SALT Cap Workarounds: States Try Pass-Through Taxes

When Congress put a $10,000 cap on the amount of state and local taxes individuals can deduct from their federal income taxes, high-tax states tried to fight for their residents in a couple of different ways.

One way—charitable funds that earned people state tax credits for donations—got shot down by the IRS.

But states have tried another kind of workaround. Because the deduction cap applies only to individuals, not to businesses, some states have instituted new taxes on pass-through businesses, like LLCs and partnerships. These entities normally don’t pay taxes. Instead, their individual owners pay tax on the business income.

Bloomberg Tax team lead Jeff Harrington explored the state workarounds with Cannon-Marie Green, the managing editor overseeing Bloomberg Tax’s editorial coverage of state corporate income tax and pass-throughs.

Listen and subscribe to Talking Tax from your mobile device:

Via Apple Podcasts | Via Stitcher | Via Overcast | Via Spotify