The 2017 Tax Cuts and Jobs Act limited State and Local Tax (SALT) deductions to $10,000 when itemizing your taxes on Schedule A. This change caused considerable difficulties because for the first time in the United States our state and local tax payments were limited.
So far, over 30 states have passed laws that solved this problem including Illinois, Wisconsin, Indiana, and Michigan. Iowa has legislation pending at this time.
These laws allow the owner of an S-Corp or a Partnership to deduct the taxes they’d normally pay at the individual level on the entity return. The process effectively by-passes the SALT limitation by deducting the taxes before they even get to the personal return.
An example would be Josephine Business Owner who pays property taxes of $8,000 and state income taxes on her W-2 income of $5,000. Josephine also has an S Corp with a K-1 in the amount of $250,000 and pays a 5% state tax on that income in the amount of $12,500.
The SALT taxes she pays total out to $25,500 annually. Given the SALT limitation of $10,000 she loses a deduction on the difference of $15,500.
But with the Pass Through Entity Tax Credit, we can deduct the $12,500 she pays on her K-1 at the entity level which will reduce both her federal and state income taxes. If her combined federal and state income tax percentage is 35%, this will save her $4,375 annually.
If your K-1 is larger than $250K, then your individual tax savings would be even greater.
Let me leave you with this…
There isn’t anything easy about this process. It can be quite challenging given the variances in income we have from year to year.
Our program includes…
Quarterly computations looking at last year’s tax liabilities vs. the current year’s income. We compute any differences and add in a 10% cushion because it’s better to be over deposited than under. Any overage paid in would be refunded when the returns are completed.
We complete the paperwork necessary and provide instructions to make your quarterly state tax deposits at the entity level.
We provide Customer Service and the time necessary to make sure your deposits are handled correctly.
The cost of the service is $500 per quarter with a minimum sign up commitment of one year. Please click on the button below to begin the process.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Accounting Solutions Ltd.
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