VBJ November 22 Online

THE VALLEY BUSINESS JOURNAL
18 www.TheValleyBusinessJournal.com
November 2022
Pass Through Entity Tax
GRAND OPENING OF SPORTS PARK
CONTINUED FROM PAGE 1
Event highlights include:
• Gale Webb Dedication Ceremony &
Ribbon Cutting
• Industry Exhibition Entertainment
• Sponsor Showcase and Giveaways
The park is named for Gale Webb,
a long time Menifee resident who inspires
and encourages youth through her
nonprofit organization, Kids-R-#1. Gale
has overcome tremendous adversities
with poise and persistence. Following
a parachute accident, doctors told her
that she would never walk again. Gale
proved them wrong and has gone on to
make a grand impact in the action sports
industry from BMX to Motorcross and
has been a mentor for kids of all ages.
“Over the last 40 years, Kids-R-#1
has reached millions of kids with a
unique combination of positive messaging
and action sports demonstrations,”
said Webb. “I am honored that the City
of Menifee is naming this new action
sports park after me and my organization.”
Sponsors of the grand opening
event will include Vans, Former BMX
Pro Eddie Fiola, Cahuilla Creek MX
Park, Rad Designs 1986, Langston
Motorsports, Asterisk, FOX, Imagine
It Graphics, Stasi Cycles, Troy Lee Designs,
and PowerFlex.
For more information about this
event or any future special events, contact
the Community Services
Department at cityofmenifee.us/specialevents,
email communityservices@
cityofmenifee.us, or call 951-723-3880.
ABOUT MENIFEE: Situated in the
heart of southern Riverside County along
Interstate 215, Menifee is a vibrant, new
city of more than 100,000 residents who
enjoy a pleasant year-round climate,
abundant recreational offerings, reasonably
priced housing, and convenient
proximity to some of Southern California’s
premier attractions and employment
centers. Within its 50 square miles, Menifee’s
business, retail, and entertainment
outlets are starting to shape the community’s
character and this growing economic
base is also contributing favorably to the
city’s strong financial position. Menifee’s
growing family-oriented population
values the city’s ongoing commitment
to public safety, community events, and
smart growth for the future. All of these
elements are working together to support
the city’s strategic vision to make Menifee
one of the state’s most promising
new cities.
Maybe the least popular change
brought about by the Tax Cuts and Jobs
Act (TCJA) was a first-ever cap on the
federal personal income tax deduction for
state and local taxes. From 2018 through
2025, the TCJA caps itemized deductions
for state income taxes (or general sales
taxes if elected instead of income taxes),
state real property taxes, and personal
property taxes at $10,000 (known as the
SALT cap).
Thus, for example, if you live in
a high-tax state such as California or
New York and owe $10,000 or more in
property tax, that tax alone uses your
$10,000 deduction. You’ll get no federal
deduction for the substantial state income
taxes you doubtlessly pay.
But suppose you’re an owner of a
pass-through entity such as a partnership,
multi-member LLC, or S corporation. In
that case, there could be a way for you
to get around the $10,000 SALT cap by
electing to have your pass-through business
pay federal income tax on its profits
at the entity level.
A majority of states have enacted
pass-through entity taxes (PTE taxes).
In these states, pass-through owners
can elect to have their entity pay the state
income tax due on the entity’s business
income that its owners would otherwise
pay. The entity then claims a federal
business expense deduction for the state
income tax payments. The $10,000 SALT
cap does not apply to taxes imposed at
the business-entity level, such as income
taxes imposed on pass-throughs.
Depending on the state where the
owners live, they either get a state tax
credit for the state tax paid by the entity
or exclude from their income for state
personal income tax purposes their
distributive share of the pass-through’s
taxable income.
Either way, the owners benefit from a
federal deduction for all the state income
tax due on their pass-through income,
even if it is far more than the $10,000
SALT limit.
You can do this. The IRS gave its
seal of approval to PTE taxes in a Notice
issued in November 2020.
Unfortunately, not all business
owners can benefit from the PTE. As
mentioned above, it’s only for business
entities that are subject to pass-through
taxation. These include multi-member
LLCs, partnerships, single- and
multi-owner S corporations. You’re out
of luck if you’re a sole proprietor or an
owner of a single-member LLC.
To date, 29 states have enacted passthrough
entity (PTE) taxes that can enable
owners of pass-through entities such
as partnerships, multi-member LLCs, and
S corporations to effectively get around
the federal $10,000 limit on deducting
state and local taxes (SALT).
The 29 states are:
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Georgia
Idaho
Illinois
Kansas
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Rhode Island
South Carolina
Utah, Virginia
Wisconsin
PTE tax legislation is pending in
Iowa, Pennsylvania, and Vermont.
If your pass-through business is
located in one of these states, you may
be able to save thousands of dollars in
federal income taxes by electing to have
your PTE pay the state tax due on its
income at the entity level instead of you
paying your share of such taxes on your
personal return. Reason: When your PTE
pays such taxes, it may deduct them in
full because it is not subject to the individual
$10,000 SALT limit.
Unfortunately, every state’s PTE tax
regime is different. Before your PTE
makes a PTE tax election, all its owners
must understand the issues involved.
These include:
• Is your PTE eligible for a PTE tax
election?
• What percentage of ownership is required
to make the election?
• What’s the deadline for the election?
• Are estimated PTE taxes due?
• How much is the PTE tax?
• Does your state give electing PTE owners
a tax credit or income exclusion?
• How are non-resident PTE owners
treated?
If you have any questions on the PTE or
need my help, don’t hesitate to call us at
951-633-1040. Elite Tax Partners, Inc.
FINANCIAL
NIcole Albrecht