If you itemize your deductions, you are allowed a deduction on your federal return for certain taxes you paid. The deduction is commonly referred to as SALT, which is short for state and local tax. This includes real estate taxes, personal property taxes (ie car or boat tags) and state and local income taxes. The deduction is calculated based on when the taxes are actually paid rather than incurred. You are allowed to substitute a deduction for sales taxes if it is greater than the state and local income taxes. The sales tax deduction is calculated based on your adjusted gross income and a standard table. You can add sales tax on large purchases.

After calculating your SALT deduction, you are then limited to a $10,000 deduction for individual filers or $5000 for married filing separately. This limitation was enacted beginning with the 2018 tax year. For many taxpayers, the SALT limitation has limited any tax planning opportunities such as paying the state income tax in the same year as a large gain to accelerate the deduction.

Over the past year, Congress has had significant discussions aimed at the elimination of the SALT cap. To date all of these proposals have failed. We will continue to monitor their activity and will alert you to any changes.

Alabama and certain other states have enacted legislation relating to pass thru entities allowing the business to pay the state tax on behalf of the individual. This is a work around for the SALT limitation for certain business owners on the business income. If this may apply to you, please see our prior explanation: Pass Through Entities Can Now Elect to Pay Alabama Income Tax at the Entity Level 

Feel free to contact your Dent Moses advisor if you have any questions or concerns.