Mitigating Federal Limitations on SALT Deductions: New State Laws and Tax Planning Techniques for Taxpayers

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, September 20, 2018

Recorded event now available

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Program Materials

This webinar will guide tax professionals and advisers on new state laws implemented in response to limitations on the deductibility of state and local taxes (SALT) imposed by tax reform. The panel will examine new state tax law enacted in New York, Connecticut, and other tax legislation proposed by California and other states in response to the SALT deduction limitations. The panel will also discuss recent IRS Notice 2018-54 in response to the state-level workarounds and offer planning techniques for taxpayers.

Description

State tax laws have been proposed or enacted in response to the new state and local tax deduction limitations imposed by tax reform. Some states have provided items within their tax laws allowing benefits and savings while others place additional burdens on taxpayers.

New federal tax law limits the itemized deduction for SALT for federal income tax purposes to $10,000, forcing states to consider alternatives for taxpayers aimed at circumventing the limits. States have explored options such as reducing state income taxes while making up that revenue with state-imposed employer payroll taxes or giving additional income tax credits or deductions to taxpayers. New laws passed in Connecticut and New York, and those proposed in California and other states, have set the tone and may benefit taxpayers by helping to mitigate the impact of the federal law limitations.

Connecticut Public Act No. 18-49 imposes a tax on pass-through entities which are then able to offset such tax with a personal income tax credit on the pro rata share of taxes paid by owners of the pass-through entity. This tax on pass-through entities is not subject to the new federal SALT deduction rules but provides the owners with an effective deduction against federal income tax without additional state income taxes.

New York enacted an employer-level payroll tax. This payroll tax is optional and allows employers to take a credit for wages paid more than $40,000 to employees, against their state personal income tax liability. The use of tax credits to offset personal income is also the foundation of California’s proposed bills.

In Notice 2018-54, the IRS intends to propose regulations to disallow the use of these state-level workarounds. Tax professionals and advisers must remain knowledgeable of enacted and proposed state tax laws to mitigate the impact of the federal SALT deductibility rules.

Listen as our panel provides detailed analysis of the federal SALT deduction limitations, newly enacted state tax laws, and planning strategies to limit or offset SALT liability post-tax reform.

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Outline

  1. Overview of federal SALT deduction limitations
  2. Connecticut’s new tax law for pass-through entities and personal income tax credit
  3. New York’s employer level payroll tax
  4. California and other state bill proposals to relieve state tax burdens of taxpayers
  5. Strategies to limit or offset federal SALT deduction limitations

Benefits

The panel will review these and other noteworthy issues:

  • Understanding the federal SALT deductibility rules and limitations
  • Identifying newly enacted state tax law and requirements in response to tax reform
  • Overview of Connecticut’s new tax law and personal income tax credit
  • Pros and cons of New York’s employer payroll tax option
  • California’s proposed bills to relieve state tax burdens
  • Ascertaining available methods to limit or offset state tax liability

Faculty

Long, Stephen
Stephen W. Long

Partner
Baker McKenzie

Mr. Long's practice focuses on federal and multistate tax controversy issues. He handles complex state and local...  |  Read More

Paek, John
John Paek

Partner
Baker McKenzie

Mr. Paek is a partner in Baker McKenzie’s Palo Alto office and a member of the Firm’s Tax Practice Group...  |  Read More

Tedesco, Michael
Michael C. Tedesco

Atty
Baker & McKenzie

Mr. Tedesco represents multinational and domestic corporations in a wide range of tax planning and tax controversy...  |  Read More

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