Free Trial: TheSiteFactory.com

Does this NJ Work-a-round have legs.

Technical topics regarding tax preparation.
#1
Jake  
Posts:
1065
Joined:
12-May-2014 3:19pm
Location:
Columbus, Ohio
Never having prepared a tax return for a NJ resident I don't know - but I doubt it.

"New Jersey Governor Phil Murphy signed legislation Monday (7/13/20) giving small businesses in the Garden State a workaround for the $10,000 cap on state and local tax deductions under the Tax Cuts and Jobs Act.
The Pass-Through Business Alternative Income Tax Act, which passed the New Jersey legislature last month, permits flow-through businesses in New Jersey, such as sub-S corporations, partnerships, LLCs and sole proprietorships, to elect to pay income taxes at the entity level instead of at the personal income tax level.
The New Jersey Society of CPAs applauded the legislation. “We are grateful to the Governor, the Legislature and all those who supported the bill,” said NJCPA CEO and executive director Ralph Thomas in a statement Monday. “Their dedication to assisting small businesses in New Jersey does not go unrecognized.”]
 

#2
Posts:
1387
Joined:
21-Apr-2014 11:24am
Location:
North Carolina
My first thought would be how the entity-level tax is computed. If it is by reference to the individual's tax liability, I see potential form over substance issues.
 

#3
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
What ever happened to this?

NYS Employer Compensation Expense Program
viewtopic.php?f=8&t=12602

"The purpose of the tax is to help employees in NYS deal with the new federal tax law changes which will limit the Federal tax deduction for real estate and income taxes."

Also,, from a 2017 discussion about the SALT limit:

viewtopic.php?p=97193#p97193

"We are star[t]ing to see in New York seniors making an exit to states such as Florida and Nevada w[h]ere there is no state income taxes."

Anecdotally, same thing here in California. But is it true? As they say, the plural of anecdote is not data. Every so often my local paper publishes a letter from some sad sack who feels they have to tell everyone about their decision to leave California, like we're all going to panic over it. I merely hope the door doesn't hit their backside on the way out. For the economy (sixth largest in the world) we need more young people (including immigrants) and fewer old people. Older people who have white privilege and who have managed their fiscal affairs reasonably will have no problem remaining in CA if they wish, despite Republican efforts to punish them because "blue state".
Last edited by makbo on 16-Jan-2020 8:40am, edited 2 times in total.
 

#4
Posts:
1684
Joined:
24-Apr-2014 7:54am
Location:
Wisconsin
Jake wrote:Never having prepared a tax return for a NJ resident I don't know - but I doubt it.


Wisconsin passed a very similar bill in effect for 2018 for S corporations and for 2019 for partnerships in response to the TCJA. If elected, the entity pays tax at the standard corporate tax rate (which is a flat rate, higher than the individual graduated tax rates) and most tax credits are disallowed. Seems like the NJ workaround is fairly similar.

I'm not saying that these workarounds are bulletproof, but they are definitely on sturdier ground than the "donate $10k to a state charity and get a $8,500 state income tax credit" attempts.
 

#5
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
makbo wrote:What ever happened to this?
NYS Employer Compensation Expense Program
viewtopic.php?f=8&t=12602
"The purpose of the tax is to help employees in NYS deal with the new federal tax law changes which will limit the Federal tax deduction for real estate and income taxes."

Apparently not very widespread in the first year.
https://osc.state.ny.us/reports/budget/ ... 019-20.pdf

"For the 2019 tax year, 262 employers opted to pay the ECET, most of which, according to DOB, are small partnerships. DOB indicates that approximately $160 million in wages would be subject to the ECET, with $2.4 million in taxes projected to be collected in SFY 2019-20 based on the tax rate of 1.5 percent in 2019. That rate rises to 3 percent in 2020 and 5 percent in 2021 and thereafter."

"We are star[t]ing to see in New York seniors making an exit to states such as Florida and Nevada w[h]ere there is no state income taxes."

The following article contains some statistics, but unfortunately they are all given as absolute numbers, rather than percentages. Of course California is going to have larger numbers than most other states, since it has a much larger population. For example, the reported rate of out-migration for California (2.3%) is barely any different from, say, Louisiana (2.2%).

https://www.bloomberg.com/opinion/artic ... -are-going

"Domestic migration statistics are frequently cited as evidence of the failures of blue-state governance, in particular the higher taxes imposed by states that are losing lots of residents.[...] But California, Illinois and New York have all experienced bigger per capita personal income gains than the nation as a whole since the beginning of 2010, and all saw taxpayers with incomes below $50,000 overrepresented among the leavers from 2011 through 2018. [...]

There also isn’t much evidence in the IRS data — yet — of an exodus of high-income taxpayers hit by the state-and-local-tax-deduction limits imposed by the 2017 tax bill. That is, the number of taxpayers with adjusted gross incomes of $200,000 or more leaving for other states actually fell in high-tax California, Connecticut, Illinois, New Jersey and New York from 2017 to 2018, the year the cap went into effect.
"
 


Return to Taxation



Who is online

Users browsing this forum: Anderly, AZUKHiker, cl2018, Google [Bot], HowardS, supdat, Terry Oraha and 63 guests