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Save Money with California’s “SALT” Workaround

Save Money with California’s “SALT” Workaround 868 866 Bernstein Financial Services

When Governor Gavin Newsom signed A.B. 150 into law on July 16, 2021, he created an opportunity for business owners across California to obtain a larger State tax deduction on their Federal Tax Return for the 2022 tax year.

In general, individuals who deduct State and Local income, sales, and property taxes are limited to a combined total deduction of $10,000. With this new law, California now offers a “workaround” of the $10,000 Federal cap on individuals’ deductions for State and Local taxes for qualifying S corporations, partnerships, and limited liability companies.

The way this works is that the California tax is paid by the business lowering the Federal income and a California credit is passed through to offset the California income tax at the personal level.  There are some potential pitfalls to this. For example, it is a non-refundable credit that is passed through to offset the state tax and any unused amount carries forward for the 5 years this is in place. This tax law is applicable through 2025. Additionally, the SALT workaround is not available to publicly traded partnerships or an entity that is part of a California combined reporting group.

We highly recommend that you speak to a tax professional to determine if this is something that will benefit you. Schedule a consultation with one of our experts to help determine if you qualify for this tax saving strategy.