How to Deduct State and Local Taxes (SALT) in 2023

One tax payment is bad enough. However, if you take advantage of the federal state and local tax (SALT) deduction, you might be able to escape paying taxes twice on the same income.

The SALT tax deduction enables taxpayers to deduct up to $10,000 from their nationally taxable revenue. If you don’t have many other conclusions, this one might not be very useful to you.

People who itemize their deductions as opposed to accepting the standard deduction are eligible for the SALT deduction. So, without any special documentation, the IRS permits you to deduct from your taxable income. Depending on filing status, the standard deduction for the tax year 2022 (filed in 2023) varies from $12,950 to $25,900.

What Is the SALT Deduction Amount?

2022 SALT Deduction

You may deduct a limit of $10,000 from your SALT payments in 2022. The fee is $5,000 for married couples filing individually.

2023 SALT Deduction

Again, the highest SALT deduction you can claim for 2023 (taxes due in 2024) is $10,000 ($5,000 for married couples filing separately).

Why, then, does the limit not account for inflation like other provisions of the tax code?

Congress decided to restrict SALT deductions to pay for some of the other programs included in that legislation.

The limit will run out in 2025. However, since the limit went into effect, the SALT deduction has been a topic of active political discussion. And whenever Congress starts discussing tax policy, it usually comes up.

On the one hand, by limiting deductions, the cap raises government revenue while largely protecting the lowest-income taxpayers. After all, the cap won’t apply to you unless you itemize deductions and pay more than $10,000 in state and local taxes.

However, many taxpayers, especially in states with greater costs and taxes, must pay more in taxes as a result of the deduction limit. For instance, taxpayers in New York and California might have more eligible deductions than the limit than, say, Tennessee residents. Who pay less in state and local taxes.

The SALT Deductions Cover Which Taxes?

The SALT tax deduction includes coverage for several fees. However, for a few of the significant ones, you might need to decide. State and municipal sales taxes as well as local and state income taxes are both deductible. not either.

Let’s examine each of these conclusions individually.

Income Tax SALT Deduction

It is fairly simple to determine how much in-state or municipal income taxes you have paid over the course of the year if you receive a W-2 wage and tax form from your employer. The data on that form can be used to determine how much state or municipal income tax you might be able to write off.

You can write off any estimated taxes you may have given to your state or local government during a tax year if you are self-employed.

Additionally, you can deduct any payments you made for state or municipal taxes in a previous year.

Sales Tax Deductions Under SALT

There are a few ways to do this if you determine it would be wise to deduct sales taxes rather than income taxes. You can determine the precise amount of your deduction if you keep thorough records of the sales taxes you spent throughout the course of the year.

Taxes imposed on personal property, such as a boat or a vehicle, are typically deductible. The SALT deduction may be used to offset taxes that are solely based on property value and are assessed yearly (even if they are billed more frequently).

What Taxes Do the SALT Deduction Not Apply To?

According to the IRS, the following expenses cannot be deducted for using salt as a deductible expense. Federal income taxes, Social Security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner’s association fees, estate and inheritance taxes. And service charges for water, sewer, or trash collection.

Why Is It Called the SALT Tax?

State and local taxes are referred to as SALT. It has nothing to do with how your cuisine is seasoned.

But if you were paying attention in history class, you might recall that sodium chloride taxes, which are levied on salt, are some of the world’s earliest government levies. The Great Wall of China, for example, may have been financed in part by salt fees. And in Europe, one of the things attributed to sparking the French Revolution was the excessive taxation of salt.

Today, a sales tax on foods or other salty goods may be the way you pay salt taxes. The expense of that tax could theoretically be written off using the SALT deduction.

Have any more questions? Contact Your Part Time Accountant tax experts right away!