A few examples of this complex analysis are provided below. In addition to considering state geography, however, an analysis will also need to take into account owner composition and could require practitioners to consider elements of individual, corporate, and PTE taxation. Regardless, what remains a hot topic of discussion, at least among state tax practitioners, is how beneficial any PTE- level tax will be.ĭetermining the benefit is going to be highly dependent upon each PTE's facts and circumstances, as well as those of its owners, both individuals and legal entities. Moreover, most should also be aware that after much silence and uncertainty, and almost three years after the TCJA's enactment, the IRS issued Notice 2020- 75, 3 stating its decision that PTE owners can deduct their share of the taxes paid by the entity, even if electing to be taxed at the entity level, and that it would be issuing proposed regulations to that effect.Īs of this writing, the Biden administration has placed a hold on the enactment of all final regulations proposed by the Trump administration, 4 and it is at this time unclear whether it will continue with the proposed regulations relating to the SALT cap. These new state PTE taxes essentially allow owners of PTEs to bypass the SALT cap by allowing their distributive share of the taxes to be paid by the entity at the entity level, as reported on their respective Forms K- 1, since one exception to the SALT cap was the retention of the "trade or business" exception. 1 No doubt most are also aware of the ensuing legislation at the state level to offer taxpayers a "workaround" to the SALT cap by enacting passthrough- entity- level taxes, which arguably impose the tax liability for owners of passthrough entities (PTEs) (such as partnerships, LLCs treated as partnerships, and S corporations) instead directly on the PTE. 115- 97, in 2017 that limits the amount of state and local taxes individuals can deduct for federal income tax purposes to not more than $10,000 ($5,000 in the case of a married individual filing a separate return) (the SALT cap). By now, most practitioners are well aware of the annual limitation enacted by the law known as the Tax Cuts and Jobs Act (TCJA), P.L.
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