By now, you have almost certainly heard that last week, New York finalized its budget for 2021-2022, increasing its personal income tax rates for those earning over $1 million and upping the corporate franchise tax, effective January 1, 2021. These tax hikes in New York may be a sign of federal tax increases to come, and we anticipate that many will be considering ways to lower their combined federal, state, and local effective tax rates, with relocation as an option on the table. While some may forecast a negative impact on the art market as collectors may have less cash in their pockets available for discretionary purchases (like art), we do not think this tax change spells all doom and gloom.
Budget’s Impact on Art Businesses
Businesses in the for-profit art sector, such as galleries and art advisory businesses, should be aware that the New York budget includes a work-around for business owners for the $10,000 SALT deduction cap imposed on the amount of the federal income tax deduction permitted for state income taxes paid. The SALT deduction cap has increased the burden of state taxes on taxpayers in high-income states including New York since its enactment under the Trump administration in 2017. New York will now permit certain pass-through entities and partnerships to remit state income tax directly to the state and receive a full, uncapped federal deduction. On the federal level, we are continuing to watch discussions surrounding the repeal of the SALT deduction cap, as a growing number of lawmakers are pushing for its repeal, suggesting its inclusion in President Biden’s $2 trillion dollar infrastructure package. If the SALT cap were eliminated, this would certainly lessen the impact of the New York increases on many taxpayers who may not be able to benefit from the work-around established in the 2021-2022 budget.
Of use to those for-profit arts and cultural organizations that have a live performance element, the New York bill includes a Covid-19 Small Business Recovery Grant Program which may provide assistance to certain for-profit independent arts and cultural organizations that have experienced economic hardships during the pandemic.
Budget’s Impact on Art Donations
In the not-for-profit sector, the New York tax increase, in combination with federal tax rules, only makes philanthropy more attractive. As many in the art market are keenly aware due to the influx of news surrounding museums deaccessioning artwork, many museums (already operating on very tight budgets prior to the pandemic) are very short on funds right now. The good news here for museums is that a number of measures enacted under federal Covid-19 relief bills in order to incentivize charitable giving remain in place through 2021. First, taxpayers who do not itemize deductions have the ability to take an above-the-line deduction for up to $300 ($600 for married couples filing jointly) for their charitable contributions. Second, taxpayers who do itemize deductions have an increased ability to offset their income with charitable contribution deductions (up to 100% of the taxpayer’s adjusted gross income, up from 60%) for certain donations of cash to public charities. After the tax hike, these deductions are only more valuable to affected taxpayers and offer a greater incentive to taxpayers to make charitable contributions than has been the case in prior years.
Does the Budget Make Relocation Attractive?
Over the last year we have heard many collectors consider relocating their primary residence for a variety of reasons. As state’s announce their new budgets, that may be the final nudge some need for a change. If so, please call us to discuss what relocation means for your art. Here is a link to a relocation checklist to get you started.
For more information, on what the Withers Art Team is doing, visit the Withers art page.
Withers in the media…
The Gray Market: Why the New York Art Market Could Be Reshaped by the State’s Progressive New Budget