IRS Offers SALT Cap Workaround for Business Taxpayers

Chris Gaetano
Published Date:
Sep 6, 2018


The IRS has clarified that its recent guidance shutting down the use of state-level charities as a way to get around the $10,000 cap on state and local tax deductions does not affect business deductions. This means that while an individual cannot claim a charitable deduction for contributing to such entities, a business can make such contributions, provided that the contributions are business related. The IRS made this clarification by issuing a two-paragraph statement: 

"Business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses, the Internal Revenue Service said today.

"Responding to taxpayer inquiries, the IRS clarified that this general deductibility rule is unaffected by the recent notice of proposed rulemaking concerning the availability of a charitable contribution deduction for contributions pursuant to such programs. The business expense deduction is available to any business taxpayer, regardless of whether it is doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense. Therefore, businesses generally can still deduct business-related payments in full as a business expense on their federal income tax return."

The Tax Cuts and Jobs Act included a provision that restricted the previously unlimited federal deduction for state and local taxes to no more than $10,000, a move that Gov. Andrew Cuomo said, during his State of the State Address, amounted to robbing blue states to pay for tax cuts in red states. Consequently, New York state passed a measure as part of the budget that would, among other things, offer two potential options for ameliorating the cap's impact: an opt-in payroll tax that businesses can then deduct, and the creation of two charitable organizations that people could donate to in order to claim a deduction. While the IRS has yet to weigh in on the former, its recent guidance would effectively shut down the latter. 

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