Hartford Business Journal

www.HartfordBusiness.com • September 24, 2018 • Hartford Business Journal 21 EXPERTS CORNER New federal tax rules create uncertainty in CT By Brenden Healy A s many Connecticut residents are painfully aware, the new federal tax law passed last December limits our ability to deduct the state and local taxes we pay each year. Under the old rules, we could deduct Connecticut income tax, real estate tax and car taxes when we filed our annual tax return with the IRS. Under the new tax law, those state and lo- cal taxes we pay (also referred to as "SALT") are limited to a maximum deduction of $10,000. Several states, including Connecticut, have made attempts to circumvent this new, $10,000 tax limit by reworking how and why the SALT taxes are paid. As an example, and because the new tax law does not limit the charita- ble contribution deduction, some states are hoping to allow their lo- cal municipalities to recharacterize property taxes paid as a chari- table deduction. In theory, the person paying that property tax bill would be able to deduct the payment as a charitable contribution instead of deducting it as a property tax, which could be limited under the new tax rules. A new Connecticut law allows mu- nicipalities to provide a property tax credit for donations to a community supporting organization, which is a charitable nonprofit that is organized exclusively to support municipal spending on programs and services, such as public education. A municipality's governing body must annually approve the credit on or before Oct. 1. The municipality will determine the amount of the tax credit, which must not exceed the lesser of (A) the amount of property tax owed, or (B) 85 percent of the amount of voluntary, unrestricted and irrevocable cash dona- tions made by or on behalf of the owner of a residential property located in the municipality to a community support- ing organization during the calendar year preceding the year in which an ap- plication for the tax credit is filed. In other words, Connecticut legisla- tors crafted a way to convert your prop- erty taxes to a charitable contribution. Unfortunately, the Internal Revenue Service (IRS) has essentially put the brakes on these new attempts. The fed- eral agency issued proposed tax regula- tions concerning the availability of chari- table contribution deductions when the person receives (or expects to receive) a corresponding state or local tax credit. These proposed regulations are designed to block states and localities (like Connecticut) from setting up char- itable funds to preserve the deductibil- ity of state and local property taxes in response to the limitation on the SALT deduction imposed by the new law. New York and New Jersey have also recently enacted legislation creating charitable funds and permitting locali- ties to provide property tax credits in exchange for contributions to the funds. Many states also provide various types of tax credits for contributions to gov- ernments or government-created funds, which were established prior to the federal tax law change last year. These proposed IRS regulations appear to try to block the recent SALT workarounds while preserving deductions for other types of state charitable tax credits. In an Aug. 23, 2018, Treasury Department press release, Treasury Secretary Steven Mnuchin stated, "We appreciate the value of state tax credit programs, particularly school choice initiatives, and we believe the (IRS') proposed rule will have no impact on federal tax benefits for donations to school choice programs for about 99% of taxpayers compared to prior law." In July, New York, Connecticut, New Jersey and Maryland filed a lawsuit in the U.S. District Court for the Southern District of New York claiming that the reduction of the SALT deduction en- acted by the new tax law is unconstitu- tional and exceeds Congress' authority to impose a federal income tax. There may be some tax relief to Connecticut residents as a result. Brenden Healy is a CPA and partner at Hartford accounting and consulting firm Whittlesey. HARTFORDBUSINESS.COM POLL LAST WEEK'S POLL RESULT: Is the state investing enough money in the University of Connecticut? NEXT WEEK'S POLL: Is Congressman John Larson's multibillion-dollar Hartford tunnel plan a smart potential investment? To vote, go online to hartfordbusiness.com BIZ BOOKS Staying ahead in the knowledge-based economy By Jim Pawlak "Never Stop Learning — Stay Relevant, Re- invent Yourself, and Thrive" by Bradley R. Staats There isn't a day that goes by that the business media doesn't write something about the growth of a knowledge-based economy. Staats embraces but expands on that view by emphasizing the acquisition compo- nent of knowledge — "learning." There are four drivers of his "learn- ing economy": 1. The growth of "non- routine cognitive labor" — Creating ongoing value depends upon think- and-do. Routine (i.e. same-old-same-old, rinse and repeat) won't create value; only continuous improvement does. If companies don't produce "new and improved," they go out of business. The same applies to individuals' careers. 2. "Specialization" — Back in 1776, Adam Smith's "The Wealth of Nations" identified the division of labor as the way to improve individual productivity. When people spe- cialize they know they must stay on the cutting edge to maintain their expertise in order to add value. As a result, we become more inquisitive, and the learning cycle becomes self-sustaining. 3. "Globalization" — The internet has also created on-demand competi- tion for jobs. It's easy for companies to contact and contract individuals to execute an assignment as it is for you to call Uber or Lyft for a ride. Many people work in the "gig economy." They move from job to job and learn what companies want in the way of skills and how those companies do business. As they collaborate with others on assignments, they expand their knowledge and network. 4. "Scalability" — The internet has made it easy to advertise individual services and reach a large audience. What has been learned can also be readily shared. 73.6% Yes 26.4% No READER COMMENTS: "There needs to be greater oversight of the monies being spent on education. Salaries, benefit packages, etc." "UConn needs to exam their expenses and bring spending more in line with the current economic climate in CT." "UConn is one of the state's few assets that attract people to our region and drive innovation. We should invest more in our future." Brenden Healy Jim Pawlak Book Review

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