The SALT Cap Workaround for Tri-State Business Owners

In response to the Tax Cuts and Jobs Act of 2017 SALT cap, many states, including New York State and New York City,  have authorized workarounds that allow a pass-through entity to pay state income taxes at the entity level.

The entity deducts the payments and passes them to the individual owner as deductions or credits, bypassing the SALT cap at the individual level.

CNBC’s wealth editor Robert Frank says, “Companies are not subject to a SALT cap. So, the entity pays the tax and then gets the full deduction from the federal government. Then passes that deduction onto the individual.”

What does this mean for me?

If you own a pass-through entity, like an LLC, S Corp, or partnership, you don’t have a SALT cap on your state and local tax deductions. In 2023, New York City was the first municipality to permit this, allowing taxpayers to write off city and state tax.

“It’s estimated that nearly $50 billion in revenue will be lost at the federal level by the time the SALT Cap expires in 2025,” Frank added.

The Plus-Plus

For those that own a pass-through and get their income paid through that entity, you have no cap on your income, plus you get to keep up to $10,000 in other income for property tax.

Be Aware

A workaround can trigger other tax issues for pass-through entities, such as business property valuations. In addition, each state has taken a slightly different approach to SALT workarounds, which creates a complex situation for businesses with a multi-state presence.

Do you have questions?

If you have questions about the SALT Cap Workaround and its impact on your taxes, we can help you navigate the rules and chart the optimal course based on your situation. Give us a call.