Thomas R. Fazio, Partner, Blodnick Fazio & Clark, says the Internal Revenue Service’s proposal to do away with the states’ workaround on the SALT (state and local taxes) cap will negatively affect Long Island residents, who already pay some of the highest state and local taxes in the nation.
On August 23, the IRS introduced a proposal that would no longer allow states to work around the SALT cap of $10,000. In New York State, Governor Andrew Cuomo signed into law in May legislation that, in order to get around the cap, state residents could make financial contributions in the amount they would have paid in taxes to an eligible entity (such as a municipality, county or school district) and write it off as a charitable deduction.
In New York, the state provides an 85% credit for such donations. That means, if someone donates $1,000 to an eligible entity, that person can receive an $850 state credit and write off the remaining $150 on their federal tax returns. The IRS has proposed reducing the amount eligible for a write-off at 10%.
Governor Cuomo has vowed to challenge the IRS’ action in court, adding that the SALT cap will cost families in New York $14.3 billion a year. Mr. Fazio said the IRS’ proposal will result in confusion for taxpayers, especially when they see higher taxes.
“Long Islanders pay some of the highest taxes in the country, seeing their tax bills at $11,000 a year or more,” Mr. Fazio said. “In high-tax states such as New York, people will suffer under the SALT cap and the elimination of the workaround. If anyone has any concerns on what the end of the SALT cap workaround may mean to them, please contact an experienced tax attorney.”
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