Quarterly taxes may require a bigger check
If you pay quarterly estimated income taxes, you know that the third quarter payment isn't far off. You may want to add some dollars to your state quarterly payment next month.
The reason, of course, is that the Illinois legislature increased the state income tax rate for individuals (and for trusts and estates) from 3.75 percent to 4.95 percent.
That's a 32 percent increase, and it was effective July 1.
At the same time, the Illinois corporate tax rate increased from 5.25 percent to 7 percent. S Corporations were excluded from that particular increase, probably because their profits (or losses) pass through to shareholders anyway.
You'll likely want to check with your tax advisor, of course, but in material distributed to clients of Dowell Group LLP, a Palatine CPA and advisory firm, managing partner Greg Dowell suggests that "If you are paying quarterly estimated taxes that were calculated on a 'safe' level based upon your 2016 Illinois income tax liability, you will not be penalized for underpaying quarterly estimates if you pay the third and fourth quarter installments in the same amounts as first and second quarter installments."
You'll ultimately have to cough up any additional money owed as a result of the rate increase, however.
Not surprisingly, there's more to the tax issue. Congress, for example, is being pushed by President Trump to pass an overhaul of federal taxes, though Dowell isn't overly excited about that possibility.
"I've come to believe that until (a change in) tax law is imminent, you don't want to do a lot of planning," he says. "Too many uncertainties can creep in. You don't necessarily want to hold off and miss an economic opportunity" based on tax actions that ultimately may not happen.
There are other Illinois tax changes you might want to consider in your planning:
• The standard exemption and property tax deduction are no longer available to higher income individuals -- defined as spouses with adjusted gross income above $500,000 and filing jointly or "all other taxpayers" with adjusted gross income above $250,000.
The change is effective with tax years beginning on January 1, 2017 -- or after.
• The legislature took away the Section 199 addback for taxable years that end on or after December 31, 2017. Part of the Internal Revenue Code and therefore still allowable for federal tax purposes, in Illinois businesses -- and potentially individuals, partnerships, trusts and estates -- will no longer be able to deduct domestic production activity, Dowell wrote in his firm's tax letter.
• Better state tax news is that the research and development credit has been retroactively reinstated for tax years that end prior to January 1, 2022. If you have qualifying R&D expenditures, you may want to file an amended 2016 return; the legislature specifically included the period from January 1, 2016 to July 6, 2017 as qualifying.
There are other tax changes, too. Check with Dowell or your own tax professional.