Beating the $10,000 State Tax Deduction Cap

In this blog by Senior Tax Manager, Richard Tullier, he explains how a partnership or an S Corporation that files in Louisiana now has the opportunity to pay taxes for its owners at the entity level, beating the $10,000 cap.

With every ebb, there is a flow; with every Yin, a Yang; and just like that, where Congress giveth, Congress taketh away.

While there were many things that benefited taxpayers of all sizes in the Tax Cuts and Jobs Act, there were some things that took away opportunities. One of those lost opportunities is the take-away of the deductibility of state taxes in excess of $10,000. If you own a pass-through business (Sole Proprietorship, Partnership, S Corporation), you may still have large state income tax burdens along with property taxes that can easily top $10,000.

Some states have tried to use techniques such as making a non-discretionary “charitable contribution” to the state coffers in lieu of paying property taxes. The IRS quickly dismissed those arguments and the states are back at square one. Louisiana however came up with a different approach that appears likely to pass scrutiny as it is simply the extension of an existing plan.

Beating the $10,000 cap falls under Act 442 of the 2019 Regular Session, where a partnership or S Corporation that files in Louisiana now has the opportunity to pay taxes for its owners at the entity level. Previously, these entities could only pay the tax for non-residents. This new law allows residents to be included as well. While there are steps to be taken, they can easily be met with the help of a CPA. By doing this, the deduction allows you to decrease the income flowing from your pass-through entity and thus lower your federal tax burden.

If you own a business and are facing itemized deduction limitations, click here and we can help you with this opportunity.

Richard Tullier, CPA

Richard Tullier, CPA

Senior Manager, Tax Department at Wegmann Dazet
Richard has nearly two decades in the practice of public accounting, tax and consulting experience.
Richard Tullier, CPA