On June 9, 2010, Governor Carcieri signed historic personal income tax reform legislation into law. The legislation is effective for tax years beginning January 1, 2011.
The new personal income tax provisions significantly reduces the complexity of the current system and makes us more competitive with other personal income tax systems across the country as well as with our neighboring states. Many Rhode Islanders will see a decrease in their Rhode Island personal income tax.
The changes were necessary to make Rhode Island a more attractive state to conduct business. Taxes are a significant factor evaluated by business leaders when deciding where to start or expand their business. Over the years, we have seen Rhode Island businesses expand their operations in Massachusetts to take advantage of the lower income taxes. The current top tax rate of 9.99% was cited as a barrier for business owners. The top tax rate of 5.99% under the new legislation will remove that barrier.
Planning Opportunities Exist
Planning Opportunities Exist as a Result of This New Legislation
The legislation replaces an individual’s itemized deductions with a high standard deduction. You might consider moving some of your real estate taxes and state income tax deductions into 2010 to take advantage of the tax savings this year. However, f you are in the alternative minimum tax, moving these items into 2010 will not save you any taxes. Prepaying your January mortgage interest payment and charitable deductions will save you taxes in 2010 even if you are in the alternative minimum tax.
Certain business credits will no longer be available under the new personal income tax system. Examples of credits no longer available include the research and development, jobs tax, enterprise zone and investment tax credits. Any of these credits not used in 2010 will be lost. Consider generating sufficient income in 2010 to take full advantage of the credits.
These credits are still available for C corporations.
The historic tax and film credit are two of the credits that will be available under the reformed personal income tax. Consider purchasing these credits late this year or early next year. The supply of these credits is limited so acting early may ensure your ability to obtain them.
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