April 28, 2019

Taxes: Beware of Tax Return Mistakes if you Live in a State that Does Not Conform to Federal Tax Code.

States That Do Not Automatically Conform To Federal Tax Code.


With the major overhaul to the United States Federal Tax Code in December 2017, the changes not only created major headaches for tax planning and tax return preparation on the federal level.  These changes also created geometrically larger headaches for some corporate and individual income tax payers in states that do not automatically conform to changes in the federal tax code.

My home state of California included.

When I checked earlier this year, seven states did not yet conform to the federal tax code changes made into law in December 2017, more than a year earlier.  They were:
  • Arizona (both individual and corporate tax codes);
  • California (both individual and corporate tax codes);
  • Florida (corporate tax code);
  • Massachusetts (individual tax code);
  • Minnesota (both individual and corporate tax codes)
  • New Hampshire (corporate tax code); and
  • Virginia (both individual and corporate tax code).
This tax code non-conformity can create major headaches for tax planning and tax return preparation purposes.  If you live in one of these states, and you or your tax preparer did not pay attention to the non-conformity areas that affect your 2018 tax return(s), you could be paying considerably more state income taxes than necessary.

For instance, California continues to allow individual income tax deductions in full for state and local real and personal property taxes,  and does not conform to the $10,000 limitation placed by federal law, you can deduct your full tax amount.  California also continues to allow mortgage interest deductions of up to $1.1 million, $1 million for acquisition mortgage debt and $100,000 for home equity debt. Federal law (for loans taken out as of December 15, 2017, older loans are grandfather in) allows only $750,000 for acquisition mortgage debt and nothing for home equity debt.

And that's merely the beginning of non-conformity tax concerns.  Have a headache yet?

Make certain your tax returns are properly prepared, so you do not pay more tax … perhaps much more tax … than you are legally required to pay.

Tax Concerns?
About Mary Rae Fouts, EA

Mary Rae Fouts, EA provides tax, insurance consulting, and expert witness services to clients throughout the United States.  For more information visit FoutsFinancialGroup.com.

Mary Rae Fouts

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