One of the biggest sticking points on the One, Big Beautiful Bill, was the State and Local Tax Limitation (SALT). Originally put into place as a revenue enhancer with the Tax Cuts and Jobs Act of 2017, it limited these Schedule A Deductions to $10,000.
This was a rather strange first in taxation history.
The concept before had always been that you should never pay a tax on a tax. In other words, the State and Local Taxes we paid before this were always deductible. But the $10,000 limitation of property taxes, state income taxes, and other State and Local Taxes like vehicle stickers and the like, caused real problems for many taxpayers.
I have clients in DuPage and Lake County that pay anywhere from $20K to $40K annually in property taxes.
The New Law, which takes effect in 2025, includes…
1 – A $40,000 Deduction Limitation for State and Local Taxes
2 – An increase in the limitation of 1% annually through 2029
Before all of you start jumping for joy and popping the corks on well-aged Champagne Bottles, please realize that there’s a kicker. The limitation has a rapid income phasedown with incomes from $500K to $600K.
In other words, once your income is over $600K, your SALT Cap is once again $10,000.
Let me leave you with this…
No matter what the phasedown is on the new law, this was a major victory. Bumping the limit up $30K will help a lot of entrepreneurs.
But the rapid phasedown creates the same old problem for many of my upper income clients.
If you have a $100K W-2, $500K in K-1 income, and are paying $30K in property taxes, you’re probably paying $60K in State and Local Taxes annually at a minimum. With the SALT Limitation at $10K, the loss of a $50K Deduction on your Schedule A will really hurt.
At an upper income tax rate between the Fed and State of 40%, that will cost you at least another $20K in taxes in 2025. This will again make the Pass Through Entity Tax Credit (PTETC) a must for those taxpayers.
By the way, the PTETC made it through all of the negotiations on the new bill unscathed.
This is the first in a series about the new tax law.
It should be noted that what I’m presenting is only preliminary information. They still may pass even more tax law changes at the Federal Level. And I’ll bet you dimes to donuts that the States are going to pass a bevy of new tax laws negating these Federal changes at the State Level to keep their revenues flowing.
Please remember that many of the states, for all intents and purposes, are broke.
Let’s not forget our friends at the IRS. Just because Congress passes something and the President signs it into law doesn’t mean that the Service will end up enforcing it. There’ll be a ton of tax cases filed by those opposing the Trump Agenda to try to negate as much of this as possible.
We’ll see where all of this lands. I’ll keep you updated.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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