PROVIDENCE – In a year of continued uncertainty, Rhode Island small-business owners now have more surety that a state law letting them skirt the cap on state and local tax deductions has federal blessing.
The Internal Revenue Service statement issued in November affirms state policy that lets certain types of small businesses deduct state and local taxes from their income. The 2019 Rhode Island legislation, sponsored by R.I. House of Representatives Majority Leader K. Joseph Shekarchi, D-Warwick, was intended as a workaround to help small-business owners who would otherwise be hurt by the $10,000 cap on state and local tax deductions enacted under the Tax Cuts and Jobs Act passed in 2017. The legislation applies specifically to pass-through entities including LLCs, S corporations, sole proprietors and partnerships that would otherwise face higher federal tax liabilities under the SALT cap deduction on federal taxes.
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The Nov. 9 IRS statement, issued jointly with the U.S. Treasury says the groups will issue regulations which will officially bless and clarify the deduction policy.
Shekarchi framed the notice as a “stamp of approval” from the IRS.
“This notice gives business owners in Rhode Island certainty and clarity that they can continue getting the full credit of the state and local taxes they are paying,” Shekarchi said. “The pandemic has made this year extremely challenging for businesses of all types, and they shouldn’t be saddled with higher tax liability on top of the other difficulties they are facing right now.”
Rhode Island is one of seven states that has already established a workaround to the SALT cap, along with neighboring Connecticut, according to the American Institute of Certified Public Accountants.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
