Say Goodbye to Double Taxation and Hello to Tax Deductions! - Palma Financial

The Federal Tax Cuts and Jobs Act (TCJA) imposed a $10,000 limit on itemized deductions for state and local taxes (SALT cap). But with the election to pay taxes through Pass-Through Entities (PTEs), you can say goodbye to double taxation and hello to tax deductions.

This option has become increasingly popular in response to the TCJA, with more than 20 states allowing PTEs to elect to be taxed at the entity level. The main benefit of this election is the avoidance of double taxation, as business earnings are only taxed once on the owner or shareholder’s tax return.

The IRS approved these elections as a legitimate workaround and issued guidance (Notice 2020-75) confirming a PTE’s ability to deduct certain entity-level state income taxes from the federal taxable income passed through to its owners. Pass-through entity taxes permit the PTE to pay the state tax at the entity level, which is taken as a partnership or S corporation deduction, allowing the tax to flow through to the partners without limitation.

However, owners of PTEs need to understand various rules to determine the benefits and costs and comply with the election. A pass-through entity cannot carry back losses, and there may be no benefit from making the election if the entity is in a loss posture.

In conclusion, the election to pay taxes through PTEs can offer significant benefits, including avoiding double taxation and taking advantage of tax deductions.

Don’t miss out on this opportunity to simplify your state tax payments. Book an appointment with us today and discover how you can simplify your state tax payments, avoid double taxation, and take advantage of tax deductions!

P.S. Before filing your 2022 tax return, it’s always a good idea to get a second opinion. If you respond to this email, I would be happy to provide you with a review and estimate of how much you can potentially save for the 2022 tax year. Don’t wait; take action now.