taxes (real estate and car taxes). For example, a taxpayer that pays $8,000 in CT income tax and $12,000 in property taxes, previously would have been able to deduct $20,000, but now can only deduct $10,000. How do you think this change will impact personal financial planning? Case in Point: 1. Eric’s major financial concerns in his current situation are paying for his children’s in-home care that takes up the majority of his income and paying a large amount for taxes every April. 2. Eric can improve his tax planning efforts by investing in options that offer tax benefits such as a 529 plan, IRA or 401k. These savings plans are tax-deferred which would put more money back in his pocket to cover his childcare. 3. Calculations: a. $71,604 + $50 + $45 = $71,699 gross income $71,699 - $3,000 = $68,699 AGI $68,699 - $18,000 = $50,699 Taxable Income b. $5,809 - $2,200 = $3,609 Total Tax $3,609 / $50,699 = 7.1% Average Tax Rate c. Based on his withholding, Eric will receive a refund of $1,216. Tax Law Changes: The new limit on SALT deductions has affected taxpayers in states like CT who are now only able to deduct $10,000. Taxpayers will have to budget for this change by adjusting other expenses throughout
the year. People will not be able to rely on a large tax deduction anymore and should discuss alternate options to reduce tax burdens with their CPA.
- Spring '08
- Taxation in the United States, Single Father's Tax Situation