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.”