The Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017 that became effective for tax years after December 31, 2017 and before January 1, 2026 included a provision that limited the annual federal personal income tax deduction for state and local taxes (“SALT”) to $10,000. The taxes to which this limit applies are state and local income, sales, and property taxes paid by the individual taxpayer. Additionally, the TCJA also increased the standard deduction to $12,000 for single tax filers and $24,000 for joint filers. These were significant increases from the prior standard deductions which were $6,300 and $12,600 for single and joint filers, respectively.
Considered in tandem, these two provisions of TCJA meant that many taxpayers, especially those that live in jurisdictions with high state and local tax rates would either get a partial SALT deduction if such taxes exceeded $10,000 or no SALT deduction if the taxpayer did not have sufficient other itemized deductions that exceeded the standard deduction.
Chicago CPA and national accounting expert Ralph Nach analyzes this topic in a January 2022 white paper. Click on the link to read the full article titled, “Accounting Treatment of State Pass-Through Entity Taxes.”
About Ralph Nach
Ralph Nach, CPA is a principal in Epstein + Nach LLC, an international consulting firm concentrating in forensic accounting, technical consultations, preissuance financial statement review , internal inspection assistance, and training for accountants and auditors. In addition, he serves as senior faculty and technical advisor for 20-20 Services LLC. He also serves as a Senior Research Analyst for Valens Research LLC, an independent research and credit analysis firm for which he focuses on the impact of new and existing accounting and reporting standards and practices, and serves on the UAFRS Advisory Council.
He has been CPA practitioner for over forty years, during which he has served in capacities including accountant, auditor, quality control director, national office technical partner, peer reviewer, educator, chief learning officer, and consultant for several prominent public accounting firms. He is a former adjunct lecture in graduate accounting and finance at Northwestern University in Evanston, Illinois. Mr. Nach has coauthored several books and speaks internationally on accounting, auditing, and financial reporting topics. He is a member of the American Institute of Certified Public Accountants (former subcommittee chair of EDMAX – the Educational Management Exchange), the Illinois CPA Society, where he has served as a chairman and/or member of numerous committees, and is an associate member of the Association of Certified Fraud Examiners.