Tax Alert: NJ Softens the Blow of SALT Deduction Cap

Owners of New Jersey pass-through entities have a new way to get around the $10,000 cap on state and local tax (SALT) deductions imposed by the Tax Cuts and Jobs Act of 2017.

Governor Murphy signed a bill on January 13, 2020, that would allow residents who own S-corporations, limited liability companies and partnerships to pay their state income tax as a business expense. It is important to note that, while a deduction for these expenses will be allowable on the NJ K-1, the IRS has yet to approve or disapprove of the deduction. While the IRS may not comply with the state of New Jersey’s request for a federal deduction, it has no control over the state’s decision.

Effectively immediately, this measure is designed to allow business owners to fully deduct their state income taxes without any effect on the state budget. Taxpayers should keep in mind that taking advantage of this workaround may have implications on their ability to claim credits on taxes paid to New York, Connecticut and other states.

Jeffrey G. Cohen Jeffrey G. Cohen, CPA is the Partner-in-Charge of Tax Services at Grassi. With over 30 years of experience, Jeff specializes in serving companies within the Manufacturing and Distribution Industry, with an emphasis on the Food & Beverage and Pharmaceutical sectors. A leading tax expert in the New York Metropolitan area, Jeff has enabled his clients to realize significant tax savings through proper Income and... Read full bio

Michael Hochman Michael Hochman is a Partner at Grassi, where he serves as the Co-Leader of the New Jersey Market. As a key member of Grassi’s leadership team, he sat on the firm’s Executive Committee for seven years. Michael has broad experience in tax planning and return preparation for corporations, individuals, and partnerships and represents clients before both federal and state taxing authorities. He provides clients... Read full bio