In our discussions on changes in the tax code resulting from the passage of the 2017 TCJA (Tax Cuts and Jobs Act), I fear that we have overlooked the fact that many states do not comply with all sections (i.e. they have “decoupled”). One significant difference we’ve noticed so far is for “Miscellaneous Itemized Deductions” – formerly deductible for federal purposes, subject to a 2% floor. Below are a few notables:

    • PA – employee business expenses are deductible with no “floor” (in 2017 and prior, you could deduct only the amount of employee business expenses above 2% of AGI)
    • CA and NY – can still deduct “Miscellaneous Itemized Deductions” (employee business expenses, CPA fees, and investment fees for the most part) but subject to the 2% floor.
    • NY – can deduct RE taxes in excess of $10k
    • NY – can deduct moving expenses
    • NY – treatment of alimony hasn’t changed (deductible to the payer and taxable to the recipient)
    • Some states conform to federal for 199A pass-through deduction, but most don’t.

    If you’re interested, the Tax Foundation has gone to a lot of trouble to study federal-state tax differences in many areas of change. You’ll want to make sure you’re not overlooking the especially significant areas when preparing your income tax returns and be sure that your software is catching these differences. Some will automatically flow through, such as the 199a deduction. But there are some that you may not even be inputting into your software, such as the “Misc Itemized Deductions” because federal no longer allows.

     

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

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