New Jersey is a very expensive place to live. The property, state and local taxes are among the highest in the nation. New Jersey is one of only sixteen states that still have an estate tax and only one of six states that still have an inheritance tax. For these and other reasons, many individuals have historically chosen to spend their retirement in tax-friendlier states such as Florida. However, recent legislation in New Jersey has been passed which may make residents reconsider that move after all. Substantial changes to the taxes which impact retirees have begun to be implemented, aiming to alleviate the tax burdens on the middle class and stop the outward migration of residents.
New Jersey has long held the distinction of being one of the worst states in which to die by having an estate tax exemption of only $675,000. Fortunately, this has all changed as of January 1st of this year, as the estate tax exemption is set to be phased out completely by 2018. The estate tax exemption has been increased to $2,000,000 for 2017. Subsequently, on January 1, 2018, the New Jersey Estate Tax will be completely eliminated. Therefore, the only estate tax residents would have to worry about is the Federal Estate Tax, which currently has an exemption of $5,490,000 and is indexed for inflation. It is important to note that the Federal Estate Tax Exemption is portable, meaning that any unused exemption amount at the death of the husband/wife can be utilized in addition to the spouse’s own exemption. This is arguably the biggest news regarding estate planning to hit the state of New Jersey in recent time, helping to alleviate much of the complex planning required for high-net-worth families and ensuring that their capital remains in the state.
Other significant tax news for 2017 and forward was an increase in the pension and retirement income tax exclusions. Currently, married couples filing jointly can get out of paying any state income tax for their first $20,000 in retirement income. That exclusion will rise to $100,000 by 2020. The limit for a married couple filing jointly will jump from $20,000 to $40,000 in 2017, to $60,000 in 2018, to $80,000 in 2019 and $100,000 in 2020. For a married person filing separately, it will gradually increase from $10,000 to $50,000, and for an individual filing as a single taxpayer, from $15,000 to $75,000. However, there is a big catch. If your annual income is any amount greater than $100,000, you will have to pay income taxes on your entire earnings.
While New Jersey may have high taxes in certain areas, clear progress has been made to alleviate the burden residents have when approaching the later years of their lives. With this in mind, it is crucial for you to discuss how these changes may impact your financial picture. Doing so will ensure that you have a sound plan to minimize your tax load and maximize your capital preservation.
