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unlimited SALT deductions are back

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  • unlimited SALT deductions are back

    Just saw this article this morning.

    In summary, the IRS is going to allow pass-thru business entities to pay state taxes on behalf of their partners, and then deduct those taxes from the partners' federal income. Individual states have to pass laws to allow this - some already have and laws are being considered in others.

    Here is the IRS notice.

    For those with the right business entities and living in the right states, it seems like a complete workaround to the TCJA's $10k deduction limit. Sole proprietors and single-member LLCs are excluded for some reason.


  • #2
    Yowza. On one hand not surprising, I am sure plenty of people in high local tax states have already been doing this, with or without IRS guidance. On the other hand, this may open up the floodgates. Poor accountants.

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    • #3
      Originally posted by Marko-ER View Post
      Yowza. On one hand not surprising, I am sure plenty of people in high local tax states have already been doing this, with or without IRS guidance. On the other hand, this may open up the floodgates. Poor accountants.
      Agree except RICH accountants.

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      • #4
        Originally posted by docnews View Post

        Agree except RICH accountants.
        Ha ha, not monetarily rich vs. poor, but poor as in "what a hassle/headache, you gonna get a lot of questions about this"

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        • #5
          Originally posted by Hober Mallow View Post
          For those with the right business entities and living in the right states, it seems like a complete workaround to the TCJA's $10k deduction limit. Sole proprietors and single-member LLCs are excluded for some reason.
          Connecticut, Louisiana, Maryland, New Jersey, Oklahoma, Rhode Island and Wisconsin are the states that currently allow. Wanted to point that out before all the California folks get too excited.

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          • #6
            Well - returns just a lot more interesting. Cali already taxing our LLC so would be interesting to see how this plays out in development for usage.

            Easier to just repeal the darn thing IMHO

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            • #7
              Originally posted by StarTrekDoc View Post
              Easier to just repeal the darn thing IMHO
              One can only hope they can pull it off, but it seems unlikely with the new likely divided govt.

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              • #8
                Clickbait

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                • #9
                  I never quite understood the ideological underpinnings of the SALT deduction anyway. You get to receive the services your state taxes pay for, and get the same federal services that everyone pays for. But why should you then get help from the rest of the country to pay for the state services by deducting it from your federal taxes? It seems unfair to me that people getting less services are expected to subsidize the people getting more services.

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                  • #10
                    Originally posted by VagabondMD View Post
                    Clickbait
                    I agree. Being in NYS I would benefit from getting SALT back.


                    I would not expect less from
                    Hober Mallow . Now don't let him sell you a nuclear powered refrigerator.

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                    • #11
                      Originally posted by Shant View Post
                      I never quite understood the ideological underpinnings of the SALT deduction anyway. You get to receive the services your state taxes pay for, and get the same federal services that everyone pays for. But why should you then get help from the rest of the country to pay for the state services by deducting it from your federal taxes? It seems unfair to me that people getting less services are expected to subsidize the people getting more services.

                      There is a very easy answer as to why this seems unfair to you.
                      It is a bit deceptively simple really.
                      The reason it seems unfair to you is because it is unfair.

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                      • #12
                        Originally posted by Shant View Post
                        I never quite understood the ideological underpinnings of the SALT deduction anyway. You get to receive the services your state taxes pay for, and get the same federal services that everyone pays for. But why should you then get help from the rest of the country to pay for the state services by deducting it from your federal taxes? It seems unfair to me that people getting less services are expected to subsidize the people getting more services.
                        By that logic most deductions should be done away (actually a position I agree with). What deductions decrease your use of federal services? Mortgage interest? Having kids? Donating to charity?

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                        • #13
                          Originally posted by Shant View Post
                          I never quite understood the ideological underpinnings of the SALT deduction anyway. You get to receive the services your state taxes pay for, and get the same federal services that everyone pays for. But why should you then get help from the rest of the country to pay for the state services by deducting it from your federal taxes? It seems unfair to me that people getting less services are expected to subsidize the people getting more services.
                          The basis of this argument is the idea that the federal government distributes federal tax money to states in proportion to the amount that states pay federal taxes.
                          I don’t see any evidence for that claim. The evidence I do see is that generally with higher state taxes (Cali, NY) also have higher earners and contribute more towards federal taxes. States will lower incomes in the other hand pay less total federal tax and receive more federal aid. High income states subsidize low income states.

                          The SALT deduction mainly benefits higher earners who contribute more toward federal taxes regardless.

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                          • #14
                            Originally posted by Dusn View Post

                            The basis of this argument is the idea that the federal government distributes federal tax money to states in proportion to the amount that states pay federal taxes.
                            I don’t see any evidence for that claim. The evidence I do see is that generally with higher state taxes (Cali, NY) also have higher earners and contribute more towards federal taxes. States will lower incomes in the other hand pay less total federal tax and receive more federal aid. High income states subsidize low income states.

                            The SALT deduction mainly benefits higher earners who contribute more toward federal taxes regardless.
                            this is what I have learned as well. I can't easily find some peer-reviewed or rigorous study on this but I'm sure it exists somewhere out there. But states with more high income results, which tend to be coastal states though that's not always the case, send more to the federal government than they get back while other poorer states get back more than they send:

                            https://wallethub.com/edu/states-mos...overnment/2700
                            https://www.governing.com/week-in-fi...-get-back.html
                            https://www.usnews.com/news/best-sta...-they-get-back
                            https://www.thestreet.com/personal-f...-than-they-get

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                            • #15
                              Originally posted by Dusn View Post

                              The basis of this argument is the idea that the federal government distributes federal tax money to states in proportion to the amount that states pay federal taxes.
                              I don’t see any evidence for that claim. The evidence I do see is that generally with higher state taxes (Cali, NY) also have higher earners and contribute more towards federal taxes. States will lower incomes in the other hand pay less total federal tax and receive more federal aid. High income states subsidize low income states.

                              The SALT deduction mainly benefits higher earners who contribute more toward federal taxes regardless.
                              Exactly. All the blue states make up the majority of tax revenue given to the federal govt. So in essence, most red states are moochers from the federal tax pool.

                              It makes sense that states that have high taxpayers be allowed to get some discount on their federal taxes. The only reason SALT was capped was that they needed to find a way to pay for that horrible TCJA, and Trump wanted to screw over blue states that didn't vote for him. So this is one of the things they did to be able to pass the law.

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