2018-01-04 / Local News

People want to pay taxes quicker

Part of fed tax overhaul
By Alan Campbell
Of The Enterprise staff

People by nature dislike paying property taxes. So why did about 10 property owners in Elmwood Township want to pay more taxes in 2017?

The answer lies within the pages of the massive federal tax overhaul. They wanted to pay less income tax.

“People were calling here and asking if they could pay in advance,” said Debbie Street, treasurer in Elmwood Township. “They said, ‘Can’t you just estimate it for me?’”

Street had to turn down those requests, which numbered about ten. She has always accepted payments for “winter property taxes,” which are due on Feb. 14, prior to Jan. 1. But bills won’t be sent until the end of July for “summer property taxes,” which are due Sept. 15.

One provision in federal income tax reform doubles what is known as the “standard deduction,” explained Omena certified public accountant Dave Faught. The current amount for a couple is $12,700, which in 2018 is increasing to $24,000.

The standard deduction determines at which point it makes sense for tax filers to list all of the deductions available to them, which include property tax payments and donations to nonprofits. Their taxes in 2017 decrease after their deduction total hit $12,050; that point will nearly double for their 2018 returns.

“Fewer people will itemize their deductions when their standard deductions go up,” Faught explained. “You get an automatic tax break of $24,000. Unless you are going over that $24,000, there is no need to even track deductions anymore.”

Faught said the change prompted some filers who likely won’t itemize deductions this year to increase donations to nonprofits in 2017, when they will reduce their income tax bill — and some to even try to pay property taxes in advance for the same reason.

The federal income tax deduction changes seem to hit the “sweet spot,” and will affect many filers.

“A lot of middle class people are right around that 412,000 level. Some went a little under, and some a little over. Now most people that I see will be under the $24,000,” he said.

Taxpayers may have to fill out a “long form” federal income tax form to know where they fall, he added,.

“It’s really variable. It really is dependent on people’s independent circumstances — whether you have kids, whether you have a business, those types of things. I would say that by and large, most people will see a deduction,” Faught continued.

He called the new tax law the most impactful since President Ronald Reagan’s tax reform in 1986. “I would say it was bigger, it was more dramatic. But this is the biggest change since then, in 30 years,” Faught said.

While a reduction in the corporate tax rate from 35 percent to 21 percent has gleaned national headlines, owners of small businesses run as limited liability companies (LLCs) will also receive a benefit.

“In our region, what will have a bigger impact is the 20 percent reduction in business net income that flows to your personal return. Before if a business made $100,000, the owner had to pay personal income tax on that. Now they have to pay personal income tax on $80,000,” Faught explained.

A LLC, however, remains responsible for paying Social Security tax due on profits.

Passage of the tax reform package had been in jeopardy for months until signed by President Donald Trump on Dec. 22. It consolidates the number of tax brackets from seven to four, repeals the alternative minimum tax and phases out the estate tax over six years.

Mary Stanton, executive director of Leelanau Christian Neighbors (LCN), does not expect the change in the deduction rate to affect donations in 2019. The organization, located in Lake Leelanau, runs a food bank and other programs to help needy people in the peninsula.

“We don’t know at this point what is going to happen. But I personally believe most people donate to LCN because they support the community; they are not doing it for a tax break.

“I believe our donors give from the heart. That’s what I believe.”

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