State and Local Tax Deduction: Maximize Your Tax Savings

Understanding how taxes affect your income is crucial for smart financial planning. One of the most important tax breaks available to many Americans is the state and local tax deduction (SALT deduction). This deduction allows taxpayers to reduce their federal taxable income by the amount they pay in certain state and local taxes, helping to lower their overall tax bill. However, the SALT deduction has complexities, limits, and specific rules that every taxpayer should understand to maximize their benefits and avoid costly mistakes.

In this article, we will explore the ins and outs of the state and local tax deduction, including who qualifies, which taxes are deductible, the current deduction limits, and how to claim it. We’ll also address frequently asked questions and provide expert insights to help you navigate this important aspect of the tax code.

What Is the State and Local Tax Deduction?

The state and local tax deduction allows eligible taxpayers to deduct certain state and local taxes they paid during the tax year from their federal taxable income. By lowering taxable income, this deduction reduces the amount of income subject to federal tax, effectively serving as a valuable tax break.

The SALT deduction typically covers three types of taxes:

• State and local income taxes
• Property taxes on real estate
• Local general sales taxes (taxpayers can choose to deduct either income taxes or sales taxes, but not both in the same year)

This deduction is most beneficial to taxpayers in states with higher state income and property taxes, often referred to as high-tax states. However, not all taxpayers can claim this deduction because it requires itemizing deductions on your federal tax return, rather than taking the standard deduction.

Who Can Claim the SALT Deduction?

Taxpayers who choose to itemize deductions on their federal tax returns can claim the SALT deduction. This generally includes those who have deductible expenses, such as mortgage interest, charitable donations, and of course, state and local taxes, that collectively exceed the standard deduction amount.

The standard deduction for 2025 is $13,850 for single filers and $27,700 for married filing jointly. If your total itemized deductions do not exceed these amounts, it might be more beneficial to take the standard deduction instead.

Here’s what you need to qualify for the SALT deduction:

• You must itemize your deductions on IRS Schedule A.
• You must have paid eligible state or local income, sales, or property taxes during the tax year.
• You must not have exceeded the SALT deduction cap (currently $10,000 per year for joint filers and single filers).

Tip: Many OnlyFans creators and freelancers with self-employment income track their quarterly taxes and business expenses carefully to maximize deductions like SALT along with their home office deduction and other tax write offs.

What Taxes Qualify for the SALT Deduction?

The SALT deduction covers certain state and local taxes paid during the tax year, but not all taxes qualify. Understanding which taxes can be deducted is essential to optimizing your tax return.

Qualifying Taxes Include:

• State and local income taxes: These include state income tax, and in some cases, local income taxes imposed by municipalities or counties.
• Property taxes: Taxes paid on real estate properties owned by the taxpayer, including primary residences and sometimes second homes or investment properties.
• Sales taxes: Taxpayers may opt to deduct state and local sales taxes instead of income taxes, which can be beneficial in states without an income tax or for those with significant taxable purchases.

Important Notes:

• You cannot deduct both state and local income taxes and sales taxes in the same tax year, you must choose one.
• Taxes such as federal income taxes, Social Security taxes, or FICA do not qualify.
• Other local taxes, like vehicle registration fees or special assessments, are generally not deductible.

What Are the Limits on the SALT Deduction?

A major limitation on the SALT deduction is the $10,000 cap imposed by the Tax Cuts and Jobs Act (TCJA) of 2017. This cap applies to the total of state and local property taxes plus either state and local income taxes or sales taxes.

Key Details About the SALT Deduction Cap:

Filing Status	SALT Deduction Cap
Single Filers	$10,000
Married Filing Jointly	$10,000
Married Filing Separately	$5,000

Impact of the Cap:

• Taxpayers in high-tax states such as California, New York, and New Jersey are most affected by this limit, as their state and local tax payments often exceed $10,000.
• The cap has resulted in some taxpayers facing a higher effective federal tax burden despite paying significant state and local taxes.
• Lawmakers, including the bipartisan SALT Caucus, have proposed legislation to increase or repeal the cap, but as of now, the $10,000 limit remains in effect.

The vast majority of taxpayers who pay less than $10,000 in combined state and local taxes are not affected by the cap and can deduct the full amount paid.

How to Claim the SALT Deduction

Claiming the SALT deduction requires taxpayers to itemize deductions rather than take the standard deduction. This is done using Schedule A of IRS Form 1040.

Step-by-Step Process:

1. Gather Documentation: Collect all relevant tax statements showing amounts paid in state and local income, property, or sales taxes. This includes W-2s, Form 1098 (property taxes), and receipts for sales taxes.
2. Complete Schedule A: Enter your qualifying state and local taxes paid on the appropriate lines of Schedule A. Remember to adhere to the $10,000 cap limit.
3. File With Your Federal Return: Attach Schedule A to your federal tax return when filing.

It’s important to keep accurate records, especially for business owners and OnlyFans creators who may have complex income streams and deductions. Using tax preparation software or consulting with a tax professional can ensure you maximize your deductions correctly.

How Does the SALT Deduction Affect Renters?

While renters do not pay property taxes directly and therefore cannot claim the property tax portion of the SALT deduction, they may still benefit indirectly. Many landlords factor their property tax expenses into rent calculations, which can increase rental costs.

Renters can, however, deduct state and local income taxes or sales taxes they pay if they itemize deductions. This makes the SALT deduction relevant to renters who pay significant income or sales taxes.

What Happens If You Don’t Itemize Deductions?

If you choose the standard deduction, you cannot claim the SALT deduction separately. The standard deduction is a fixed amount set by the IRS and is designed for taxpayers who do not have enough deductible expenses to exceed this threshold.

Choosing between itemizing and taking the standard deduction depends on which option lowers your taxable income the most. For many taxpayers, especially after the increase in the standard deduction amount following TCJA, the standard deduction is the better choice.

Conclusion

Understanding the average SALT deduction is important for taxpayers, especially those with variable income like OnlyFans income or other forms of self-employment income. By knowing which certain taxes qualify and how to properly claim the deduction, individuals and business owners can better manage how they pay taxes and reduce their overall federal tax burden. This is particularly relevant for those navigating the complexities of self-employment tax and seeking to optimize their business income on their federal returns.

The federal government continues to evaluate the SALT deduction cap, with a joint committee of lawmakers, including House Republicans, actively discussing potential changes to the current limits. Staying informed on these developments is crucial to ensure compliance and take advantage of available tax benefits. By understanding and applying the SALT deduction wisely, taxpayers can maximize their savings and maintain better control over their tax obligations.

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FAQs

What is the state and local tax deduction?

The state and local tax deduction (SALT deduction) allows taxpayers who itemize deductions to subtract eligible state and local taxes paid from their federal taxable income. This helps reduce their overall federal tax bill.

What is the state and local tax deduction cap?

The SALT deduction is capped at $10,000 per year for single filers and married couples filing jointly. This means taxpayers cannot deduct more than this combined amount of state and local income, property, and sales taxes.

What is the state and local sales tax deduction?

Taxpayers can choose to deduct either state and local income taxes or state and local sales taxes, but not both. The sales tax deduction is often beneficial for residents in states without income tax or for those with large purchases subject to sales tax.

What is state and local tax withholding?

State and local tax withholding refers to the amounts automatically deducted from your paycheck by your employer for state and local taxes. These withheld amounts count towards your total state and local tax payments and are factored into your SALT deduction if you itemize.