One of the key principles of the 2017 Tax Cuts and Jobs Act was that reforms were rendered so simple that taxpayers could complete their form 1040 on a postcard. Last summer, the IRS unveiled a new tax return postcard just for this purpose.1
The reality, however, is that taxes are never simple, and simplicity may not even be a good thing. For example, back in the 1950s and early 1960s, when the top marginal tax rate was over 90 percent, there were so many available loopholes for wealthy filers that the top 0.01 percent paid closer to 45 percent of their income in taxes.2
What really matters isn’t how much you earn, but how much you keep. If you’ve found that your tax return this year isn’t all that you hoped it would be, we may be able to help. There are ample tax-advantaged, insurance-based products designed to help you secure your financial future. Give us a call and we’ll tell you more.
Now that the new tax legislation has come full circle into the 2018 tax season, analysts are discovering all sorts of trends. For example, one study purports that new federal tax provisions combined with state and local income taxes puts some middle- and lower-income earners at a higher disadvantage. That’s because lower-income households tend to spend a higher share of their income on necessities, like food and transportation, in which there’s a significant local tax bite. On the other hand, local sales taxes take a smaller bite, percentage-wise, from higher-income households, which have significantly higher discretionary income once the necessities are covered.3
Despite this phenomenon, state income taxes are having a bigger influence when it comes to taxing the wealthy. Just recently, professional baseball player Bryce Harper spurned offers from the Los Angles Dodgers and San Francisco Giants – both located in California – only to sign a $330-million contract with the Philadelphia Phillies. While taxes are not likely to be the main impetus behind Harper’s decision, he does stand to save tens of millions of dollars based on state income tax rates: 13.3 percent in California versus 3.07 percent in Pennsylvania.4
Wealthy taxpayers are also feeling the pinch is real estate taxes. In fact, new tax caps are influencing the residential market in high-end cities like Manhattan, where condo prices are dropping as wealthy residents relocate to lower-tax states. These migrations are directly associated with the mortgage interest deduction cap and limits on the state and local tax deduction – no more than $750,000 in mortgage interest or $10,000 in state and local taxes.5
Content prepared by Kara Stefan Communications.
1 Lisa McCann. Accounting Today. Aug. 16, 2018. “The postcard tax return: A ‘simple’ solution?” https://www.accountingtoday.com/opinion/the-postcard-tax-return-a-simple-solution. Accessed March 7, 2019. [CLICK HERE]
2 Joe Nocera. Bloomberg. Jan. 4, 2019. “The Golden Age of Hollywood Tax Avoidance.” https://www.bloomberg.com/opinion/articles/2019-01-29/hollywood-stars-didn-t-pay-90-percent-tax-they-created-loopholes. Accessed Jan. 29, 2019. [CLICK HERE]
3 Christopher Ingraham. The Washington Post. Mar. 5, 2019. “State and local taxes are making the rich even richer, according to a new analysis.” https://www.washingtonpost.com/us-policy/2019/03/05/state-local-taxes-are-making-rich-even-richer-according-new-analysis/?utm_term=.093f514b98db. Accessed March 7, 2019. [CLICK HERE]
4 George Skelton. Los Angeles Times. Mar. 7, 2019. “Bryce Harper will save tens of millions in taxes by spurning the Dodgers and Giants.” https://www.latimes.com/politics/la-pol-ca-skelton-income-tax-20190307-story.html. Accessed March 7, 2019. [CLICK HERE]
5 Ben White and Katy O’Donnell. Politico. Mar. 7, 2019. “Signs of economic strain emerge in Trump’s home base.” https://www.politico.com/story/2019/03/07/housing-market-trump-2020-1247505. Accessed March 7, 2019. [CLICK HERE]
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