Are you a business owner in Maine with income also coming from other states? You might be sitting on a goldmine of tax savings opportunities without even knowing it. Let’s break down a complex tax strategy into simple terms so you can see how it might benefit you.
Back in 2017, the government introduced a new tax law called the Tax Cut and Jobs Act (TCJA). One of the big changes was capping the amount of state and local taxes (SALT) you could deduct from your federal taxes at $10,000. This was a tough pill to swallow for many, especially in places like New England where state and local taxes can be high. Once you hit that cap, you couldn’t deduct any more, which meant potentially higher federal taxes for some.
Here’s where the good news comes in. Despite Maine not having its own workaround for this SALT cap (and it’s one of only five states that don’t), there’s a silver lining. Many folks in Maine earn money from businesses or properties in other states. This income often comes to them in what’s called K-1 income (basically, income from partnerships or S corporations that you have to report on your personal taxes).
States have been creative post-TCJA, finding ways for taxpayers to still get a SALT deduction, especially on this K-1 income. By properly structuring your out-of-state business activities or real estate earnings, you could significantly lower your tax bill. But, here’s the catch: setting this up isn’t straightforward. You can’t just decide one day to do it and expect immediate results. It requires careful business planning, which is why talking to a tax professional, especially one familiar with Maine law and its unique characteristics, is crucial. They can help navigate the complex web of tax laws and regulations and find the most tax efficient way to structure your out-of-state income.
In summary, don’t let the SALT tax deduction cap negate the advantages of living in beautiful New England. Make sure to explore the benefits of strategically structuring your out-of-state income. Consult with a Maine tax professional to explore your options and make the most of the SALT cap workarounds available in other states. It’s a bit of effort that could lead to tremendous tax savings.
Learn more about tax attorney, Robert Vanderpool, here.