Guest Commentary By Jessica M. Lehman, Williams-Keepers LLC
SALT Parity Act Creates Income Tax-Saving Opportunities
House Bill 2400 signed by Gov. Mike Parson in June contained the SALT Parity Act. Te act is similar to laws enacted in many other states in response to the 2017 Tax Cuts and Jobs Act’s limitation on the deductibility of state and local income taxes.
Before the TCJA, most individuals who itemized could deduct their state and local taxes paid, regardless of the amount. TCJA limited the total state and local tax deduction to $10,000 for most taxpayers (the “SALT Limit”). Included in the $10,000 SALT Limit are property taxes, real estate taxes and either income or sales taxes paid. Many business owners pay more than $10,000, so the SALT Limit causes significant state income taxes paid to be nondeductible on the federal return.
Te SALT Limit applies only to individuals, so C Corporations that pay state taxes may deduct substantially all state taxes paid on their federal returns. As a result, the SALT Limit disrupted a long-standing parity between corporations and flow-through businesses (S Corporations or partnerships). Although state income taxes paid are direct expenses imposed on business, income taxes paid by flow-through businesses are paid at the personal level, triggering the SALT Limit only for businesses filing as flow-through businesses.
Following the TCJA, states started to develop workarounds to allow their taxpayers to get a federal tax deduction for the state income taxes paid on business income. Missouri now joins
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