One element of President Donald Trump’s proposed tax reform plan may have a significant effect on residents of New York State. The plan would end the current ability of taxpayers to deduct the amounts paid for state and local taxes on their federal returns. Since residents of New York currently pay one of the highest state tax rates in the country, the loss of these deductions could represent a significant added financial burden for taxpayers across all brackets.
In the state of New York, deductions for state and local income taxes can add up to nearly 10 percent of the adjusted gross income of taxpayers. By eliminating these deductions, residents of the state will be asked to shoulder an even higher tax burden. The change is expected to hit wealthy New York residents hardest. Those with incomes over $100,000 per year receive nearly 90 percent of the financial benefits associated with state and local tax deductions on federal tax returns.
Figures compiled by the Tax Foundation indicate that eliminating state and local tax deductions on federal returns nationwide would increase the amount collected by the Internal Revenue Service (IRS) by $1.8 trillion in the next 10 years. This would provide added resources for funding other tax cuts proposed by the Trump administration, some of which may lessen the blow of losing the deductions for state and local tax obligations.
The removal of deductions for state and local taxes is part of President Trump’s proposed overhaul of the entire federal tax system, which would include reductions in the marginal tax rates paid by most individuals and businesses and the reduction of individual tax brackets from the current seven to just three. The taxation rate of the top bracket would fall from 39 percent to 25 percent under the proposal. On the corporate side, the tax rate would fall to 15 percent; businesses, however, would lose many of the tax breaks they enjoy under the current system.
President Trump’s proposal is still very much a work in progress. It is not certain if any of these provisions will actually make their way through the review process to become part of IRS regulations. If the elimination of state and local tax deductions is implemented, however, residents of New York can expect to pay more in federal taxes for the foreseeable future.
Consulting with a knowledgeable NY tax lawyer can provide added help in reducing your overall tax indebtedness. These legal professionals can deliver advice and guidance in navigating IRS regulations and managing your finances effectively. By enlisting the help of an experienced NY tax lawyer, you can ensure that you keep as much of your hard-earned money as possible while minimizing stress when tax time rolls around once more.