California SALT Deduction Workaround: Your Complete Guide

What is the California SALT deduction workaround?

Until recently, businesses that fell above the $10,000 SALT cap could claim state or federal tax deductions. 

But, there are legal loopholes to avoid the $10,000 SALT cap and save your company tax dollars, which means you get to keep more of your qualified income as a business owner. State and federal tax deductions are a great way to ensure that you get all of the benefits that you are entitled to from the business that you work hard to maintain.

My business makes a high amount of income. Is the SALT deduction workaround right for me?

Most likely, yes. The SALT deduction workaround allows you to deduct business expenses from gross income versus itemized deductions subject to an AMT limitation. The AMT limitation exists to make sure that high-earning businesses pay at least a minimum amount of tax. Our professionals will make sure that the SALT deduction workaround is the best move for your business.

How much money can my business save with a California SALT deduction workaround?

For California taxes, the business owner who opts in to the California SALT deduction workaround, which exists as an elective tax option, would receive a credit for 94.9% of the amount of elective tax paid.

For example, if the business has $1,000 of profit income, they would first pay $93 dollars in quarterlies as an elective tax and then receive a tax credit on the “elected tax” they in the amount of $88.26 ($93 x 94.9%). Therefore the business would have $911.74 out of the $1,000 of income that would pass through to the business owner.

Working with a professional will help you determine exactly how much the elective tax option could end up saving your business.

What types of businesses are eligible for a California SALT workaround?

If your business is an S Corp, a Multi-Member Partnership, or a Non-Single Owner LLC operating out of California, you may be able to take advantage of the California SALT deduction workaround.

How does the California SALT deduction workaround work?

California recently passed into law a workaround in the form of an elective quarterly tax, available to each owner of a business. Each business owner can elect to pay a quarterly tax and deduct expenses from gross income, instead of the traditional itemized deduction subject to the AMT, or Average Minimum Tax for businesses.

How long is the SALT deduction in effect?

The California SALT deduction workaround passed July 16th, 2021 with the California Budget and will be effective from 2021 to 2025. If you want to take advantage of the workaround for the 2021 tax year, you must take action by March 15th, 2022.