Can you believe you might be paying more in taxes in 2020? How is that possible? The Tax Cut and Jobs Act (TCJA) was supposed to reduce nearly everyone’s taxes, right? It’s true that the TCJA did cut federal income taxes for most taxpayers. However, that doesn’t mean state income taxes will always stay the same. To that end, according to a new report from the Tax Foundation, numerous states are planning to pass legislation aimed at increasing income taxes. From sports betting to online shopping, state legislatures are looking for ways to increase their revenues and overcome the changes from the TCJA.
Changes to Watch Out For
So with that in mind, what changes should you be on the lookout for in 2020?
Federal Tax Reform Conformation – Many state tax laws will change simply because state lawmakers will align their tax policies with the new federal laws. Most states require residents to follow federal definitions of taxable income and adjusted gross income when they start their own individual calculations for state taxes.
Online Sales – this has been an ongoing debate and last year, things changed when a Supreme Court decision made it possible for states to tax remote or online sales by retailers that don’t have a local physical location. Since that time, 34 states have already passed laws to tax remote sales and several other states are working on similar legislation.
No Sales Tax on Services – currently, there is no sales tax on services. When people purchase a product they pay a sales tax, in most states. But when they purchase a service there is no tax. And many states are working to make that permanent. According to the report from the Tax Foundation, “today, services comprise more than two-thirds of all consumption, meaning that the sales tax omits most of what people purchase.” And, “The current trend, seems to be one whereby lawmakers and voters resist efforts to broaden the sales-tax base.” If this trend continues, state lawmakers may be forced to create different types of taxes to make up for the lost revenue.
Sports Betting – another change that could be coming is taxing sports betting. Now that many states have made sports betting legal, policy makers are looking for ways to track and tax people’s winnings. However, currently, states cannot tax most online sports betting. Therefore, if state lawmakers go after legalized betting through casinos, many people who bet on sports could turn to online gambling,instead.
Vaping and Marijuana – now that more states have legalized marijuana, and other states might soon be joining the movement, state lawmakers are looking at ways to earn more tax revenue from the trend. Some states could pass and enforce a sales tax on marijuana, like other goods. However, in most cases, states will likely include an excise tax on the sale of marijuana. In addition, nine states currently tax vaping products. At this point, most states tax vaping material at a lower rate than tobacco, but that could change as more people begin to use these products.
So, the Tax Cut and Jobs Act did reduce taxes for most. But that means many state lawmakers are going to be looking for new ways to collect additional tax revenue.
The post Why Your Income Taxes Could Rise in 2020 first appeared on Advisors to the Ultra-Affluent – Groco.