New Jersey lawmakers who are already offering up a scheme to save homeowners the state and property tax deduction gutted by President Donald Trump’s tax law now say they have a bulletproof plan to protect small business owners.
Under New Jersey’s current tax code, those who pay taxes on business profits through their personal income taxes — such as principals in S corporations, limited liability corporations and other partnerships — would be hit by the new $10,000 cap on imposed on state and local tax deductions as part of a federal tax overhaul.
Sen. Paul Sarlo, D-Bergen, said at a Statehouse news conference that 260,000 people in New Jersey report business income on their individual tax returns and will be socked by the cap on write-offs. Those businesses deduct an estimated $23 billion in state income taxes each year, he said.
Democratic and Republican lawmakers said they will introduce legislation to instead allow the business entity to pay the state income taxes of its principals, as corporations don’t face the same cap.
How N.J.’s plan to save your tax break would work
Small business owners in New Jersey reported their income this way until the 1990s, when it was revised to simplify the tax code, Sarlo said, saying that gave him confidence it would pass legal muster.
“Essentially, we’re going back to the future with a solution that is IRS-proof,” said Sarlo, chairman of the Senate Budget and Appropriations committee.
New Jersey’s own coffers would break even, he added.
“What we are proposing here today, it will save billions of dollars for the 80 percent of New Jersey small businesses that are registered as S corporations and pay their corporate taxes through the state income tax, as well as law firms, medical groups, accounting practices and other partnerships that were created as LLCs.,” he said.
The lawmakers credited Livingston CPA Alan Sobel for the proposal.
There’s notably less confidence in a plan put forward by Democratic Gov. Phil Murphy, Rep. Josh Gottheimer, D-5th Dist., and state Senate Democrats to allow homeowners to classify their property tax payments as charitable contributions for federal tax purposes.
The state Senate passed a bill (S1983) last week instructing school districts, counties and municipalities on how to create charitable foundations to accept real estate tax payments from property owners who will receive credits against their property tax liability and write off the donation.
Tax experts say the IRS isn’t likely to approve of that type of quid-pro-quo arrangement.
Samantha Marcus may be reached at firstname.lastname@example.org. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.