As you have heard, the Illinois legislators passed an income tax hike earlier this month which is effective July 1, 2017. What does this mean for you?
- Illinois income tax rates increased from 3.75 percent to 4.95 percent for individuals, trusts and estates.
- Beginning with tax year 2017, individuals filing married filing joint returns with income exceeding $500,000 and $250,000 for all other returns may not claim the following:
- Personal exemption allowance
- K-12 Education Expense Credit
- Property Tax Credit
- Corporate tax rates (excluding S Corporations) increased from 5.25 percent to 7 percent.
- Beginning with tax year 2018, the Domestic Production Activities Deduction allowed from profitable corporations and partnerships which flow to your federal tax returns must be added back to income on the Illinois tax returns.
This income tax rate hike means paying an extra $12 on each $1,000 of income. However, if you earn at least $501,000 as a married couple, your tax hike is more as you lose the personal allowances and above-mentioned credits.
You can minimize your tax liability by saving more in your 401(k)s, IRAs and business retirement accounts. Retirement income is not taxable in Illinois as of yet. You can also minimize your tax liability by saving money for your kids’ college education in one of Illinois two 529 college savings plans. However, another state’s 529 college savings plan is not deductible. You will not ever pay taxes on monies contributed to Illinois 529 accounts or its earnings if the funds pay for college.
If you would like to learn more about this tax strategy, please call Susan at 630.523.5762.