SALT Deduction Limits Under Tax Reform: State Tax Planning Workarounds and Strategies

A controversial feature of the tax reform law imposes a $10,000 cap on the amount of total state and local taxes (SALT) a taxpayer may claim as an itemized deduction from federal gross income. Because this limit disproportionately affects taxpayers living in states that have high property taxes or impose an income tax, numerous state legislatures have sought to blunt the impact of the cap on their resident taxpayers.

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. Connecticut Public Act No. 18-49 imposes a tax on pass-through entities, offset by a personal income tax credit on the pro rata share of taxes paid by owners of the pass-through entity, while New York enacted an optional employer-level payroll tax which allows employers to take a credit against their state personal income tax liability for wages paid above a threshold. California has also proposed the use of tax credits to offset an individual’s state income tax liability.

In Notice 2018-54, the IRS announced it would propose regulations to disallow the use of these state-level workarounds. Tax professionals and advisers must understand the impact of enacted and proposed state tax laws, and any resulting IRS response, to avoid potentially costly tax issues arising from attempts to mitigate the effects of the federal SALT deductibility limitations rules.

Listen as our experienced panel provides practical guidance and strategies to lessen the impact of the SALT deduction limitations in the tax reform law.

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 discuss these and other relevant topics:

• Understanding the federal SALT deductibility rules and limitations
• Overview of state initiatives to respond to the cap on SALT deductions
• IRS position on state workarounds for charitable contributions, prepayments, and tax credits
• Available strategies to offset state tax liability as a counter to lost federal deductions

Learning Objectives

After completing this course, you will be able to:

• Discern the tax reform law provisions limiting itemized deductions individual taxpayers may take for SALT
• Identify state legislative tax credit initiatives to reduce state personal income taxes as an offset to increased federal tax due to SALT deduction cap
• Recognize IRS position to counter state initiatives to blunt the impact of the SALT deduction limits
• Determine available tax planning methods to limit or offset state tax liability in light of IRS opposition

• 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 individual itemized deduction rules, partnership and pass-through entity structure, state/local tax compliance, and essential elements of federal TCJA tax reform law.

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).