The SALT Deduction - Reverse It or Raise It?

As a small business owner facing the hefty burden of owing $20,000 or more in taxes, it’s time to dive into a topic that might just be the key to easing that financial strain: the state and local tax (SALT) deduction. Yeah, you heard me! With Congress gearing up for potential tax reform—thanks to Republicans holding the reins in the White House and both chambers—it seems like the SALT deduction is back in the spotlight. Let me break down why this matters for you.

First off, let’s talk about what the SALT deduction actually does. If you itemize your deductions, the SALT deduction allows you to deduct your state and local taxes from your federal taxable income. Sounds great, right? But there’s a catch. Back in 2017, the Tax Cuts and Jobs Act slammed a cap of $10,000 on this deduction—something that has stuck in the craw of many taxpayers, especially in states with high tax rates.

I get it. If you’re running a small business and scraping by while also paying steep taxes, that cap can feel like a kick in the gut. The folks in high-tax states, like California and New York, have been especially vocal about how the SALT cap disproportionately hurts them. But here’s the kicker: this isn’t just a “blue state” problem. Even in states you might think of as Republican strongholds, like Texas, taxpayers are affected.

Take Connecticut, for example. Before the cap, the average SALT deduction sat around $20,900—after the limit, that plummeted to about $9,700. That's a staggering drop, roughly a 58% decrease. For small business owners already battling taxes, this is no small potatoes.

Now, as we look ahead, some GOP lawmakers are making noise about raising or even eliminating the SALT cap altogether. Rep. Mike Lawler from New York has come out swinging, saying he won’t support any tax reform that leaves the SALT cap in place. He’s rallying the troops from high-tax states to get on board, stating that they won’t budge unless the cap goes.

In fact, Rep. Tom Suozzi, known as “Mr. SALT,” has been banging the drum for the restoration of the deduction for quite some time. His mantra, “No SALT, no deal,” has been ringing loud and clear among lawmakers who feel the pinch of that cap. They argue that this cap represents double taxation, and it’s really hurting everyday folks living in places like Long Island and Queens.

Even President elect Trump has jumped back into the fray, pledging during his 2024 campaign to “get SALT back.” This has sparked waves of reactions—from cheers to skepticism. Critics point out the irony that he helped impose the cap in the first place. Yet, the pressure is mounting for lawmakers to address this issue as the SALT cap is set to expire at the end of 2025 unless Congress takes action.

Here’s the nitty-gritty: lifting the SALT cap could cost an estimated $1.2 trillion over the next decade, and that’s raised eyebrows among conservatives worried about federal revenue and the deficit. The Congressional Budget Office reported that making the Tax Cuts and Jobs Act permanent could set us back $4 trillion in ten years.

So as we inch closer to Congress tackling tax reform, who knows what changes might come down the pike? Will we see a lift on that pesky SALT cap? Or perhaps a raise to a $20,000 deduction? The possibilities are out there, and you, as a small business owner, should definitely pay attention.

In the meantime, stay informed and connected. The bottom line is this: tax season might feel daunting, but changes to the SALT deduction could change the game for many of us. Keep an eye out for updates, and don’t hesitate to reach out to a tax pro who can help navigate these murky waters. Remember, you didn’t build your business just to drown in taxes!