Mitigating Federal Limitations on SALT Deductions: New State Laws and Tax Planning Techniques for Taxpayers

State tax laws have been proposed or enacted in response to the new state and local tax deduction limitations imposed by tax reform. Some states have provided items within their tax laws allowing benefits and savings while others place additional burdens on taxpayers.

New federal tax law limits the itemized deduction for SALT for federal income tax purposes to $10,000, forcing states to consider alternatives for taxpayers aimed at circumventing the limits. States have explored options such as reducing state income taxes while making up that revenue with state-imposed employer payroll taxes or giving additional income tax credits or deductions to taxpayers. New laws passed in Connecticut and New York, and those proposed in California and other states, have set the tone and may benefit taxpayers by helping to mitigate the impact of the federal law limitations.

Connecticut Public Act No. 18-49 imposes a tax on pass-through entities which are then able to offset such tax with a personal income tax credit on the pro rata share of taxes paid by owners of the pass-through entity. This tax on pass-through entities is not subject to the new federal SALT deduction rules but provides the owners with an effective deduction against federal income tax without additional state income taxes.

New York enacted an employer-level payroll tax. This payroll tax is optional and allows employers to take a credit for wages paid more than $40,000 to employees, against their state personal income tax liability. The use of tax credits to offset personal income is also the foundation of California’s proposed bills.

In Notice 2018-54, the IRS intends to propose regulations to disallow the use of these state-level workarounds. Tax professionals and advisers must remain knowledgeable of enacted and proposed state tax laws to mitigate the impact of the federal SALT deductibility rules.

Listen as our panel provides detailed analysis of the federal SALT deduction limitations, newly enacted state tax laws, and planning strategies to limit or offset SALT liability post-tax reform.

1. Overview of federal SALT deduction limitations
2. Connecticut’s new tax law for pass-through entities and personal income tax credit
3. New York’s employer level payroll tax
4. California and other state bill proposals to relieve state tax burdens of taxpayers
5. Strategies to limit or offset federal SALT deduction limitations

The panel will review these and other noteworthy issues:

• Understanding the federal SALT deductibility rules and limitations
• Identifying newly enacted state tax law and requirements in response to tax reform
• Overview of Connecticut’s new tax law and personal income tax credit
• Pros and cons of New York’s employer payroll tax option
• California’s proposed bills to relieve state tax burdens
• Ascertaining available methods to limit or offset state tax liability

Learning Objectives

After completing this course, you will be able to:

• Understand the federal SALT deductibility rules and limitations
• Identify newly enacted state tax law and reporting requirements to reduce state personal income taxes
• Ascertain available tax planning methods to limit or offset state tax liability

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules; supervisory authority over other preparers/accountants. Working knowledge of partnership/corporate structure, state/local tax compliance, and essential elements of federal tax reform as such relates to the deductibility of state and local taxes.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).