Tax season is in full swing here at Sturgill & Associates.
With the new tax law changes in place, this season has been thought-provoking to say the least. One change of particular interest is the standard deduction increasing greatly over prior law. For married couples it is now $24,000 (slightly larger if you or your spouse is over the age of 65) and for single individuals it is $12,000.
With this increased standard deduction, there is a good chance that many will not itemize. However, from our observations, if your total itemized deductions are close to the standard deduction amount, you may want to consider forcing itemized deductions on the federal return. Force the lower deduction?!? Yes, because you may save more money on your State of Maryland return. Maryland law does not allow you to itemize your deduction on the State return, unless you itemize on the Federal.
To quantify: what we are seeing is when total itemized deductions reach approximately $19,000 , there starts to be some potential for benefit overall by forcing to itemize. For singles it is around $9,000. So while you will pay slightly more on the Federal side, the savings with Maryland greatly outweighs the Federal cost.
In addition, if you have around $7,000 in real estate taxes, there is another area you can explore, and that is to elect sales tax rather than Maryland income taxes. Again the benefit is seen on the State side, with little downside to your Federal taxes. With either of these methods or a combination, we are seeing overall Federal and State savings of $200-$900.
For our Maryland clients, now is the time to reach out to your representatives and ask for decoupling. Many states, such as Oregon, have decoupling, and others such as Virginia are considering the idea. If Maryland chooses not to decouple, it is estimated that the State will have increased tax collections of $500-$700 million.
As the general public continues to understand the actual implications of the new Tax Cuts & Jobs Act, it is imperative that your taxes receive the attention they deserve. We at Sturgill & Associates are here for you!