You may have already heard that the proposed tax reform bill would eliminate the state and local income tax deduction for individuals, also often referred to in the media as "SALT". If you currently itemize deductions on your income tax return, the elimination of the state and local income tax deduction, or SALT, is a big change that could affect you, depending on your income level and your place of residence.
Indeed, the potential impact of this change will likely be very state-specific, as can be seen in the heat map below. States like New York, California, Connecticut, New Jersey, Massachusetts, and Oregon, among others, all have a relatively large percentage of their households that deduct state and local taxes:
Pouring more SALT on the Wound?
However, it appears there is a rather large loophole in this aspect of the proposed tax reform: If you own a small business, such as an limited liability company, where your business income passes through to your personal income tax return, then you will still be able to deduct state and local income taxes on your return as a business expense (presumably on Schedule C, as opposed to Schedule B on your individual return).
Ironically, it does not appear that the employees of these same pass-through businesses would be able to take state and local tax deductions. Here is one article in the media that has recently discussed this potential loophole.
If this is true, people who live in the states in the darker shades of pink above will have a much bigger incentive going forward to start their own business vs. work for someone else. Either that, or they will have a very big incentive to move to another state if they make a lot of money and can easily relocate and work remotely somewhere else.
DFS Partners can assist you decide whether starting a business makes sense for your situation. If you already own a business, DFS Partners can help you navigate the potential changes that will occur with proposed tax reform and the possible impacts on your small business. Contact DFS Partners to learn more about these and other consulting, analytics, and marketing services it can help implement for your small business.
DFS Partners LLC is a Norwalk, Connecticut-based small business consulting company that provides independent consultative, analytical, and creative services and solutions needed by regional entrepreneurs, small businesses, and other professionals. Our expertise focuses on two primary verticals: business analytics and content marketing. DFS Partners can offer an incremental single-point solution to an immediate need or be a trusted and retained partner that helps serves different business needs through a client's development, whether it be a for-profit or non-profit entity.
DFS Partners utilizes this experience to provide a variety of business analytics services that help meet the needs of emerging businesses who may not have the budget, time, or desire to hire a full-time CFO, bookkeeper, or a high-priced management consulting company to help them find ways to improve their business. Whether it is a more wholistic evaluation of the business, or a deep dive into one aspect of it, DFS Partners can provide experiential insights and analysis that may make substantial improvements in the operations and profitability of your small business.
DFS Partners also provides small businesses with a one-stop shop for a variety of its content marketing needs over the business lifecycle, including writing, website design, social media management, and commercial and product photography. The leadership of DFS Partners has evaluated, written, and edited thousands of financial marketing and investor communications documents, presentations, newsletters, websites, and other materials over the decades dating back to the advent of the website. These content marketing services are rounded out by point solutions, such as SEO- and industry-customized website design, as well as 5-star rated commercial and product photography.
Contact DFS Partners to learn more about the consultative, analytical and marketing services provided to emerging freelancers, entrepreneurs, and small businesses. Your first consultation is free.