When the Tax Cuts and Jobs Act was passed at the end of 2017, most people expected to see a decrease in their tax liability. But in Utah, the majority of households are seeing just the opposite. Many of the things that make the Beehive State unique are also causing taxpayers to see a dramatic increase in their state taxes this year.
Why is this happening, and why is it such a prominent issue in Utah? And what can you do about it? Here’s what you should know before you file taxes in Provo.
Large Household Size
Utah has the largest average household size in the country. And while large families are a point of pride for many Utahans, it’s one of the reasons that our state’s taxpayers are seeing such a large increase in their tax liability.
One of the major changes instituted by the Tax Cuts and Jobs Act was the elimination of the personal exemption. This exemption allowed taxpayers to deduct $4,050 from their taxable income for themselves and any dependents. While this deduction wouldn’t have a large impact on the tax liability for an individual or a small household, those with large families will suddenly find themselves reporting tens of thousands more in income to the Utah State Tax Commission. And of course, more taxable income means more taxes owed.
High Charitable Giving
Additionally, Utah has one of the highest rates of charitable giving in the country, largely due to church tithings. Unfortunately, this generosity among Utahans is also proving to have a negative impact on their tax returns.
When eliminating the personal exemption mentioned above, the government also doubled the standard deduction amount for taxpayers. But a large percentage of Utahans were already receiving the same benefit amount by itemizing their deductions and charitable donations. This means that the increased standard deduction, which would offset the loss of the personal exemption for many taxpayers, has little to no effect for most Utah households.
What Can You Do About It?
Obviously, the 2018 tax year is over, so there is not a lot you can do to change your tax liability for last year. One possibility, however, is to maximize contributions to tax-deductible retirement accounts and education funds; these contributions can be deducted from your 2018 income as long as they are made before the tax deadline. However, you should consult with an accountant to ensure you’re contributing to the right kind of account.
The best thing you can do to avoid the sticker shock of a high tax bill is to educate yourself. Speak to one of our accountants about what you can expect on your tax return this year, and try to get a better understanding of how the new tax laws will impact you moving forward. Preparing yourself for the changes in your tax liability will allow you to take necessary steps to ensure that you can pay your tax bill (or set up a payment plan) when you file.
For the 2019 tax year, there are a few steps you can take to avoid a similarly high tax bill when you file in 2020. The first thing to do is to review your withholdings; odds are, with the new tax laws, you should be withholding more from your paycheck. Secondly, make contributions to those retirement accounts and education funds as we mentioned above; doing so throughout the year is often easier than making large deposits at tax time. Finally, consult with our accountants and learn how to maximize your deductions based on your unique situation.
Be sure to set up an appointment with our CPAs before you file taxes in Provo. Give us a call today, and we’ll help you to better understand how the new tax laws impact you.