Displaying items by tag: SALT

(Washington)

One of the weakest and most questionable aspects of the recent tax package was the federal government’s new policy to limit state and local tax deductions (referred to as SALT). The change is rules meant that total tax bills for residents of higher tax states were set to soar. Unsurprisingly, these states, including huge payers New York and California, are devising work arounds, such as making state taxes a donation, which makes them fully deductible. Or they could eliminate income taxes and boost payroll taxes. If states adopt such tactics, it will leave a gaping estimated $154 bn hole in the US Treasury’s budget over the next eight years.

FINSUM: This was a big unforeseen consequence of the tax policy that could have a major impact on the budget. Congress is probably going to have figure something out.

(Washington)

Advisors need to pay very close attention to what states are doing on taxes. As might have been expected, states with high taxes are working hard to come up with solutions that protect their residents from the higher payouts trying to be imposed by the federal government. The new tax package limits state and local deductions (“SALT”) to just $10,000, which means much higher tax bills for residents of higher tax states. While New York is preparing to sue the federal government over the changes, California has already come up with what looks like a good solution. Residents of the state can simply donate to the “California Excellence Fund” instead pf paying taxes, as such a charitable gift is deductible in the new federal package.

FINSUM: New York may also use the same plan as California is using. All the states seem likely to do this. What a big waste of time and energy because of a silly rule.