May 24, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

The state of New Jersey gets a bad rep. People from other states (mainly New York) love to make New Jersey the butt of their jokes, whether it pollution, corrupt politicians, dumb residents, or mobsters.

“Why is New Jersey called the Garden State? Because oil, petroleum, land fill, and toxic waste dump didn’t fit on a license plate.”

“What’s the only thing that grows in Newark? The crime rate.”

“What happens when a blonde moves from New York to New Jersey? Both states get smarter.”

These are just some of the things you say hear people say in regards to my adopted hometown. Well, I’m here to set the record straight. I think this is an unfair characterization of this fine state (except the part about the toxic dumps, that’s true. Oh, and also the crime rate in Newark isn’t all that great. But I take great offense to the blonde joke). With all these lies going around about New Jersey, these out-of-towners are missing the one thing that’s actually true about New Jersey: its tax rules are pretty bad.

This article will go through some of the differences between federal and New Jersey laws, but please don’t share this information with any New Yorkers. It’s bad enough being called smelly and stupid, I don’t think we need to be known as the “unfavorable to taxpayers state” also.

You know how the money you save in an IRA account or Keough plan is excluded from taxable income on your Federal return? This is because the government wants to incentivize you to save for your retirement. New Jersey has a slightly different outlook on it. Its feelings are that it could care less about you and your subsequent retirement and you must include that contributed money in your taxable income. On the positive side, though, you can still exclude money contributed to your 401(k).

Another difference concerns charitable donations. Good ole’ Uncle Sam wants us to be generous to others and offers taxpayers a tax deduction for charitable donations. However, New Jersey comes in like Uncle Scrooge and disallows you to write off these contributions, leading again to higher taxable wages. It’s the same situation with moving expenses. On your federal return you are allowed to deduct moving expenses if your relocation relates to starting a new job or a transfer to a new location for your present employer. But don’t expect a deduction for moving expenses on your New Jersey return. You can move here, but don’t expect the state to care. Oh, and by the way, once you’re here, you can forget about deducting home mortgage interest as well. What about those high property taxes you may ask? The good news is that you can deduct up to $10,000 of property taxes on your New Jersey tax return. The bad news is that the average property tax bill in Bergen County last year was $10,826 (Teaneck was $11,529), so there’s a pretty good chance your bill is higher than $10,000.

So, enough of the bad news already. There is a deduction in which New Jerseyans have a major advantage over most states. One of the most commonly missed deductions on New Jersey tax returns is for medical expenses. On your federal tax return, you can deduct out-of-pocket medical expenses that are above 10% of your adjusted gross income. So, if for example you have adjusted gross income of $100,000 and medical expenses of $12,000, then you can only deduct $2,000 since that is the amount over that 10% threshold. People often assume that New Jersey has that same 10% threshold and do not even bother to accumulate their medical expenses for their accountant. However, New Jersey only has a 2% threshold, so in our scenario above the taxpayer would be allowed a deduction of $10,000 on his New Jersey tax return. With the cost of medical expenses rising every year, this can be very beneficial for New Jersey taxpayers.

Take that, New York!

Daniel Magence, CPA, Esq. is a principal at Pristine CPA Solutions, LLC (www.pristinecpa.com). Pristine CPA Solutions offers tax and accounting services to individuals and businesses of all sizes. He can be reached at [email protected] or (201)326-6908 if you have any questions, comments or are interested in using Pristine CPA’s services.

By Daniel Magence

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