“This Post Has Not Been Updated to Include Changes from the “Tax Cuts and Job Act” passed on December 22, 2017.”
The tax package signed into law in Illinois this summer goes much further than the tax rate increase. While that increase is substantial, with rates raising from 3.75% to 4.95% for individuals and from 5.25% to 7% for corporations, other changes are significant.
New laws affecting higher income taxpayers
Taxpayers with annual incomes above $250,000 ($500,000 if filing a joint return with a spouse) will no longer be able to claim personal exemptions, including dependent exemptions and age/blind exemptions, will no longer be eligible to the K-12 Education Expense Credit (for children in private schools), and will no longer be eligible for the Property Tax Credit. Added to the higher rate, high earners could face a substantial increase in their state tax bills.
Tax changes that could effect beginning farmers with young families
Things look different for low- and middle-income Illinoisans. Earned Income Credit is increased to 14% of Federal EIC in 2017 and 18% of Federal EIC in 2018. (The credit is currently 5% of Federal EIC.) The K-12 Education Expense Credit for private schools is increased to as much as $750 (currently capped at a credit of $500). These credits can make a substantial difference to beginning farmers with young families who are reinvesting most of their incomes back into the farm.
There is a new dollar-for-dollar credit for teachers to claim up to $250 of expense for classroom materials and supplies. The adjustment taken on the federal return will not have to be added back on the IL return, making this a double-dip credit for teachers. The expenses must be for a school in Illinois, but it essentially means that any teacher who spends $250 in a year on the classroom will be repaid $262 on the tax return.
The federal return change that could mean less relief for farm business in Illinois
The change that will hit many farmers – and especially dairies – in Illinois is one that has gotten very little attention. On the federal return, there is an adjustment to income for the Domestic Production Activities Deduction (DPAD). Illinois has always allowed this deduction along with federal, but no longer. Illinois now requires the DPAD to be added back to taxable income. For many farmers, this makes a huge difference. Co-ops have increasingly passed their DPAD deductions through to their members, offering some tax relief. That relief has been lessened for Illinois farmers.
A reminder to Ag business owners looking to be a profitable farm
While federal tax laws take much of our attention, this serves as a reminder that changes in the state tax laws can make a huge difference as well.
Tax help is only a phone call away.
Our tax consultants are conveniently located in Brighton, IL, Geneseo, IL and Greenville, IL. Contact us today to see how we can help with your tax planning and preparation.
Disclaimer – Descriptions provided in this article are presented as generalities. This article should not be considered legal or tax advice. For advice on a specific transaction, please contact the AgriSolutions Tax Department at firstname.lastname@example.org.