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IRS Clarification for Small Business Tax Cap

irsSmall business owners could avoid a new federal limit on state and local tax deductions after the Internal Revenue Service said Wednesday that rules it released last month to prevent efforts in California and other states to circumvent the cap apply only to individuals.

Businesses will be allowed to claim a full federal tax deduction for contributions to charities or government programs — particularly those offering school choice scholarships — that offer state tax credits, the IRS said.

The IRS’ Aug. 23 rules cracked down on that option for individual filers after some high-tax states moved to turn state and local tax payments into deductible charitable contributions so residents could avoid the $10,000 cap on state and local tax deductions in the Republican tax law that took effect Jan. 1.

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