Tommy Blackburn, CFP®, CPA, PFS
Taxes and tax planning are a critical part of the financial planning process. When taxes are discussed, the conversation is often focused purely on federal taxes, whereas state taxes are glossed over. This results in missed financial planning / tax planning opportunities. At Mason & Associates, we place an equally important emphasis on state taxes. The Virginia Tax Code, in particular, provides a number of opportunities, one of which is a deduction for disability income.
The Tax Code of Virginia provides taxpayers the ability to deduct up to $20,000 of disability income. In order to claim the deduction, the taxpayer must meet the following requirements:
- Under age 65
- Considered totally and permanently disabled
- Have disability income reported as wages (or payments in lieu of wages) on Federal tax return
For example, an individual with $60,000 of disability income reported as wages on a W2 would be eligible to subtract $20,000 from their Virginia tax return, as long as they meet the above criteria. This would lower taxable income by $20,000.
Although we don’t see this situation on a daily basis, it’s something we’ve encountered multiple times. Knowing the rules and nuances of the Virginia Tax Code has saved our clients approximately $1,150 in Virginia taxes ($20,000 x 5.75%, Virginia top tax bracket) in 2019. We have also been able to help new clients amend previous years’ tax returns to claim the disability deduction.
The Mason Financial Planning Team is continuously monitoring opportunities such as this and actively advising on how to incorporate into your individualized plan. Please reach out if you would like to discuss with one of our advisors.
