BAIT stands for Business Alternative Income Tax. It’s New Jersey’s workaround for the federal $10,000 SALT cap that has limited state and local tax deductions since 2018. If you own an S-corp, partnership, or LLC taxed as either of those, BAIT lets your business pay New Jersey income tax at the entity level instead of you paying it personally. The tax rate is the same, but paying it through the business creates a federal deduction that isn’t subject to the SALT cap.

Here’s how the savings work. Say your share of business income is $200,000 and your New Jersey tax on that is roughly $14,000. If you pay that personally, you can only deduct $10,000 total for state and local taxes on your federal return, and you’re probably already using some of that cap for property taxes. With BAIT, the business pays that $14,000 and deducts it as a business expense, reducing the taxable income that flows through to you. You get a refundable New Jersey credit for the BAIT paid, so you’re not taxed twice at the state level.

The federal savings come from getting a deduction you otherwise couldn’t take. For someone in the 32% federal bracket, that extra $4,000 in deductions above the SALT cap saves about $1,280 in federal taxes. Higher income means bigger savings.

BAIT makes sense if you hit the SALT cap and itemize your federal deductions. If you take the standard deduction, the SALT cap doesn’t affect you and BAIT provides no benefit. If your business income is modest and you’re nowhere near the cap, there’s no point in the extra paperwork.

The election is annual. You have to make it by March 15, or the 15th day of the third month if you’re on a fiscal year. Miss the deadline and you’re out for that tax year. Estimated payments are required quarterly, and New Jersey is strict about timing. Late or missed payments can create penalties that eat into your savings.

Your accountant makes the BAIT election and handles the filing. This isn’t something your bookkeeper prepares. But a New Jersey bookkeeper who understands state-specific planning items will flag BAIT as something to discuss with your accountant each year. That’s how we approach it at VJD. We track the deadlines, make sure you and your accountant are thinking about it before March, and ensure your books support whatever decision you make.

If you’re a pass-through owner earning six figures or more and you itemize, BAIT is worth discussing with your accountant. The savings can be meaningful and recurring year after year. Working with a fractional CFO who coordinates this kind of planning keeps items like BAIT from slipping through the cracks.