While most of the political world and news media is focused on efforts to reform the Affordable Care Act, President Trump, Speaker Ryan and other Republican leaders continue to state that tax reform is among their legislative priorities.
Although no one is sure what the final tax reform package will look like, one possible policy change could be the elimination of the deduction for state and local taxes (SALT).
Currently, individuals who itemize deductions on their tax returns are allowed to take a deduction for the amount of state and local income and real estate taxes they paid on their federal income tax return.
While eliminating this deduction may seem to run afoul of President Trump’s pledge to cut taxes, it may help the tax reform package get through Congress. Eliminating this deduction would help a tax reform bill remain revenue-neutral. In order to qualify under “budget reconciliation” rules and pass the Senate with only 50 votes (as opposed to the 60 votes required for most other bills), a bill must be projected to be revenue-neutral.
So what does this all mean? It means that taxpayers should carefully consider paying their state and local income tax liability before year-end, instead of April of next year, when the SALT deduction may not be around. However, those taxpayers who are subject to the alternative minimum tax (AMT) will not benefit from doing this because SALT are not deductible for AMT purposes.
Even if tax reform does not become law, or if SALT deduction survives, taxpayers may still receive a benefit from paying their state and local income taxes before year-end.
If you are unsure of whether or not you would benefit from paying your state and local taxes before year-end, please contact us. We would be happy to help!
Article written by:
Rob Roll, CPA