Hi,
If you live in Illinois and own certain IL-based stocks, your dividends are not taxable at the state level.
It is not automatic. Nobody applies it for you.
You have to claim it, and if your preparer doesn’t know the rule exists, you have been paying Illinois taxes on income Illinois never taxed.
Illinois law lets you subtract from your income dividends paid by a corporation designated a High Impact Business that operates in a federally designated Foreign Trade Zone in Illinois. In plain terms, if you hold any of these, check your last three returns:
- Abbott Laboratories (ABT)
- AbbVie (ABBV)
- Caterpillar (CAT)
There is a separate Illinois subtraction for dividends from a corporation operating substantially all of its business in an Illinois River Edge Redevelopment Zone. It is a different line on the same schedule, and the two cannot be claimed on the same dividends.
Abbott tells its own shareholders directly that they may be permitted to subtract their Abbott dividends from base income for Illinois income tax purposes. The letters are sitting on the investor relations pages. Almost nobody reads them.
Here’s how the savings work:
- You deduct 100 percent of the qualifying dividends, not a portion of them, as long as they were included in your Illinois base income
- Illinois taxes at a flat 4.95 percent, so every $100,000 of qualifying dividends is roughly $4,950 back to you, every year
- It is claimed on Schedule 1299-C, attached to your IL-1040. Miss the schedule and you simply pay the tax
- If you already overpaid, you can file an amended return for a refund within three years after the extended due date, three years after you filed, or one year after you paid the tax, whichever is latest
We recently reviewed prior returns for an Abbott executive whose concentrated position had been taxed in full by Illinois for years. Three amended returns later, roughly $50,000 came back. Nothing about the returns was aggressive. The subtraction had just never been claimed.
The catch is that this is one line on one schedule in one state, and it is exactly the kind of thing that gets missed when nobody on your return is looking at state code. Illinois alone has several of these:
- Retirement income, including 401(k), IRA, pension, and Social Security, is fully excluded from Illinois tax
- Interest on U.S. government obligations is not taxable in Illinois
- Bright Start 529 contributions are deductible up to $10,000 single, $20,000 joint
- The Illinois property tax credit returns 5 percent of property tax paid on your principal residence
- The K-12 education expense credit covers 25 percent of qualified expenses over $250
That’s why we put everything under one roof:
- Personal and business returns handled by the same team
- Equity compensation done correctly – RSUs, ESPP, ISOs, NQSOs, and the cost basis errors brokers routinely report wrong
- Multi-state and part-year residency allocation
- Quarterly estimates so you know what you owe before April
- A full review of prior year returns for missed subtractions and credits, with amended returns filed where it pays
- Bookkeeping, payroll, and sales tax compliance if you own a business
Reply to this email by Friday and we’ll set up a free 15 minute call with our senior tax advisor to go over your situation. Bring your last two returns and your most recent 1099-DIV, and we’ll tell you on the call whether there’s money to get back.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com