How States Are Letting Small Businesses Avoid The SALT Cap On Their Tax Returns

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A growing number of states are using a workaround to help their taxpayers avoid a Trump-era cap on a critical income tax break. Whether it will influence the ongoing push in Congress to repeal the cap altogether remains to be seen.

Colorado recently became the 14th state to enact the new workaround, which allows (or in Connecticut’s case, requires) pass-through businesses to pay state income taxes at the entity level rather than on their personal income tax returns. For small businesses like partnerships, declaring that income as a business instead of passing it through to their individual tax returns means the state taxes paid on that business income don’t count toward their SALT cap.

The new mechanism is called a pass-through entity (PTE) tax, which is exempt from the $10,000 cap on the state and local tax (SALT) deduction that was part of President Trump’s 2017 tax reform….

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