Possible VA Tax Law Changes

[bandb]

Issue: VA State Return: I read where VA legislature is considering changing their rules, in light of federal changes. If you take standard deduction on Fed, you must take same on VA. T/P has $22,000 of federal itemized deductions, less than the MFJ std ded. of $24,000.By taking std ded. on both fed and Va, T/P will pay more tax than if itemizing on both. I can file the fed using std ded, hold off filing VA until May 1, ( VA deadline ) or possibly filing an amended VA return later. Or I can just file both taking itemized deductions on both. Any comments on what preparers are doing?

[rbynaker · Accepted solution]

Update from today (2/8/19):

They may have reached a compromise and put the emergency clause back in.  If all goes well, this could be law by the end of next week (I'm not holding my breath).

Current version of the bill:

https://lis.virginia.gov/cgi-bin/legp604.exe?ses=191&typ=bil&val=Sb1372

still ties standard/itemize to federal.  Conforms to the $10K SALT cap for 2018 (but not 2019-2025).  Increases the standard deduction for 2019-2025 by 50%.

It's a start, and if it lets us file 2018 returns, so be it.

Rick

[rbynaker]

I'd wait and see, but it's not looking good.

The latest I heard (yesterday) is that it's unlikely that VA changes will be retroactive as they have been in the past.  For VA laws to be retroactive they have to contain an "emergency" clause which requires an 80% yea vote in the VA legislature.  There are several current bills floating around, but as of yesterday they had all been stripped of their emergency clauses (since none of them were able to get 80% to agree).  Bills passed without an emergency clause cannot take effect any earlier than 7/1/19.  So my guess at this point, the VA fixed date conformity will be stuck at pre-TCJA rules for at least 2018, probably 2019 (unless they want to try to make everyone file "before" and "after" tax returns for 2019).

On top of that, there was a scandal last week involving the current Governor and there's talk of him stepping down.  He's been fairly vocal on what he's not willing to sign in terms of tax reform.  No idea what the Lt. Governor's views are at this point when it comes to tax conformity, but things seem to be falling along party lines and I doubt that will change.

So, that's where we are at the moment.

Rick

[bandb]

Thanks. If nothing happens with the VA legislature, do you recommend minimizing T/P's taxes by itemizing on both fed and VA, even though fed ID's are less than Standard Deduction?

[sjrcpa]

I would

[rbynaker]

That would be my recommendation to the client.  It's ultimately their call but I'll explain the situation and present the numbers.

I don't plan to file anything with VA until VA Tax is ready to process returns.  That date has not been set yet, but I suspect updates will be posted here:

https://tax.virginia.gov/news/filing-season-update

"Virginia's tax season officially starts on Monday, Jan. 28, 2019.

However, there is one big difference this year that could affect your state return. The Virginia General Assembly is determining the Commonwealth’s response to the federal Tax Cuts and Jobs Act. Because of this, Virginia Tax will not be able to start processing returns immediately."

So my current recommendation is that we hold both federal and VA until VA is ready to process.  Folks who don't want their refunds held up will have to decide how they want me to file federal, with the understanding that their prep fee will be higher if we have to amend later.

Rick

[bandb]

Thanks for all comments. Very helpful!

[rbynaker]

YVW.  We're all in the same boat.

[WTSAbe]

I had a issues with 763 Non Resident.  In the Locality box Out of State is not an option in the drop down. So you can't complete the return.  Anybody else see this issue?

[WTSAbe]

Hello

[MadTaxMan]

Anybody have the issue of Out of State not being in the Locality dropdown on the Virginia Information Worksheet for non residents.