New Virginia Taxpayer Changes

By Terry Barrett, Tax Senior Manager | State and Local Tax Team

Note: Due to COVID-19, the city of Richmond and surrounding counties are providing tax relief and other assistance to businesses and individual taxpayers in the area.

March 3, 2020 Update

Legislation was passed by the General Assembly and signed by the Governor which advances Virginia’s fixed date conformity to the Internal Revenue Code from December 31, 2018 to December 31, 2019. This allows Virginia tax law to generally conform to the “federal extenders” that were included in the Further Consolidated Appropriations Act of 2020. The legislation also allows Virginia to conforms to the Virginia Beach Strong Act.  Contributions made to the Virginia Beach Tragedy Fund qualify for the charitable contributions deductions. In addition, certain payments made by a tax-exempt organization to spouses and dependents of victims who were wounded or died in the tragedy are treated as related to the organizations tax exempt purpose.

This year’s legislation also provides that Virginia does not conform to the federal reduction of the adjusted gross income limitation on the medical expense deduction from 10 to 7.5 percent. For Virginia tax purposes, the medical expense deduction is limited to 10 percent of adjusted gross income.

2019/2020 Tax Planning for Virginia High Income Earners

Several legislative changes passed by the 2019 General Assembly became effective January 1, 2020, which may affect Virginia taxpayers.

Individual Income Tax

• Increases in the standard deduction 
  For taxable year 2019, the standard deduction increases to $4,500 for single taxpayers or married taxpayers filing separately (was $3,000), and to $9,000 for taxpayers who are married and filing jointly (was $4,500). As a reminder, taxpayers who take the standard deduction for federal income tax purposes are also required to take the standard deduction for Virginia income tax purposes. The increases in Virginia’s standard deductions were in response to the federal tax reform (Tax Cuts and Jobs Act) and are scheduled to expire when the federal provisions currently are scheduled to expire, for taxable years beginning January 1, 2026.
• Changes to 2019 Itemized Deductions of Virginia individual income taxes
  • Taxpayers can deduct the actual amount of real and personal property taxes imposed by Virginia or any other taxing jurisdiction when those taxes are not otherwise allowed as a deduction due to the $10,000 state/local tax limitation imposed by federal tax law.
  • All Itemized deductions may be limited if a taxpayer’s federal adjusted gross income is greater than:
    • $271,700, if filing single
    • $326,050, if married filing jointly
    • $298,850, if filing head of household
    • $163,025, if married filing separately

• Land Preservation Tax Credit
  For land or interest conveyed or transferred on or after 1/1/2020, taxpayers must apply by December 31 of the 2^nd year following the recorded year of the donation. For taxable year 2019, the old rules apply which mean that in order to receive credits for land or interest conveyed or transferred before January 1, 2020, taxpayers must apply by December 31 of the 3^rd year following the recorded year of the donation.
• Telework Expenses Tax Credit
  Telework Expenses Tax Credit has expired. It cannot be claimed for any tax year beginning on or after January 1, 2020.

Retail Sales Tax

Effective January 1, 2020, essential personal hygiene items are subject to a reduced sales tax rate of 2.5 percent.  These items include:

• Disposable diapers (regardless of the age of user)
• Disposable incontinence pads
• Disposable bed sheets
• Feminine hygiene products such as sanitary napkins and tampons

Reusable items such as cloth diapers, incontinence pads, undergarments, and bed sheets do NOT qualify for the reduced rate.

The reduced rate is applicable statewide and the disposable personal hygiene items now are taxed the same as food for domestic consumption. There has been a trend among the states to reduce or exempt purchases of personal hygiene items in recent years.

The Virginia General Assembly will be convening this week (January 6, 2020) for a long session (45 days).  It is possible that given the new control by the Democrats, there may be changes to the above. We will be monitoring Virginia tax law changes passed by the General Assembly and providing updates regarding key tax issues.

Keiter focuses solely on providing individual taxation services to privately-held business owners, corporate executives, and high net worth families. We offer our insights and experience to help solve your complex tax needs. Questions on Virginia tax planning and savings opportunities? Contact your Keiter representative or Email | Call: 804.747.0000.

Additional Resources

• Tax Extenders Deal Renewing Expired Tax Breaks Through 2020 Approved
• Individual Tax Provisions Extended by the Taxpayer Certainty and Disaster Relief Act
• IRA and Retirement Plan Changes in the 2019 Budget Act