How Does Everyone Feel About Taxes?

I’m assuming you all have answers I don’t want to hear. Last quarter, Amy Cudia (Tax Advisor) took the time to tell you about Federal tax credits and how they work. Let’s discuss even more ways to save you money.


I know what you’re going to say: Changing my withholding doesn’t change the amount of taxes I owe, just when I pay them. You’re right, if you pay in more during the year, you pay less at tax time and vice versa. The issue is that this year everyone’s withholding was lowered based on the new tax laws. For some, the extra money was great in each paycheck, BUT, they had a tax bill with their tax return. When you’re not planning on owing tax, it’s hard to come up with the cash to pay your bill. If you don’t pay in at least 90% of this year’s tax, or 110% (100% for some) of last year’s taxes throughout the year, the IRS and your state can penalize you. This is where adjusting your withholding can save you some money. If you owed money or received an extremely large refund this year, have your tax advisor verify your withholding for 2019.


A QCD is a direct distribution from your IRA to a charity. When you turn 70 ½ you need to start taking Required Minimum Distributions from your IRA. If you choose to send all or part of it directly to charity, you get an immediate reduction of your taxable income. This happens even if you take the standard deduction. It also gives you benefit when you itemize your deductions. This reduction in income lowers your Adjusted Gross Income (AGI), which could give you more benefit from your medical expenses which are limited based on your AGI. The limit on QCDs is not the same as itemized charitable contributions. QCDs are limited to $100,000 per person, unrelated to the amount of income you might have. 


Although I’m not telling you to move, you should know that some states do not charge any income tax. If you are considered a resident of one of these states, you won’t even file a state income tax return. The following states have zero income tax: Wyoming, Washington, Texas, South Dakota, Nevada, Florida, and Alaska. Tennessee and New Hampshire only tax interest and dividends. Make note though, that many of these states have increased sales tax or real estate tax to make up for the missing income tax. If you are considering moving, you should investigate these state options. You should also try to attend our seminar “State of Residence” to get a better understanding of the tradeoffs. 


Of the states that do charge income tax, a majority do not tax Social Security benefits. Pennsylvania, Mississippi and Illinois do not tax any retirement income, while other states exclude a portion of your retirement income. If your state does tax your retirement, there may be other exclusions available.

Military Retirement Exclusion

For Federal purposes, military retirement income is fully taxable. The only exception is if you have a disability rating from the military, but do NOT receive VA benefits for your disability. The idea is that your military retirement income is only taxable after being reduced by the amount of VA benefits you should be receiving. VA disability benefits are never taxable. 

There are 10 states that exclude all military retirement income from income tax. Other states exclude a certain amount of military retirement income: either a set amount or percentage per person, or an amount based on the age of the retiree. For example, Maryland allows an exclusion of up to $10,000 if you are under 55 and up to $15,000 if you are over 65. Please contact your tax advisor if you are unsure whether you should receive one of these benefits.

Hometown Heroes Act: Retired Correctional Officer, Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel Pension Exclusion

This exclusion is a Maryland benefit for those that receive a pension, annuity or endowment from a qualified employee retirement system listed in the title. To qualify you need to be 55 or older, but not older than 64. The maximum exclusion is $15,000. This exclusion was first put into effect on the 2017 tax return. In 2018, the exclusion was bumped from $10,000 to $15,000, as well as adding Correctional Officers. If you missed this exclusion in 2017, contact your Tax Advisor to see if an amended return can be filed.


I know not everyone lives in Maryland, but many of Maryland’s tax credits are replicated in other states. If you need help looking into it for your state, let us know. 

Homeowners’ Property Tax Credit

This one is not related to income tax, but it is definitely worth mentioning. This credit puts a limit on the amount of property taxes paid based on the amount of income that you have. There are 4 requirements for this credit:

  1. You own or have a legal interest in the property

  2. The home is your principal residence

  3. Your net worth is less than $200,000 (this is after reducing your total net worth by the value of this home and any qualified retirement accounts (IRAs, etc.))

  4. Your combined gross income is less than $60,000

The application is due by September 1st of each year, but if you file by May 1st, you’ll receive the credit directly on your tax bill. Otherwise it will come on a revised tax bill and government check for what you overpaid. 

Long-Term Care Insurance Credit

To qualify for this credit, you need to have paid long-term care insurance premiums in the year you plan to take the credit. This is a one-time credit per individual, so don’t try to take it every year. You are disqualified if you were covered by long-term care insurance before July 1, 2000. The credit is for $410 if you are 40 and under, or $500 if you are 41 and older. This credit is taken on your Maryland tax return, so let your tax advisor know if you would like to take it this year. 


This state tax deduction has been mentioned in previous articles, but it’s always something to keep in mind. When you contribute to a 529 plan, you don’t get a direct deduction from your Federal taxable income, but the money does grow tax free. A distribution from the account is also tax free if it is used to pay qualified education expenses. Each state has its own 529 plan, and most give a deduction on their income tax return if you contribute to their respective 529 plan. 

Everyone’s tax scenario is different, so saving money on taxes is not a one-shop kind of answer. Hopefully this gives you some ideas of what might help your taxes for future years. As always, we are available for questions year-round.