C corporations cause double taxation for business owners, so you probably think you want to avoid them at all costs. And for many of you, this is true, as the S corporation often provides the lower overall tax outcome.
But for some business owners, the C corporation could provide the best tax outcome, especially since you can bypass the $10,000 state and local tax (SALT) deduction cap, which was introduced by the Tax Cuts and Jobs Act (TCJA), with a C corporation.
Here at Meese Khan, we can advise you if you would be eligible to regain at least some (maybe all) of your SALT deduction—and when to take a second look at the C corporation as a possible entity for your business
TCJA and SALT Deduction
Prior to the TCJA, business’ could deduct as itemized deductions on your Form 1040, Schedule A—without limit—the following foreign, state, and local taxes:
- Income taxes
- Real property taxes
- Personal property taxes
- Foreign income and real property taxes
Tax reform took two direct actions against itemized deductions for foreign, state, and local taxes. Beginning in the tax year 2018
- You can’t deduct foreign real property taxes.
- Your combined state and local income, real property, and personal property tax deductions may not exceed $10,000 ($5,000 on a married filing separate return).
If you operate your business as an S corporation, the S corporation passes its net income to your individual tax return. This causes you, the individual, to pay state income taxes on the S corporation income. Those state income taxes are subject to the $10,000 cap.
For many businesses, this means those taxes are now non-deductible because you have real property and other taxes that already exceed the $10,000 cap
To schedule a free consultation and discuss additional business tax strategies contact Contact Meese Khan, LLP today!
Phone: 623 935 1005