Here in Illinois, we have a flat income tax rate of 4.95 percent (for now), up from 3.75 percent in 2017. Essentially, all of your taxable income is hit with that 4.95 percent rate. Now, that doesn’t mean that each dollar you make in a tax year is going to be taxed at that rate. You can also use tax credits to lower your overall tax bill, if any are available to you.
Want to know another way to potentially lower your Illinois income tax bill? I'll go ahead and assume you do. Especially with all these fun new taxes being proposed by our new governor.
Were you aware that there are currently four stocks that actually give you a state income tax break? (As of March 2020, there are only four such stock that I'm aware of)
Caterpillar, Abbvie, Abbott Labs and Walgreens Boots Alliance stock each currently pay a dividend to their shareholders. If you pay taxes in Illinois, and you own one (or all) of these stocks you may be allowed to exclude the dividend(s) from your taxable income here in Illinois. Not on the federal income tax level, I’m taking just your Illinois income tax. Here’s how it works for Caterpillar, since this is Peoria and all:
You may be permitted to subtract your Caterpillar Inc. dividends, as reported on Form 1099-DIV, from your base income for Illinois income tax purposes. Under Illinois law, dividends received from a corporation that conducts business in a Foreign Trade Zone or Sub-Zone and is designated a “High Impact Business” are eligible for the subtraction modification from Illinois base income. The Illinois Department of Commerce and Economic Opportunity has designated Caterpillar Inc. as an Illinois High Impact Business (“HIB”). Additionally, Caterpillar Inc. is located in a federally designated Foreign Trade Sub-Zone (Peoria/Sub Zone 114A).
Currently, if you own Caterpillar (NYSE: CAT), Abbvie (NYSE: ABBV), Walgreens Boots Alliance (NYSE: WBA) or Abbott Labs (NYSE: ABT) you can probably exclude any dividends you received from those companies from your state taxable income. Essentially, the dividends from these four companies are tax free on the state level.
All you have to do is include form 1299-C with your Illinois state tax return (form 1040). Pretty simple.
So, if you own one or all of those above-mentioned stocks, you may want to double check your previous years tax returns to make sure you got the ‘deduction.’
Lastly, I’m not endorsing any of these stocks or saying that you should buy, hold, or sell them. Many more components should go into a decision to buy, hold, or sell a stock, not just the state taxability of any dividends you may or may not get. I just wanted to make you are of a "tax break" that, in my experience, not a lot of people are aware of.
This is not intended to be investment or tax advice. Please consult a qualified tax professional before filing your taxes if you own any of the above mentioned stocks. We are not endorsing any of these four stocks to buy, sell, or hold.