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State publishes guidance for Trump tax cuts impact on Alabama

MONTGOMERY, Ala. – The Alabama Department of Revenue this week issued preliminary guidance on the impact of the Tax Cuts and Jobs Act.

Passed by Congress and signed into law by President Donald Trump in December, the tax reform plan included changes that affect individual taxpayers and businesses beginning this year.

The Revenue Department’s guidance covers how the changes to the tax code affect Alabama filers. The 50 page document was complied with input from the Alabama Society of CPAs and the Tax Section of the Alabama Bar Association, as well as the Council on State Taxation.

The new tax law’s major provisions were lowering corporate income tax from 35 percent to 21 percent and nearly doubling the standard deduction, or what individuals and families can automatically deduct from their taxes.

A recent analysis by the conservative think tank Heritage Foundation showed that the average Alabamian would see $946 in tax savings this year and a $16,303 increase in take home pay over ten years.

Not all provisions of the federal tax law will affect state taxes, but some will, according to the Department. Changes to the qualified mortgage interest, charitable contributions, and the ability to deduct college athletics box seating are some of the ways the new tax law will affect Alabama filers.

Bruce Ely, a partner with Bradley and a leading tax law expert, commended Revenue Commissioner Vernon Barnett and his staff for putting together the guidance, and explained how it can help taxpayers and businesses understand the law.

“Since the Alabama corporate income tax is tied to the definition of federal taxable income ‘as in effect from time to time’, much of the fiscal impact of the TCJA on our corporate income tax revenues is automatic. In contrast, our individual income tax scheme selectively conforms to the IRC counterpart and is outdated in many respects, so benefits like the new Section 199A deduction for owners of pass-through entities apparently won’t carry over into Alabama law– at least not without curative legislation,” Ely said.

“There may be efforts either to add to or de-couple from certain aspects of the Alabama equivalent of the TCJA, but unless Governor Ivey calls a special session this Fall—which is doubtful—we’ll have to wait until next March to see if there might be some compromise legislation. In the meantime, we’ll request regulatory guidance from the Department in several key areas.”

The full guidance, titled ANALYSIS OF FEDERAL TAX LAW REVISIONS ON THE STATE OF ALABAMA, is available online HERE.

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