Here we are – another week closer to “Tax Day”! If you’re counting, there are 55 days remaining to file your taxes by the Tuesday, April 17 deadline.

As promised, in the coming weeks, we will be digging into all of the details of the newly passed tax reform and explain how it impacts you.

This week, we’re talking about SALT. I’m not talking about the tasty treat you sprinkle on your food; I’m talking about the other SALT – state and local tax.

Right now, less than a third of taxpayers actually itemize their deductions. With all of the changes with the tax code, this number will likely decrease even more – only time will tell.

tax receiptUp until now, taxpayers choosing to itemize their deductions instead of opting for the standard deduction could choose to deduct the full amount of either their state income taxes or their sales taxes. Taxpayers living in states with higher income taxes (New York, California, etc.) normally choose to deduct their local income taxes. However, other taxpayers living in states with higher sales tax and either low or no state income tax (like Texas and Louisiana) typically choose to deduct their sales tax.

There is good news and bad news…

Fortunately, SALT was one of the deductions that made the cut for tax reform. However, like most of the other deductions, it got a face-lift in the process. The new SALT deduction allows taxpayers to deduct their sales tax, state income tax, and property tax up to an aggregate $10,000 limit.

Unfortunately (especially for higher income households), the SALT deduction has been capped at $10,000. For taxpayers living in states with very high income tax rates, taxpayers lose big time. Those once large deductions for state income tax and property tax have all but disappeared. Sure, they can still deduct $10,000, but for many, that amount barely scratches the surface.

As previously mentioned, this change to the tax code likely won’t affect the majority of people. If trends stay constant, most people will choose to continue to take the standard deduction in lieu of itemizing, especially since the standard deduction has been doubled. However, higher income tax payers living in states with elevated income tax rates most definitely will be affected.

If you have questions about how this change could affect you, give our office a call! Our staff is keeping up with all things tax reform to best serve our clients. One of our tax experts would gladly discuss with you the changes to the SALT deduction and the implications it will have for you personally. Give our office a call today and schedule your free consultation!

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Don’t forget, “Tax Day” is Tuesday, April 17! If you plan to use Wealth Builders as your tax preparer, make sure to have all of your tax data to our office no later than Friday, March 30!

Kathryn Vasel. “Making Sense of the New Cap on State Tax Deductions.” CNN Money, 20 Dec. 2017, money.cnn.com/2017/12/20/pf/salt-deductions-new-tax-plan/index.html.

Pickering, Kathy. “3 Changes to Itemized Deductions Under Tax Reform Bill.” H&R Block, 22 Dec. 2017, www.hrblock.com/tax-center/irs/tax-reform/3-changes-itemized-deductions-tax-reform-bill/.

Robertson, Lori. “The Facts on the SALT Deduction.” Fact Check, 9 Nov. 2017, www.facecheck.org/2017/11/facts-salt-deduction/.