On March 2, 2018, Georgia Governor Nathan Deal signed legislation that is one of the most significant Georgia income tax reforms in years. This legislation comes about in response to the federal Tax Cuts and Job Act of 2017 passed by the United States Congress at the end of 2017. Most of the changes are set to expire on December 31, 2025, which is also when the federal Tax Cuts and Jobs Act of 2017 expires. As always, if Congress were to decide to extend some of the federal tax cuts, then I would expect Georgia legislators also to consider doing the same.
Here is an overview of some of the significant changes that will have an impact on those who are required to file Georgia tax returns.
Tax rates are going down!
The individual tax rate for taxpayers whose taxable income is over $7,000 is reducing to 5.75% from 6.00%. The new 5.75% will also apply to all corporations doing business in Georgia. Unfortunately, the new tax rate reductions do not take effect until tax years beginning January 1, 2019, and these rates will expire as of December 31, 2025.
The standard deduction is doubling for individuals
This change is massive since Georgia tax law requires filers to use the same election of deductions as is used on the federal return. Since the standard deduction is nearly doubling on the federal return, many more Georgia filers will be required to use the standard deduction on their Georgia income tax returns. This law applies to tax years beginning January 1, 2018, and expires after tax year December 31, 2025.
The standard deductions under the new law will now change as illustrated here below:
Single or head of household taxpayers has increased from $2,300 to $4,600
Married taxpayers filing a separate return has increased from $1,500 to $3,000
Married taxpayers filing a joint return has increased from $3,000 to $6,000.
Approved larger Section 179 deductions on qualifying equipment and software
The new Georgia legislation will conform with much of the new Federal IRC §179 rules that allow businesses to deduct/expense the purchase price of qualifying equipment and software purchased or financed during the tax year. The new limitation for tax year 2018 on section 179 deduction is $1,000,000 beginning to be phased out once total purchases reach $2,500,000. This is up from the previous limitation for 2017 which was $510,000 that was phased out once total purchases reached $2,030,000.
Conformed to the new federal NOL rules
Georgia legislators have decided to conform to the new federal NOL (net operating loss) rules that were included in the federal Tax Cuts and Jobs Act of 2017. The biggest thing here is that generally NOL carrybacks are no longer allowed for tax years ending on or after December 31, 2018. However, you can carry forward the NOL for unlimited years now to offset future income. There is still a special two-year carryback for qualifying farm losses.
Conformity rules for corporations updated to Internal Revenue Code new provisions
The new legislation will allow Georgia corporations to compute Georgia adjusted gross income and taxable income under provisions in the Tax Cuts and Job Act of 2017 as related to the computation of Federal adjusted gross income or taxable income for corporations that were enacted as of February 9, 2018. These conformity rules help to simplify the process of filing a Georgia corporate return with the preparation of the federal corporate return. When states do not adopt these conformity provisions, then there are often different federal to state tax adjustments that have to be accounted for.
What does it all mean?
In short, this was a very taxpayer-friendly piece of legislation that helped to address a lot of questions and concerns on the state level after the passage of the federal Tax Cuts and Jobs Act of 2017. There were some items that the new Georgia law did not adopt such as the new 20% qualified business income deduction or additional bonus depreciation rules. However, the higher standard deduction and lower tax rates will bring relief to many Georgia taxpayers who would have possibly owed more tax due to the increased standard deduction that will have more Georgia taxpayers having to take the standard for Georgia also.
These are some of the most significant tax reforms that we have seen in the last 30 years. As always, I encourage you to please consult with a CPA concerning any questions or concerns you may have with the new tax legislation on the federal and state level.