Plans by states to replace state and local deductions lost under the new tax reform law might not help financial advisors’ wealthy clients as much as other tax strategies.
Five Democratic-leaning states—including New York, California and New Jersey, where lawmakers want to legally challenge federal tax reform—are exploring changes that could help compensate for the new $10,000 cap on the SALT deduction. New York is trying to shift state withholding to employer payroll taxes, for example. Another state-level plan calls for effectively converting property taxes into charitable gifts.
At least one federal official has said the Trump Administration may try to block such state proposals.
High-net-worth clients “are angry that it’s punishment directed towards the blue states by the GOP,” says Robert Seltzer, CPA/PFS with Seltzer Business Management in Los Angeles. “States like mine already pay more into the federal treasury than they receive in benefits and the new legislation just puts salt in those wounds.”
He notes that these clients also aren’t fooled by the hype of reform.
Wealthy clients are much more focused on the loss of the SALT deduction than the decrease in the tax rates, says Barry Kleiman, CPA and principal at Untracht Early in Florham Park, N.J.
Barry Horowitz, CPA and partner/practice leader in the state and local tax services unit of Withum in New York City, has practiced in the SALT area for some 40 years and cannot remember more clients mentioning moving to a gentler tax state.
“States run around creating all the plans and then the IRS will say ‘We’re not going to [allow] that,’” Horowitz says, adding that a similar conflict cropped up late last year over prepayment of property taxes. “I’m not doing anything until the IRS issues guidance.”
He notes there’s no schedule yet regarding such guidance.
Charitable Gift