Ptet

Important Deadline Approaching The 2022 PTET election period is open. To opt in, submit the Annual Election Application before or on March 15. While RBT CPAs is always ready to do whatever it takes to support clients, by law we can’t make your PTET election. However, we can file your return and pay any tax owed if you complete and submit a TR-2000. For more information or assistance, contact The New York State Department of Taxation and Finance issued a technical bulletin last August and provided updates via its website . While questions remain, deadlines loom for paying any balance owed for 2021 PTET (if applicable), for opting in for 2022, and for providing a first quarter 2022 payment. Now is a good time to review what we know so you can plan accordingly. What is a pass-through entity (PTE)? When a company’s income taxes are paid solely by its owners (rather than the business), it’s considered to be a PTE. The business doesn’t pay corporate taxes; instead, its owners pay taxes on their share of business income based on their personal tax rates. As a result, business owners avoid having to pay taxes twice – once at the corporate level and a second time on the income they receive as owners. Are all businesses considered pass-through entities (PTEs)? No. PTEs are distinguished by which tax form they file. To be considered a PTE, an entity must file a 1065 partnership or a 1120-S S corporation return. A sole proprietorship or LLC owned by a single member and reported via Fo...

For pass-through entities based in states other than New York and California, there is still time to reduce their S corporation shareholders’ and partners’ 2022 tax burdens through the PTE tax deduction. But the window of opportunity closes on December 31. This blog illustrates why it is essential to remind profitable pass-through entity clients to make their Illinois estimated tax payments. As discussed in the University of Illinois Federal Tax Workbook, 28 other states have also implemented their own rules for pass-through entity (PTE) payments. General Information about the Illinois PTE Tax Illinois shareholders of S corporations and partners of entities taxed as partnerships can benefit from the PTE tax. By paying their share of state taxes, the S corporation or partnership pays an individual’s share of income at the entity level. As a result, the state tax is not subject to the $10,000 state and local tax (SALT) limit. Assuming that the shareholder/partner files a Schedule A, Itemized Deductions, with their Form 1040, the state tax they pay on their corporate or partnership income is no longer limited to $10,000. Because the entity pays the individual’s state tax for them, the ordinary business income reportable to the IRS is decreased. On the Illinois return, this deduction is added back using Schedule M, Other Additions and Subtractions for Individuals, line 2, so taxpayers report it in step 2, line 3, on the taxpayer’s Form IL-1040. The amount relating to the incom...

Since the Tax Cuts and Jobs Act of 2017 (TCJA) limited an individual’s state and local tax (SALT) deduction to $10,000, states have been exploring pass-through entity tax workarounds in response. Fast forward to November 2020 when the IRS gave guidance to allow state tax deductions at the pass-through entity level and opened the floodgates to states enacting pass-through entity taxes in the ensuing months, with New York being one of the latest. As straightforward as it sounds, it really is far from it. Because every state has different regulations, not every pass-through entity will benefit the same. Pass-through entity taxes permit the pass-through entity to pay the state tax at the entity level, and as the $10,000 SALT cap applies to individuals, the pass-through entity taxes are taken as a partnership or S corporation deduction, which flows through to the partners without limitation. The partners, members or shareholders of the pass-through entity that has paid the state pass-through entity tax either receive a credit against their state individual income tax liability or deduct their distributive share of income from their adjusted gross income in determining their state income tax liability. Virginia denies residents out-of-state credit for certain PTE taxes Published on Jan. 5, 2022 On Dec. 28, 2021, the Virginia Department of Taxation ruled that a resident taxpayer may not claim an out-of-state credit allowed under Virginia Code §58.1-332, A tax imposed at the entit...

Share • • • Update: New York State PTET elections are due on or before October 15, 2021, and late elections will not be honored. Taxpayers must file their own elections through their online accounts. Practitioners may not make elections on a taxpayer’s behalf. If a taxpayer has issues accessing their online accounts (e.g., lost login credentials), it may take several days for the Department to issue the taxpayer a reset link. It is unlikely that a last-minute request to reset access to the account will be granted in time to make the election. If a taxpayer has not established an online account, it may take several days to get an account set up.Taxpayers are required to submit information to the Department in order to verify the account and account holder(s). The Department is advising that taxpayers who need to set up an account start the process on or before October 8, 2021, to make sure that the account is set up in time to make the election. Once an account is set up and a taxpayer has access, the process of making the election generally takes about 10 minutes. It is better to log in now and make the election so there is still time to resolve online account issues. Taxpayers who wait until the last minute to make the election and encounter account access/set-up issues may find themselves unable to make the election for the 2021 tax year – and those taxpayers will lose the benefit. The New York Department of Taxation recently released long awaited Some of the highlights ...

If you are considering making a PTET election effective for 2022, there are some key year-end considerations to think about right now. What is a PTET Election? In 2017, Congress passed the Tax Cuts and Jobs Act, limiting an individual’s federal deduction for state and local taxes. In response, states have enacted elections, known as Pass Through Entity Tax (PTET) elections, creating an entity level tax on partnerships and S corporations (generally Pass Through Entities, or PTEs). These PTETs can be fully deductible at the entity level (thus avoiding the limitation on the state and local tax deduction). As of today, In November of 2020, the IRS issued Notice 2020-75, announcing its intent to promulgate regulations clarifying the deductibility of payments by partnerships and S corporations for state and local income taxes. However, because the limitation on state and local tax deductions is set to sunset in 2025, further guidance does not appear to be a top priority for the IRS, meaning taxpayers may lack further clarity on many issues. For instance, it is currently unclear whether a PTE with purely investment activities can elect to pay a PTET and claim an ordinary deduction on its federal income tax return. 2022 PTET Payments Required before Year-End All PTEs making a PTET election should estimate and pay their 2022 PTET liabilities prior to the tax year-end. Specifically: • Cash basis PTEs must make payments during 2022 to claim the state tax deduction on their 2022 retur...

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