by Stephen Reed | Accounting News, News, Newsletter, Tax, Tax Planning, Tax Planning - Individual
The One Big Beautiful Bill (OBBB) signed by President Trump includes a federal cap on the state and local tax (SALT). Until 2024, SALT was capped at $10,000 under the 2017 Tax Cuts and Jobs Act (TCJA), but the OBBB increased it to $40,000. The cap will rise by 1% each year through 2029, and barring any moves by Congress, it will revert to $10,000 in 2030. That means high-earning taxpayers and taxpayers in high-tax states have a short window to make the most of the extra $30,000 deduction.
What Is the SALT Deduction?
SALT stands for state and local taxes. The SALT deduction allows taxpayers who itemize their taxes to claim a deduction for some state and local taxes from their federal taxable income, including:
- State and local income taxes
- Property taxes
For many households, just property taxes alone can exceed $10,000, so the old cap blocked them from deducting the full amount. The new $40,000 cap opens the door for a much larger write-off.
MAGI Matters
Whether or not you can claim the SALT deduction depends on your modified adjusted gross income (MAGI). If your income is on the higher side, you might not qualify for the full SALT deduction. Once your MAGI exceeds certain limits, the deduction starts to reduce. So, if you’re in a higher tax bracket, it makes sense to do the math ahead of time.
How This Affects Estimated Taxes
If you typically owe quarterly estimated taxes, you might want to adjust the timing. Making your fourth-quarter state income tax payment before December 31 ensures those amounts are included in your 2025 SALT deduction. For some people, that could mean paying more of their state taxes before the end of the year or increasing withholding at work. The $40,000 cap makes these strategies more worthwhile than they’ve been since 2018.
Ways to Capitalize on the $40,000 SALT Deduction
Here are a few smart ways to make the most of the new deduction:
- Prepay property taxes: If your local government allows it, think about paying part of your 2026 property tax bill before the end of 2025. Doing so lets you take the deduction right away instead of waiting. Just be sure to check that your county allows prepayments.
- Review State Tax Withholding: If you usually owe a hefty state tax bill when you file, you could increase your withholding at work or send in extra estimated payments during the year. With the new SALT cap, these payments are now more likely to make a difference on your return.
- To Itemize or Not to Itemize: The SALT deduction only helps if you itemize instead of taking the standard deduction, so do the math to see if itemizing is the right move for you. Add up your SALT, mortgage interest, charitable giving, and medical expenses. If the total beats the standard deduction, itemizing will save you more.
- Time Other Deductions: Some deductions, like medical costs, are unpredictable. But others, such as charitable donations, can be timed. If you’re on the border where itemizing makes sense, shifting more of those expenses into 2025 can push your total high enough to take full advantage of the new SALT cap.
If you’re unsure about whether or not you should itemize your taxes, or if you could benefit from the new SALT cap, consult a tax professional who can help you make sense of it all.
by Stephen Reed | Accounting News, News, Newsletter, Tax, Tax Planning
After Donald Trump’s win in November, taxpayers are wondering how a second Trump term could reshape U.S. tax policy. Trump’s first term saw sweeping changes under the Tax Cuts and Jobs Act (TCJA) of 2017. With key provisions of that legislation set to expire in 2025, Trump’s proposals offer a glimpse of his tax priorities. From significant individual tax cuts to business-friendly policies, here’s what you need to know.
The Expiration of the 2017 Tax Cuts
The TCJA lowered tax rates across the board, nearly doubling the standard deduction—which eliminated the need for itemized deductions—and capping the state and local tax (SALT) deduction at $10,000. These changes contributed to lower tax bills for many Americans. However, the individual tax cuts were temporary and are set to expire at the end of 2025 unless Congress acts to extend them.
If re-elected, Trump has indicated that extending or making these provisions permanent would be a top priority. Without an extension, taxpayers could see higher marginal tax rates, a reduced standard deduction, and the return of personal exemptions.
Removing the $10,000 SALT Deduction Cap
The SALT deduction, which allows taxpayers to deduct state and local taxes on their federal tax returns, became a testy issue after the TCJA imposed a $10,000 cap. This change particularly affected residents in high-tax states like New York, California, and New Jersey.
Trump has proposed removing the cap, a move that would benefit taxpayers in those states while potentially increasing the federal deficit. Critics argue that eliminating the cap would disproportionately benefit higher-income households, but supporters see it as a necessary adjustment to provide relief to middle- and upper-income earners in high-tax areas. Steven Moore, a senior economic advisor to Trump, recently floated the idea of doubling the cap to $20,000 as a potential compromise.
Eliminating Taxes on Social Security and Tip Income
Currently, up to 85% of Social Security benefits can be taxable, depending on your income level. Trump’s tax plan consists of eliminating these taxes, which would provide retirees with additional financial security. Trump has also floated the idea of eliminating taxes on tips, which would increase take-home pay and simplify tax compliance for hospitality and service industry workers. However, this proposal has sparked discussion over the potential impact on tax revenue and fairness in the tax code.
Reducing the Corporate Tax Rate
The TCJA decreased the corporate tax rate from 35% to 21%, which rendered the U.S. more competitive globally. Trump has suggested lowering the rate even more, potentially to 15%. Those in favor of this plan say that it could spur economic growth and encourage domestic investment, while critics are concerned about increasing the federal deficit.
Trump’s Tariffs
Trump has been clear on his stance on tariffs. During his first term, Trump imposed tariffs on various goods, particularly from China. Tariffs are not taxes in the traditional sense, but they can indirectly affect taxpayers by increasing the cost of goods and services. Businesses often pass these costs onto consumers, so households, particularly those in middle- and lower-income brackets, could feel the strain of tariffs.
