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Big Tax Change Is Coming

Big Tax Change Is Coming

Hi Costa, SALT (State and Local Tax) cap of $10,000 has been a continuous source of frustration for business owners and individuals alike, especially in the high tax states. A few states came up with a new plan that would get the deduction back for residents. They allowed pass-through entities such as Partnerships and S Corps to pay state income tax on behalf of the partners. And finally, The IRS has signalled the intention to bless one type of state workaround for the SALT cap: allow owners of pass-through businesses to pay an additional state tax at the business level, with an offsetting credit against their individual income tax liability. What does it mean for you as a business owner?


Let's say you and your business partner have a partnership in a high tax state (9%) that made $300,000 this year in profits. In addition, you have received $150,000 PPP forgivable loan. For this year, your taxable income would be $450,000. That means you and your partner will have to pay $40,500 in state taxes. Not counting property and local taxes, you and your partner are capped at deducting only $20,000 ($10,000 each) on your tax returns. What about the remaining $20,500? Under the current law, it is not tax-deductible on your tax return. Under the new plan states that allow state income tax deduction on business return (CT, LA, MD, NJ, OK, RI and WI), $20,500 can be paid by your partnership resulting in $20,500 credit against your tax liability on your personal return. There are plenty of states that are working to implement this workaround before the end of this year! Contact me if you want to discuss your options

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Created by SHEPIN CPA LLC 2020

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