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Duly Noted

Wisconsin Offers Balm For SALT Wounds. Wisconsin joined the parade of states seeking to offer workarounds for the new $10,000 itemized deduction limit for state and local taxes. The Badger State’s approach is to offer pass-through entities – partnerships and S corporations – the option to pay a flat entity-level tax of 7.9 percent, which is still deductible as a business expense. In exchange, the entity’s owners would receive an offsetting income tax exclusion for their share of the taxable income generated by the company. The 7.9 percent rate matches Wisconsin’s tax on corporate income, and it is higher than the state’s top personal income tax bracket of 7.65 percent. As a result, the new approach will be beneficial to some companies and some owners, but not to others. Public Act 368, 2018 STT 243-28.

Regulations Proposed For Opportunity Zone Tax Break. The Treasury Department and Internal Revenue Service issued proposed regulations to implement the Opportunity Zone tax incentive that was enacted under the 2017 tax overhaul. The program allows taxpayers to defer taxes on capital gains by investing in a “qualified opportunity fund” within 180 days. Tax on up to 15 percent of the deferred gain may be forgiven if the investment is held for at least seven years, but any remaining deferred gain is reported on the taxpayer’s 2026 return. If the qualifying investment is held for at least 10 years, tax on any appreciation above the original investment through 2047 is also forgiven.

Untying The Knot Is More Expensive In 2019. Couples that were unable to finalize a divorce by December 31 will find that, as a rule, breaking up is costlier in the new year. The longstanding rules that made alimony deductible to the payer (and taxable to the recipient) were repealed under a provision of the 2017 tax overhaul that had a delayed effective date to avoid catching soon-to-be-ex-spouses unawares. Because payers tend to be in higher tax brackets than alimony recipients, the change means the IRS will now collect a bigger slice of the divisible pie. The new provision does not affect unmodified divorce decrees that were finalized before 2019. It also does not affect child support or property settlements, neither of which had any tax effect under either the old or the new law.

If you enjoyed this article, be sure to check out Palisades Hudson’s books, The High Achiever’s Guide To Wealth and Looking Ahead: Life, Family, Wealth and Business After 55. Both are available in paperback and as e-books.