State and Local Taxes (SALT) NJ League of Municipalities - 2018

Economic Impact from (DLGS) Local Charitable Funds Regulation According to the nonpartisan Tax Policy Center, the Federal government’s capping of the SALT deduction to $10,000 results in New Jersey taxpayers experiencing an average per capita loss of $630

What is a Deductible Charitable Contribution? Definition What is a Deductible Charitable Contribution? A deductible charitable contribution is a donation or gift made to a qualified organization. The donation must be made voluntarily and with no expectation of any substantial reward or benefit. Pursuant to NJAC 5:30-18.11, a municipality or county shall not make representations to donors or prospective donors concerning Internal Revenue Service treatment of donations made to a charitable fund, and donors shall sign such an acknowledgement when making a charitable donation.

IRS Proposed Regulation On August 23, 2018, the Internal Revenue Service (IRS) proposed new regulations under section 170 of the Internal Revenue Code regarding the treatment of payments and property tax transfers under state and local credit programs. The proposed IRS regulations would limit the amount that a donor could claim as a charitable donation against Federal income taxes to only the portion of the donation not credited toward the donor’s state and local tax obligation.

IRS Proposed Regulation However, the proposed IRS regulations include an exception or “safe harbor” provision wherein a donor may claim the full amount of their donation as a charitable deduction against Federal income taxes if the donor receives a credit of no more than 15 percent or some other lesser amount against state and local taxes.

IRS Proposed Regulation Pursuant to a February 4, 2011 Memorandum from the IRS Office of the Chief Counsel (No. 201105010), a payment of cash in the form of a charitable contribution to a state or local agency for which the taxpayer is entitled to a transferable state tax charitable credit is a proper deduction pursuant to section 170 of the Internal Revenue Service Code.

Tax Rate Changes – Illustrating Married, Joint 2018 2017 2018 Base Tax +% Up to $ 2017 Tax + / - 10% 19,050 1,905 12% 77,400 1,925 (20) 8,907 22% 165,000 10,828 (1,921) 28,179 24% 315,000 33,085 (4,906) 64,179 32% 400,000 79,167 (14,988) 91,379 35% 600,000 107,217 (15,838) 161,379 37% 182,572 (21,193) 2017 Base Tax +% Up to $ 2018 Income 2017 Tax 10% 18,650 1,865 15% 75,900 19,050 1,925 10,453 25% 153,100 77,400 10,828 29,753 28% 233,350 165,000 33,085 52,223 33% 416,700 315,000 79,167 112,728 35% 470,700 400,000 102,217 131,628 39.4% 600,000 182,572

Tax Changes Doubles Standard Deduction, Married-Joint from 12,000 to 24,000 Eliminates Personal Exemptions - $4,050 each Itemized Deductions Decreases mortgage loan cap from $1 million to $750,000 for interest Increases cap on charitable contributions from 40% to 60% of AGI Caps State and Local Tax (SALT) at $10,000 Medical Expenses now in excess of 7.5% of AGI (down from 10%) Eliminates Moving Expense Eliminates Casualty or Theft Loss Eliminates Tax Preparation Expense Eliminates Unreimbursed Employee Travel Expense & Home Office Expense

Tax Changes Tax Credits Child Tax Credit (under 17 years old) increased from $1,000 to $2,000 New $500 Tax Credit for non-child dependents (including parents) Individual Health Care Tax Penalty eliminated – in 2019 Eliminates the Tax Deduction and Income Reporting for Alimony Only if Divorce agreement is finalized after December 31, 2018 Alimony Revenue/Expense is grandfathered for existing agreements

SALT Impact on Small (or Large) Businesses State and Local Taxes (SALT) are Business Expenses that remain a FULL deduction on the Corporate Tax Return or on Schedule C for the Sole Proprietor

Married, Joint Return (4 dependents) 2018 2017 Taxable Wages 150,000 Personal Exemptions (4 @ 4,050 each) Eliminated 16,200 Standard Deduction (12,000 in 2017) 24,000 N/A Itemized Deductions None 27,300 Mortgage Interest ($200,000 @ 3.5%) 7,000 Property Taxes (NJ avg = 8,500) 12,000 NJ Income Tax 6,000 SALT Limitation (8,000) Unreimbursed Business Expense - mileage 1,300 Donations 1,000 Taxable Income 126,000 106,500 Tax 19,599 18,102 Child Tax Credit 2,000 Non-Child Dependent Credit 500 Net Tax Liability 17,099 17,102 Tax Reduction in 2018 3