WASHINGTON—Business owners are likely saving more than $10 billion annually in federal taxes through state laws that circumvent the $10,000 cap on state and local tax deductions, according to a Wall Street Journal analysis of state data.
The state laws blunt the cap’s effect on owners of closely held businesses such as law firms, hedge funds, manufacturers and car dealerships, while workers earning wages generally can’t take advantage. The strategy, now available in 27 states, converts business owners’ personal income taxes into deductible business taxes that escape what is known as the SALT cap on state and local tax deductions.
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