The SALT limit is a big issue for the wealthier taxpayers and self-employed people, and a smart tax specialist can help you make the best of the current tax landscape. That amount has been capped at $10,000 per return, and if you are paying a substantial amount of state income tax, property tax, or business tax, then there are real, tangible tax effects at least. This blog will explain what SALT is, why it is important and what planning options you should consider talking to a professional about.
What is it and why is it particularly relevant to high earners and business owners?
Individuals who itemize their federal taxable income are eligible to receive a federal tax break for paying state and local taxes during the year, through the SALT tax deduction. This deduction was previously unlimited prior to 2018. Currently, the SALT cap reduces it to $10,000 per tax return (down to $5,000 for married filing separately). The cap leaves a lot of taxes already paid to the states and local governments that cannot be shifted back to the federal government, thereby causing a double taxation problem, making proactive planning for the salt tax deduction 2026 essential for those with high incomes and business owners in states with high income or property tax rates.
The limitations imposed for deduction and the current limitations.
- The state and local tax deduction is for the state and local income taxes AND real property taxes paid during the tax year, but may not exceed $10,000 per return, total.
- High earners and business owners with high incomes in high-tax states are paying much more than $10,000 each and every year in state and local taxes, and the SALT cap takes away a lot of what is itemized deductions that can be deducted at the federal level.
- Before you can have any conversation about planning for state and local taxes, it’s important to know what the SALT tax deduction is and how it’s impacted by the cap.
What are the tax planning strategies to maximize the SALT deduction?
There are a number of legal options that can enable high earners and business owners to operate more efficiently within the SALT ceiling. None of them removes the cap, but each of them can help decrease the overall state and local tax deduction, how and where taxes are collected, to improve the overall tax situation.
Approaches to Reduce State and Local Tax Burdens
- Bunching of itemized deductions: Rather than deducting some of these items in one tax year and the remainder in the following year, the taxpayer can bunch all of these deductions in alternate tax years, giving them a greater number of years to exceed the standard deduction in one year and attain the standard deduction in the other.
- Strategically timing state tax payments: Making estimated state income tax payments between tax years (subject to IRS regulations) may help to determine which year the deduction is claimed based on the projected income and tax liability.
- Investing in tax-exempt municipal bonds: By incorporating some of the investment income into tax-exempt municipal bonds, the overall amount of state and local taxes due is reduced, but not solely through the capped SALT deduction at the federal level.
What Impact Will Pass-Through Entity (PTE) Tax Elections Have on the SALT Deduction?
This tax planning strategy, one of the largest and most important opportunities for eligible business owners who are subject to SALT cap limitations, is underutilized by many business owners.
Educational Opportunities For Eligible Business Owners
- There is a new twist on the pass-through entity group. Most states now offer an election for pass-through entities, such as partnerships, S corporations, and LLCs taxed as partnerships, to pay state income tax at the entity level instead of the individual owner level, where this tax may be capped at the $10,000 level.
- If the entity pays state income tax on its own, it deducts the payment on its federal return as a business expense, and the cap does not apply, meaning the deduction would not be lost for high-income owners.
- For business owners who have not considered whether their business structure and state of operations can benefit from the salt tax deduction 2026 by virtue of their election, it is important to discuss the implications of this election.
How Do State Income Taxes, Property Taxes, and Business Taxes Impact SALT Planning?
That’s where SALT planning really gets complicated and where intelligent coordination of tax plays is actionable and measurably impacts results.
Effective management of Multiple Tax Obligations
Higher income earners frequently have to pay state income and property taxes on their many assets, as well as business taxes on that same income, all at the same time and all subject to the same $10,000 cap of state taxes on their individual return. To ensure effective SALT planning, each individual tax item must be addressed, and the position in the overall tax mix must be designed to avoid double taxation in the context of both personal and corporate taxation.
That’s exactly what Epicwayz Advisors provides in terms of planning. Epicwayz Advisors is a trusted tax advisory firm in Plano, providing high earners and business owners with Tax Services, Fractional CFO Services, Accounting Services, and Business Advisory Services tailored to their complex federal and state tax scenarios. evaluating your deduction plan, to understanding how the state and local tax deduction and SALT cap work for your individual filing situation, Epicwayz Advisors offers a depth of strategy that can’t be found in the surface-level advice. Don’t file without professional assistance at this income level; it is the difference between a good tax strategy and a great tax strategy that’s measured in real dollars.
Strategic Financial Leadership for Growing Businesses
Get executive level financial guidance
- Cash Flow Forecasting & Budget Planning
- Financial Strategy & Performance Insights
- Investor and Capital Planning Support
Conclusion
There is a real limit or restriction on SALT but it’s not one you need to take as a given without a plan. There are many more tools for high earners/business owners than they think. The important factor is having an advisor that is familiar with the federal and state tax landscape. That’s the purpose of Epicwayz Advisors; to serve clients in Plano in helping them navigate difficult tax situations into a well-managed, strategically sound situation.
