On October 4th, 2023, a new Massachusetts tax act was signed into law by Governor Maura Healey. The $1 billion tax package will impact both businesses and individuals with changes to the state’s apportionment formula, estate tax threshold, short-term capital gains rate, and more.
As of January 1, 2025, the general apportionment formula will be determined by a single-sales factor formula for businesses in all industries. This is a change from the prior three-factor apportionment formula which was based on sales, payroll, and property.
The threshold for estates subject to Massachusetts estate tax will double from the prior $1 million amount to $2 million. As the changes are retroactive to January 1, 2023, the new $2 million threshold will include the estates of those who died during the year. Also included with the changes, were clarifications that out of state real estate and tangible personally property are not subject to MA estate tax.
The state’s short-term capital gains rate for individuals will now be 8.5% as of January 1, 2023. This a reduction of 3.5% from the prior 12% rate.
Another change for individuals is the requirement that those who file a joint federal return will also be required to file a joint MA return starting January 1, 2024. This change is related to the Massachusetts Millionaire’s Tax enacted in 2022 and aims to mitigate potential tax planning that could have had spouses filing separate MA returns to reduce the amount of income, above the $1 million threshold, tax with the additional 4% rate.
As of January 1, 2023, individuals will be able to claim a state deduction for certain charitable donations. The state charitable donation deduction will be allowed even if the taxpayer uses the standard deduction on their federal return. Those who are impacted by the MA Millionaire’s Tax mentioned above, will be able to benefit from charitable donations to reduce the amount of income subject to the additional 4% tax.
As several of the recent tax changes are retroactive to January 1, 2023, it is important to start thinking about tax planning for the upcoming 2023 tax returns and beyond. Please reach out if you would like to discuss any of the recent changes.
Jordan Wilson, is a Tax Senior at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700