There are many tax deductions that individuals and businesses take in order to reduce their tax liability. One of the most popular of the itemized deduction is called the SALT deduction. The SALT deduction is an acronym used to describe the state and local tax deduction. Essentially, tax-filers who take the SALT deduction pay taxes to their states in the form of real estate taxes, local income taxes, and other related tax costs.
These tax filers then deduct the amount of money they paid in state taxes on their federal tax return. In other words, a taxpayer who had a $60,000 income and who paid $10,000 in state and local taxes would deduct the $10,000 he paid out in taxes and would be taxed by the federal government on only $50,000 in income.
A Virginia tax lawyer can provide assistance to taxpayers in understanding the SALT deduction as well as in maximizing the other deductions that they could be eligible to take. Understanding the rules for tax deductions is very important and it will become especially essential to keep up-to-date on tax laws if and when tax reform passes. The SALT deduction could be on the chopping block in tax reform, and this could come at a huge cost to residents of states with high state and local taxes.
Understanding the SALT Deduction
According to the Tax Policy Center, state and local taxes have always been deductible since the federal income tax was first assessed in 1913. SALT deductions are claimed by almost all tax filers who itemize on their tax returns. In 2013, for example, 44 million households took itemized deductions instead of the standard deduction and 43 million of those households took a deduction for state and local taxes.
Around 10 percent of tax filers with incomes under $50,000 claimed the SALT deduction in 2014, but the deduction was claimed much more frequently among tax filers with incomes of $100,000 or more. The group of taxpayers with incomes exceeding $100,000 account for 16 percent of tax filers but they reap 75 percent of the benefits from the SALT deduction. Among taxpayers with incomes of more than $100,000, the average amount deducted for state and local taxes was around $12,300 as of 2014.
Many of these tax payers could face a higher tax bill if the SALT deduction is changed or eliminated as part of tax reform proposals. A proposal put forth by the U.S. House of Representatives would eliminate the deductibility of most state and local taxes and would cap deductions for real estate taxes at $10,000. A bill proposed by the U.S. Senate would eliminate the SALT deduction entirely.
Kevin Thorn is a Virginia tax lawyer who can provide guidance and advice on tax deductions and can provide you with tips and information on how to reduce your tax bill as much as possible under whatever current legal framework exists. You should reach out to attorney Thorn for help with your tax questions today.
