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States and TCJA


SaraEA

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A while ago there was a thread on the best and worst states when it comes to handling taxes.  As the states get their teeth around the TCJA, we'll start to see those that have uglier sides.  I nominate CT.  On May 31 the governor signed a law that pass-through entities must now pay tax at the entity level, at the top rate of 6.99% of course.  Partners and S corp members will get a credit on their individual returns.  Problem is that we tax pros found about this on June 13, two whole days before the 2nd quarter estimates were due.  So now all these entities are two quarters behind, and interest and penalties are threatened unless the individuals "recharacterize" their individual estimates as paid by the entity. 

It gets worse.  Yesterday we learned that the state has decoupled from the new bonus depreciation that went into effect Sept 27, retroactive to Jan 1 2017.  So anyone who filed a perfectly accurate return this past season and took advantage of the bonus now has to amend their CT and pay interest (at 1% A MONTH) and possibly penalties.  To ask for abatement, taxpayers have to go through the usual channels and send "evidence and documentation" to the DRS legal department.  I feel like sending them the whole 1100 pages of the TCJA!  I can't wait to spend days culling client returns to find out who was affected and then tell them they owe CT money and us money for the amendment.

The fact that no notice came from DRS until it was too late suggests they were being sneaky, didn't want anyone to notice.  We need a DRS liaison in this state, and a legislature that doesn't pass laws that penalize taxpayers retroactively.  I can't wait until November!

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What will you do in November?  Drain the swamp in CT?  Amazing that the voters are the people who can REALLY drain the swamp.  If everyone wants it drained why do the incumbents always win?  Careful, this could lead to a partisan political thread.  Let's leave the parties out of it.  They both do their best to hoodwink the public.  Delete if necessary.

I appreciate the fact that this should not become a partisan political discussion on this forum, but it's hard to talk about taxation and leave the politicians totally out of it.

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Oregon has 4 personal tax brackets, 5 %, 7 %, 9 % & 9.9 %.  In Oregon the 9 % rate is reached rather quickly.

Oregon never allowed the DPAD deduction at the bottom of page 1 of the 1040.

Four years ago Oregon passed a reduced PTE tax rate of 7 % for any S Corps or Partnerships who employed at least 1 full time employee ( not an owner )  in each calendar quarter..

Therefore the TCJA's  20 % PTE  Deduction created a double dip situation.

Oregon's response was to not allow the TCJA 20% PTE Deduction.

Instead Oregon decided to keep their reduced rate of 7 % for  PTE 's with at least 1 full time employee

plus allowing Schedule C filers with at least 1 full time employee to also use the lower rate.

 

 

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8 hours ago, cbslee said:

Oregon's response was to not allow the TCJA 20% PTE Deduction

I don't think that any states will allow the PTE deduction, because it's not a 1040 page 1 AGI adjustment and it's not an itemized deduction. It's probably going to be slipped in where personal  exemptions used to be.

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According to an article on the Moss Adams website, there are 22 states that maintain a rolling conformity with federal law using AGI as the beginning point.

There are 20 states that maintain a fixed date conformity with federal law, using AGI as the beginning point.

Then there 5 states that use Federal Taxable income as their beginning point.

First ,any state that has rolling conformity and uses Federal Taxable Income as their starting point will be allowing the PTED.

Second, any state that has fixed date conformity and uses Federal Taxable Income as their starting point may allow the PTED depending on their date of conformity.

 

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