It’s a good idea to refresh ourselves of the differences between Georgia State and federal taxable income, so that we are vigilant and don’t miss any opportunities afforded us. Many states do not automatically adopt federal tax law changes. Georgia, like many states, has certain peculiarities relative to their own economy and tax incentivized structures.
The starting point for computing Georgia income tax begins with federal adjusted gross income. There are adjustments (both income additions and subtractions) to arrive at Georgia taxable income. The more common additions we see are:
- Interest income on non-Georgia municipal and state bonds.
- Depreciation, as a result of differences in Georgia and federal laws during various tax years since 1981.
- The federal deduction for income attributable to domestic production activities under Internal Revenue Code Section 199.
- The portion of charitable contributions for which a qualified education expense credit was claimed.
The more common subtractions are:
- Georgia Retirement Income Exclusion has allowed Georgia residents who are 62 years of age and older or permanently disabled to exclude some retirement.
- For 2011, the maximum exclusion is $35,000 for taxpayers who are age 62-64.
- This means if both spouses qualify, a total of $70,000 of retirement income can be excluded.
- Up to $4,000 of the maximum allowable exclusion may be earned income.
- Looking ahead, this exclusion becomes more generous if the taxpayers are 65 or older.
- For example, under current laws, in 2015 the exclusion increases to $200,000 and in 2016 it is unlimited.
- The definition of retirement income for Georgia includes interest, dividends, rent and royalty income, capital gains, pensions annuities, other unearned income, and up to $4,000 of earned income.
- For 2011, the maximum exclusion is $35,000 for taxpayers who are age 62-64.
- Social Security and retirement paid by the Railroad Retirement Board included in Federal adjusted gross income are exempt from Georgia income tax.
- Salaries and wages reduced from federal taxable income, as a result of the Federal Jobs Tax Credit.
- Individual retirement account, Keogh, SEP and SUB-S plan withdrawals where tax has been paid to Georgia. This is a result of the difference between Georgia and Federal law for tax years 1981 through 1986.
- Depreciation because of differences in Georgia and federal law during tax years 1981-1986.
- Dependent’s unearned income included in parent’s federal adjusted gross income (AGI).
- Income tax refunds from states other than Georgia included in federal AGI. However, Georgia refunds are taxable, generally, if one has itemized in the prior year.
- Income from any fund, program or system that is exempted by Federal law or treaty.
- Adjustments for teachers retired from the Teachers Retirement System of Georgia for contributions paid between July 1, 1987 and December 31, 1989 that were reported and taxed by Georgia.
- An adjustment of 10% of qualified payments to minority subcontractors or $100,000, whichever is less, per taxable year by individuals, corporations or partnerships that are party to state contracts.
- Combat zone pay exclusions.
- Up to $10,000 of unreimbursed travel expenses, lodging expenses and lost wages incurred as a direct result of a taxpayer’s donation of all or part of a kidney, liver, pancreas, intestine, lung or bone marrow during the taxable year.
- Federally taxable interest received on Georgia municipal bonds issued by the State of Georgia for which there is a special exemption under Georgia law from Georgia tax on such interest.
A couple of other issues to keep in mind: If you move into Georgia during the taxable year, you will likely have to file two state income tax returns for that year. Income has to be prorated between the states, as well as deductions. A credit can be obtained for state income taxes paid to another state. This credit may or may not offset income taxes paid in the residency state. It depends on a number of variables.
Always remember, if you don’t file a tax return, the statute of limitations does not begin running. It’s always better to have the appropriate tax returns prepared and filed so that years down the road a taxing authority can’t contact you and assess any additional tax, penalties and interest.
At Henssler Financial we believe you should Live Ready, which includes understanding how your income tax is calculated. If you have questions regarding your state income tax return, the tax experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
