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Tax Home Alabama: How the New Tax Bill Raises Taxes for Alabamians

Brad Garland, CPA

December 28, 2017

On Friday, December 22, President Trump signed the $1.5 trillion tax bill into law. For federal taxes - like your 1040 - the cuts are purported to lower the average taxpayer's income tax liability in 2018 and beyond. But what about state income taxes? While not as high in either amount or rate as federal income taxes, state income taxes still play a critical role in planning and strategy for Alabamians.

Welcome to Alabama

Several changes have immediate and direct impacts starting January 1. First, two changes to the itemized/standard deductions must be considered. The $10,000 cap on the all-encompassing 'state taxes paid' limits the deductions that were previously less inhibited on state taxes of the income, sales, and real estate variety means that you may want to carefully assess how much taxes you're paying to Alabama. Also, the mere fact that the increased standard deduction translates into less itemized deduction-takers on their 1040 could play a role in your strategy.

Next, we'll talk religion - specifically, the Auburn/Alabama rivalry. While this year's shocking Iron Bowl won't be affected, fans and alum of the teams (and other athletics) may be in for a surprise in 2018 and beyond: donations made to the athletic department in exchange for sporting event tickets or even priority for seats/tickets is no longer deductible. Yes, in this state, the tax bill even affects the Bammers and Barners that make Saturday pilgrimages.

Finally, Alabama's federal tax deduction, a benefit on the state return for the federal taxes paid, available in a few other states and lambasted along with the sales tax on groceries by groups desiring a more progressive tax system, would presumably shrink as the federal tax cuts take effect. This, in turn, means the state tax liability will increase as a result. While you're still saving overall, this is one more facet of the complex tapestry of federal and local taxes that must be considered as this massive tax bill is processed for 2018 planning and projections.

Stay tuned for further analysis on each of these tax changes at the state level.

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