Federal tax reform changes aren’t the only changes to tax laws in 2018 –- there are also changes here at the local level in Georgia to consider as well! Governor Nathan Deal recently signed two major revisions affecting nearly all Georgia taxpayers. These changes are in response to the massive federal tax reform signed into law at the end of 2017. Many of these income tax changes first take place in 2018 and will be modified as needed for implementation in Georgia.
Tax Changes Impacting Individuals
The top tax rate for individuals is reduced to 5.75% (for taxpayers with Georgia taxable income over $7,000). This reduced rate first begins in 2019 and sunsets on December 31, 2025.
Much like the federal standard deduction, Georgia has doubled its standard deduction through 2025. The single or head of household deduction increases to $4,600, married filing separately deduction goes up to $3,000, and taxpayers filing married jointly have a higher deduction of $6,000. Georgia taxpayers must follow their federal filings when choosing whether to itemize deductions or use the standard deduction. Taxpayers will be required to plan in more detail than before in regards to the technique of “bunching” deductions, as a result of this.
Tax Changes Impacting Businesses
Like the top individual rate, the corporate tax rate also lowers to 5.75% for the 2019 – 2025 tax years.
Recently passed Georgia law now matches the IRC Section 179 deduction of up to $510,000 for qualifying property as well as the $2,030,000 property addition phase out for tax year 2017. That Section 179 deduction increases to $1,000,000 additions up to $2,500,000. However, the Section 179 deduction for certain real property was not adopted.
Georgia follows the federal changes to net operating losses concerning tax years ending on or after December 31, 2017. These changes include:
- Losses to be only carried forward (no carryback of losses), and
- farmers still have the two-year carryback.
Net operating loss carryforwards incurred for tax years beginning on or after January 1, 2018, are limited to utilizing only 80% of the net operating loss (based on the Georgia tax loss). In other words, rather than being able to fully offset your Georgia taxable income with post-2017 net operating losses, you’ll still have to pay tax on 20% of your Georgia taxable income and carryforward that remaining post-2017 net operating loss. The limit does not apply to specified insurance companies.
Federal Tax Changes Not Impacting Georgia
While Georgia changed quite a few laws to mirror the federal changes, Georgia has not adopted the following new federal laws (not all-inclusive):
- 20% qualified pass-through deduction;
- 30% limitation on business interest expense;
- bonus depreciation rules;
- increased ($8,000) first-year depreciation limit for passenger automobiles if the passenger automobile is “qualified property”;
- fifteen-year straight-line cost recovery period for certain improvements to retail space;
- modified rules relating to the 15-year straight-line cost recovery for qualified restaurant property (allowing buildings to now be included); and
- five-year depreciation life for most new farming machinery and equipment.
Many people are still trying to absorb the federal tax reform changes and how they may impact their personal tax situation, and these Georgia changes add another layer of complexity to that analysis. Call your CRI professional to provide a clear insight on how these federal and Georgia tax changes will affect you.