On Nov. 9, the IRS may have endorsed a workaround to the $10,000 cap on state and local taxes when it comes to state and local taxes paid by passthrough entities. The Tax Cuts and Jobs Act of 2017 capped state and local tax (SALT) deductions at $10,000. This cap only applied to SALT deductions paid by individuals, not by corporations. This put passthrough entities (LLCs, partnerships, and subchapter S corporations) at a disadvantage, since SALT taxes on passthrough entity income are generally not paid at the entity level, but rather by the individual LLC member, partner, or S corporation shareholder, so that the SALT taxes that passed through to the owners were subject to this aggregate $10,000 SALT deduction cap.
Continue reading the full GT Alert, “IRS Endorses State and Local Tax Deduction Cap Workaround.”