Were you aware of these big changes to the state laws?

Maybe you are aware of all the changes that have been made recently in federal taxes, as they are often the ones that get more attention since they are deemed to be more important. Yet, as you all know (and if you do not, it’s probably high time you brush up on your tax knowledge), there are many changes that will be implemented at the state tax law level.

Since the start of 2022, a lot of states have decided to undergo significant tax reforms and have since thought of and announced some changes that will impact all their residents. From creating new state-imposed taxes on income generated by capital gains to cutting some of the state income taxes, there are many changes that have been proposed and some that have already gone into effect.

Despite this, not everyone is aware of these changes, and if you are planning to move to another state, then you will definitely want to know about these law modifications. After all, your whole tax strategy may be altered, and what you should expect can be changed completely just based on the new law that has been brought about.

This is why we have gathered all the major changes that have been made to the tax laws in different states to bring to you the most digestible version. So you, too, can know what to plan ahead for!

Let us know if you knew about these law alterations or if this is the first time you heard of them!

#1 Colorado

This state joined another five in passing a new tax law that changes the pass-through level. The changed law implements a new entity election in 2022, and it will impact small businesses the most. They will be allowed to make the choice (hence the election option) about whether they want their business to be taxed like before, through an individual income tax system, or if they want to use the new method.

Analysts have said that this new tax system is comparable with what we can see at the corporate income tax level. Thus, if you or someone you know is living in Colorado and they have a partnership or LLC, then they could be choosing to have a 4.55% tax rate.

#2 Iowa

If you have some older relatives or you think you may be up for inheriting something in the next few years, then this news from Iowa may just be something to rejoice about. The state has decided to deviate from the general norm of other states, which is to tax any assets and money you receive after someone passes, by changing their law and eliminating this almost altogether.

The reason why we mentioned a few years is that the state plans to do away with this inheritance law completely by 2025, and until then, they have started with a change that will see a 40% cut to the inheritance tax rates as of January 1, 2022. If you are about to inherit anything from a wealthy aunt in Iowa, it seems like you will be getting a bigger cut than you might have expected.

#3 Arkansas

While this change will not impact every taxpayer individually, it is something that could be a silver lining for those who are still in the workforce and might be thinking of asking for a raise. This is because the state has decided to reduce the percentage of income tax collected from corporations, reducing the previous 6.2% to 5.9%. Many experts believe that this change will have a positive impact on workers and result in higher wages.

After all, Arkansas is one of the few states that has shown an MO of lowering their income tax rates, as they have done in recent years, dropping the individual rate to 5.5% from 5.9%.

#4 Louisiana

If you are a resident of Louisiana, you are looking at an easier time when it comes to filing your tax return at the state level. The state has made changes to its tax law at a constitutional level so that all taxpayers in the state will see a maximum individual tax rate capped at 4.75%. Before, the maximum was 6%, so the change is significant.

What’s more, the residents of this state are also no longer required to make federal income tax deductions from their state ones. only good news for Louisiana residents.

#5 Washington

If you’re generating income from capital gains, then you should be looking closer at Washington’s tax law. The state has decided that entities that have capital gains over $250,000 will be facing a possible 7% tax at the state level. However, this is without counting the money you earn from real estate, livestock, timber, and any retirement savings account.

Despite the fact that this law went into effect in 2022, it is also pending litigation. So, if you’re a resident of Washington, you should be keeping a close eye on how everything unfolds so you won’t be in for an unpleasant surprise.

#6 Arizona

Arizona is yet another one of the states that has decided to change the way in which they tax individual income. They have joined the other twelve states in cutting these taxes back in 2021, and while some chose to make these changes retroactive (from January 1, 2021), others, like Arizona, chose to have them take effect beginning in 2022.

The lower base income tax rate for all Arizona taxpayers has been lowered so that it does not exceed 4.5%. Which is great news for all the residents and a guarantee that it will not see sudden increases for the time being.

#7 North Carolina

If you have recently moved to North Carolina or you are a long-time resident, then you should rejoice as the state has decided to go against the grain when compared to the tax rates that have seen changes at the federal level. The income tax rate at an individual level has seen changes in the latest years, including the state’s intention to make it a flat rate and not have it be progressive like in other states.

Thus, not only has it been cut down from the 5.25% rate that we saw active in 2021 (to 4.99% for 2022), but the state has an ongoing plan to continue lowering it down to 3.99% by the year 2027. While it may not seem like the change is that significant, it will be seeing a major reduction by the time it hits its full potential.

#8 Florida

Florida is seeing changes to the tax laws, but more so at a level where it reverts back to how things used to be. It is the only state that ends up increasing in this area since a tax reform in 2019 previously lowered the income tax rate for corporations.

Thus, the tax rate rose to 5.5% as of January 1st from its lower number last tax season. In an environment where other states are lowering corporate taxes in the hopes of increasing worker wages, it will be interesting to see how long Florida maintains the increase.

#9 Illinois

Illinois has just introduced a new pass-through option for S corporations and partnerships, which is coming into effect for the 2022 tax year. This means that these types of businesses’ income tax will become a separate entity compared to how it was before. Thus, since the personal income will become different from the business income, a lot of business owners will be able to take advantage of the deductions that come along with this separation.

If you are familiar with what the state of Illinois has been doing in the last few years, this move does not come as a surprise to you. After all, more of them have been looking into such an option in order to create a workaround for the State and Local Income Tax deduction cap. Illinois has just managed to do it faster, and others may follow.

Now that you are aware of all the changes that are about to be made, then you should look into brushing up on your knowledge about tax refunds! Read all about them and how you can benefit from one here!