Saginaw accountant recommends capitalizing now on expiring state income tax credits

 

SAGINAW– This year is the last you’ll be able to receive some credits on your state income taxes.

Expiring credits include include the city income tax credit, which offsets any income tax paid to cities and the college tuition credit, an 8 percent of nonrefundable income tax credit for college tuition and uniformly-required fees paid on behalf of a student, also expires this year.

The elimination of all nonrefundable credits is expected to save $103.5 million in 2012-13, according to the Senate Fiscal Agency.

The expiration of the city income tax credit will force anyone who lives or works in a city with an income tax to feel somewhat of a pinch. Saginaw, Detroit and Pontiac are all cities with income taxes, said Gary Riedlinger, director of taxes for Yeo and Yeo CPA’s.

The amount people pay for a city income tax ranges from .75 and 1.5 percent, he said. The credit is equivalent to 10 to 20 percent off the overall tax, therefore, if someone pays $1,000 in city income tax, they’ll get about a $75 credit.

“The credit itself is not really that high,” Riedlinger said.

The elimination of the city income tax credit will generate $37 million for the state.

The college tuition credit requires that the state institution not raise tuition more than the rate of inflation, so not many people will see a consequence from the expiration of that credit.

“That one has very little impact very few schools qualify for that credit,” he said. “I haven’t had a client with that credit in a while.”

The elimination of the college tuition credit will generate $9.9 million for the state.

Riedlinger recommends paying up all city income tax bills and tuition bills by the end of the year to ensure eligibility for the credit.

The other credits that expire, the public contribution, community foundation and the homeless shelter and food bank credits, will have a much greater impact than any other expiring tax credit he said.

Married couples are allowed $200 off their state tax bill for a $400 gift, single taxpayers get $100 off their tax bill for a $200 gift, in each category.

“If you’re charitably inclined, I would maximize those contributions to get the highest credits you can in the state of Michigan,” he said.

He said retirees and community foundations are “grumbling” about the change in tax structure, but the overall burden in Michigan is still relatively low in the state, especially compared to the rest of the Midwest and the rest of the country.

“We’re still a pretty competitive state when it comes to individual tax and now business tax,” Riedlinger said. “Most organizations will see a positive impact, if we can generate more jobs and more economic activity as a result of that.”

There will be a positive impact on regional residents, he said, adding that he is optimistic.

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