IRS Allows Business Expense Deductions for SALT Credits

Taxpayers can take business expense deductions for payments to charities or government entities If they receive SALT credit for the payments. Taxpayers were looking for clarification on SALT credits after the IRS proposed to reduce charitable contribution deductions for SALT credit program payments.

The charitable contribution deduction proposal does not affect the general rule about business expense deductions.

Who Can Take Business Deductions For SALT Credit Program Payments?

As long as the payment is an ordinary and necessary business expense, the deduction is available to  business taxpayers doing business as a:

  • sole proprietor;
  • partnership; or
  • corporation.

What Are The SALT Credit Programs?

After the state and local tax itemized deduction cap was enacted, some states created tax credits for contributions to funds controlled by the state and local government.

New York: Income Tax Credit

For taxpayers making a donation to certain charitable contribution funds, New York provides an income tax credit equal to 85% of the donation amount.

New Jersey: Property Tax Credit

New Jersey enacted a law allowing taxpayers to donate to a charitable fund established by their city, county, or school district.  In return for their donation, the taxpayer receives a credit on their property tax bill of up to 90% of the donation.

Connecticut: Property Tax Credit

Under Connecticut’s provision, municipalities can give a property tax credit to taxpayers who make contributions to a community supporting organization.

IR-2018-178, Internal Revenue Service, September 5, 2018

By Brian Plunkett, J.D.

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