Governor Cuomo's two new tax proposals

      The new Tax Cuts and Jobs Act that just became law was the biggest change to the US Tax system in 32 years. One of the aspects of the law was the new limitation of real estate taxes and the State and Local Tax (SALT) deduction to $10,000. This affects many taxpayers in high tax states like New York and California who pay a lot more than $10,000. Because of the new law, they will not be able to take that deduction over $10,000.

      The high tax states have been busy coming up with new ways to try and get around the law. In New York, there are two proposals Governor Cuomo has floated to address ways to get around the SALT limitation.

      The first would be to create a non-profit which would fund government operations. Donations to this non-profit would be used as a credit against state and local taxes on the New York State tax return. There is no limitation on charitable deductions in the new tax law. So donations to this new charity would be 100% deductible on your federal return. There is one problem. The IRS defines a charitable contribution as a “donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value.” One could argue that the tax credit gained from the donation to the state charity is equivalent to getting something of equal value.  Ultimately, it will be the US Treasury Department’s decision whether to recognize these donations as true charitable contributions. The most likely scenario is that it will not. The point of restricting the SALT and real estate tax deduction to $10,000 was to raise revenue. The Treasury Department is most likely not going to allow a plan devised by the states to get around the rule.

      The second proposal would give employers an option to issue a payroll tax on employers for wages in excess of $40,000. If employers opt into paying this payroll tax, they would lower the gross salaries of their employees which would cause their federal and state income tax burdens to decrease. In addition, the employee would be able to use this payroll tax as a credit against their NYS income tax. The plan would be revenue neutral to the state because the increase in the payroll tax would be countered by the decrease in NYS income tax liability. With a change in withholdings, the employee would not see a change in take-home pay.

      Although the second proposal may seem more likely to pass muster with the federal government, the republican majority in the State Senate has already come out strongly against it based on the belief that the program will not be as voluntary as the governor claims.

      The fiscal year for New York State begins on April 1^st. It is doubtful that even if one of these proposals got bipartisan support, it would pass by then.                             

Four tips for working with your accountant this tax season

                Tax season 2018 is here which means it’s time to start getting all your 2017 tax information together. If you haven’t yet received your tax documents such as your 1099 or W2, you most likely will soon. It’s also time to start planning for your meeting with your tax-preparer. Here are some tips you can use which will help your accountant prepare your tax return accurately and hopefully, get you a bigger refund.

1)      Don’t wait until one day before April 15^th or (October 15^th if you are on extension) to meet your accountant. As soon as you’ve received all your tax documents, you should make an appointment to see your accountant as early as possible. The more time you give your accountant to prepare your return, the more accurate it will be. Waiting until the last minute could cause your accountant to rush and make mistakes, which will in turn, increase the chances of an IRS audit.

2)      When meeting your accountant, try to schedule your meeting as early in the morning as possible. During tax season, accountants are working 10-12 hour days. The later in the day you meet your accountant, the more tired he/she will be. You want your accountant to be fresh when talking to you about your taxes.

3)      Every accountant should give you an organizer or questionnaire. Filling out the organizer is a great way for your accountant to get a complete understanding of your tax situation for the past year.

4)      When filling out the organizer or writing any other relevant notes, make the best effort to type in your information. If not, print clearly. Do not write in cursive. Mistakes can happen if your accountant cannot read your handwriting.

Following these steps will make your accountant’s job much easier which in turn, will help your accountant prepare your return accurately and hopefully, get you a bigger refund.