Days
Hours
Minutes
Seconds

What Is the State And Local Tax Deduction - SALT?

“state and local taxes

Does SALT Apply To You?

Since the standard deduction for your 2018 return almost doubles due to tax reform, (from $6,350 to $12,000 for single filers, $12,700 to $24,000 for married filing jointly and widow filers, and $9,350 to $18,000 for Heads of Household), it will not be beneficial for most taxpayers to itemize on their returns and the changes to the SALT deduction won’t affect them. You might ask, does this apply to you? The easiest and most accurate way to find out is to start a free tax return on efile.com, and based on your tax situation, we will determine what is most tax advantageous to you, and whether you should itemize or use the standard deduction.

The SALT deduction can only be claimed if you itemize on your tax return - that is, when your itemized deductions are greater than your standard deduction and you file a Schedule A. Your standard deduction is a fixed amount that you can deduct that is based on your filing status. Itemized deductions are the total deductions that are listed on your Schedule A, and it is not a fixed amount.

Since the standard deduction for 2018 and later Tax Returns almost doubled due to tax reform (see table below), it will not be beneficial for most taxpayers to itemize on their returns and the changes to the SALT deduction won’t affect them. Find out whether you should itemize or use the standard deduction.

Filing Status Old Standard Deduction Amount New Standard Deduction Amount
Single/Married Filing Separately $6,350 $12,000
Married Filing Jointly/Qualifying Widow $12,700 $24,000
Head of Household $9,350 $18,000

If you are still not sure if the deduction applies to you, read the following sections: 

What is the SALT Deduction?

With tax reform a lot of folks are talking about it. Does it mean I can deduct the amount of Salt that I put on my popcorn? Can I deduct which kind of Salt I use, Sea, Kosher, Himalayan, perhaps? The answer is No, none of these things! The SALT deduction doesn't have anything to do with condiments or spices. It actually stands for State And Local Taxes, in other words, S-A-L-T.

The SALT deduction is not new, it has been around for awhile. The reason it is getting so much attention these days is because of tax reform and the subsequent Tax Cuts and Jobs Act signed into legislation in December 2017. As a result of this legislation, the SALT deduction has been reduced. During initial talks about tax reform, the SALT deduction was almost eliminated. After legislators realized the impact of this, it was decided to simply reduce the SALT deduction to $10,000.

What does this mean for you and how will it affect your tax return for 2018 and beyond?  We will try and make this simple and easy to understand for you.

The History of the SALT Deduction and How It Affects You!

The SALT deduction has been a part of our federal income tax since 1913. The SALT deduction is one of the largest federal tax expenditures as it costs the federal government trillions of dollars in lost revenue opportunities. So you can see why the federal government was looking to eliminate it at first.

According to a report from the Tax Policy center, taxpayers with incomes of over $100,000 benefit the most from the SALT deduction. However for about half the number of all taxpayers, the decrease in the SALT deduction means that these taxpayers will see the affect of this as an increase in their taxes.

Taxpayers with lower incomes will not be impacted as much from the decrease of the SALT deduction. However, the residual effect of the reduction of SALT will be that state and local governments might choose to lower their tax rates (because folks are paying higher federal taxes) and this would result in lower dollars amounts for state and local programs and services.

How Does the SALT Deduction Work?

The SALT deduction is a deduction that is claimed only if you itemize - that is, your itemized deductions are greater than your standard deduction and you file a Schedule A. Your standard deduction is a fixed amount that you can deduct that is based on your filing status (you get an additional amount added to your standard deduction if you are 65 or older). Itemized deductions are the total deductions that are listed out on your Schedule A, and it is not a fixed amount. The SALT deduction can include all or some of the following:

SALT Type What It Is Can You Deduct?

State Income Taxes

State income taxes withheld from your salary in 2018. This is listed on Forms W-2, 1099-G, 1099-R, or 1099-MISC.

If your total itemized deductions are greater than your standard deduction AND you don't deduct Sales Taxes.

Local Income Taxes Local income taxes withheld from your salary in 2018. This is listed on Forms W-2, 1099-G, 1099-R, or 1099-MISC. If your total itemized deductions are greater than your standard deduction AND you don't deduct Sales Taxes.
Prior Year State and Local Income Tax Payments State and local income taxes paid in 2018 for a PRIOR tax year. For example, this would be taxes you paid in 2018 for 2017. Do not include penalties and interest paid in 2018. If your total itemized deductions are greater than your standard deduction AND you don't deduct Sales Taxes.
State and Local Estimated Tax Payments State and local estimated tax payments made during 2018 including any part of a prior year refund that you chose to have credited to your 2018 state or local income taxes. If your total itemized deductions are greater than your standard deduction AND you don't deduct Sales Taxes.
Real Estate Property Taxes Real estate property taxes that you paid in 2018 on a property that you owned that wasn't for a business. If your total itemized deductions are greater than your standard deduction.
Personal Property Taxes Personal property taxes you paid in 2018 if the tax was based on the item’s annual value. For most people this be would a large item such as a car or a boat. If your total itemized deductions are greater than your standard deduction.

State Related Mandatory Contributions

Mandatory contributions you made in 2018 to any state-related disability funds, unemployment or workmen's compensation funds, or family leave programs (this only applies to certain states such as California, Alaska, New Jersey, or Pennsylvania). If your total itemized deductions are greater than your standard deduction.
State and Local Sales Taxes State and local sales tax that you paid in 2018 for items such as food, clothing, medical supplies, car, boat, aircraft. If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount. If your total itemized deductions are greater than your standard deduction AND you don't deduct State and Local Income Taxes.

Should You Deduct SALT?

If you itemize deductions on your federal tax return (in other words, you do not take the standard deduction) you can choose to deduct the items above on your Schedule A. Remember that it does not benefit you to itemize if your total itemized deductions are not greater than your standard deduction. See your standard deduction based on your filing status.

If you itemize, you can deduct property taxes AND state and local income taxes OR you can deduct property taxes AND sales taxes. You cannot deduct state and local income taxes AND sales taxes. If you live in a state that has high income taxes such as California, New Jersey, Maryland and New York you might opt to deduct state and local income taxes. If you live in a state that has high sales taxes, such as Texas or Louisiana, you might choose to deduct sales taxes. Generally if you itemize, most taxpayers decide to deduct income taxes since they are usually higher than sales taxes.

For example, if you are a person with a Single filing status, taking the largest possible amount for your SALT deduction at $10,000, the total amount of the rest of your itemized deductions would need to be more than $2,000 to exceed your standard deduction amount of $12,000 so that you can itemize and deduct SALT. If you are filing Married Filing Joint, your total itemized deductions would need to be more than $24,000, and so on. If your itemized deductions are not greater than your standard deduction, then any of these changes won't affect your taxes.

Does all this sound too complicated for you? We understand this, so remember that when you prepare your return on efile.com, all you need to do is enter your SALT amounts. First, we will automatically select the most beneficial for you (Standard or Itemized deduction) based on the information you enter to give the most refund or least taxes owed (you can also choose to force one way or the other if you wish to do that). If itemizing your deductions is the best for you, then your SALT information will be included on your Schedule A which we will prepare for you. How easy is that?

How Do You Enter the SALT Deduction in Your Return on Efile.com?

We make all these decisions easy for you when it comes to SALT. When you prepare and efile your return on efile.com, you can enter your SALT deduction on the Taxes Paid screen. You can report state and local income taxes, sales taxes, real estate taxes, or personal property taxes there. We will calculate the deduction amount for you and report it on your return.