Surge of SALT Workarounds Could Pose Complications for Passthroughs

Author: External Author |

One of the more notable state tax policy trends during the 2021 legislative session has been the adoption of passthrough workarounds to the federal cap on the state and local tax deduction.

More than 11 states have enacted those workarounds this year, joining the seven that adopted them in the last three years. Other states are considering them as well. The basic design involves creating an elective entity-level tax on passthroughs and providing an offsetting individual income tax credit for passthrough owners. In effect, the passthrough entity (PTE) pays the state income tax for the owners and claims a full federal deduction for the state tax. Since the SALT cap only applies to individual taxpayers and not to the entity, the workaround allows owners to receive the benefit of an uncapped federal deduction for the state tax paid on their passthrough income.

Read More

Original Article Source Credits:  Tax Analyst

Article Written By: Paul Jones

Original Article Posted on:  Aug. 10, 2021

Link to Original Article: