Committed to Providing our Clients With Integrated Solutions for Their Tax, Business and Estate Planning Needs |
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Tax ● Estate and Succession Planning ● Business Agreements and Transactions ● Probate and Estate Administration ● Elder Law and
Special Needs Planning
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The New York State Pass-Through Entity Tax:
A SALT Cap Workaround
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Since the enactment of the Tax Cuts and Jobs Act, taxpayers’ itemized deduction for state and local income and property taxes (“SALT”) have been limited to $10,000 per tax year. In response, many states have attempted to introduce workarounds so that their residents could find a way to deduct state and local taxes in excess of the federal itemized deduction limit. While many of the attempted workarounds have been unsuccessful, over the last few years a number of states have focused their efforts on combining an entity-level tax with a corresponding personal income tax credit as a way to effectively receive the same tax dollars while at the same time bypassing the $10,000 SALT limitation.
In November 2020, the IRS issued Notice 2020-75, which allowed the deductibility of the entity-level tax in calculating flow-through income of the entity owner, thus effectively approving this version of the SALT deduction workaround. New York State’s 2021-2022 fiscal year budget, enacted in April 2021, included an elective PTE tax and a corresponding personal income tax credit regime, which can work to allow NYS taxpayers to avoid some of the impact of the SALT limit.
Recently, New York State issued a Technical Memorandum, which can be found HERE (TSB-M-21(1)C, (1)I), setting forth detailed information regarding the workings of the PTE Tax, the election requirement, the calculation and payment of the tax and the calculation and reporting of the personal income tax credit.
The Memorandum provides that an eligible entity (i.e., an entity that is classified as a partnership or S corporation for Federal and New York State income tax purposes) can elect to pay an entity-level tax on its income at graduated rates that basically correspond to New York State’s personal income tax rates (starting at 6.85% on taxable income of $1 or more and increasing to up to 10.9% on incomes in excess of $25 million). Unfortunately, the PTE tax election and the potential corresponding tax benefit are not applicable to sole-proprietors or disregarded single member limited liability companies.
By paying the PTE tax, the direct partners, members or shareholders of an electing PTE will receive a refundable credit against their New York personal income tax, generally in proportion to their ownership in the entity. In addition, the rules allow residents of New York to take a credit against their personal income tax for any PTE-type tax paid to other states, provided that the other state’s tax is substantially similar to the New York PTE tax. A list of substantially similar PTE taxes can be found on the NYS Tax Department’s website.
For tax years beginning on or after January 1, 2021 and before January 1, 2022, the election into the PTE tax/credit regime must be made on or before October 15, 2021 and, once made, is irrevocable. The election must be made online and must be made by an authorized person within the entity and not by the entity’s CPA. Future elections are required to be made annually by March 15th, and are similarly irrevocable. For the tax year 2021, entities are not required to make estimated tax payments, but, to be eligible for the deduction in 2021, the payment of the tax must be made before December 31, 2021. The payment will have to be made electronically through a soon-to-be-created payment portal on the NYS Tax Department website. It is important to note that the rules require that for the 2021 calendar year, while no PTE tax estimates are due and while the tax will likely be paid by December 31, 2021, the owners of an electing entity are required to continue to pay their personal income tax estimates as if the PTE tax and its personal tax credit benefits do not exist.
For some entities, the calculation of the tax will be more complicated than for others. In addition, the currently available pronouncements do not address all of the issues that will arise. As such, it is imperative that all owners of eligible entities should immediately contact their tax professionals to examine the tax effects of making a PTE tax election so that if the election is desired, it can be done on a timely basis.
Neil will be presenting more information on the PTE Tax at a NCCPAP webinar on September 24th and will address the calculation and credit throughout the Katz Tax Seminars winter seminar series.
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Plan Ahead, While There's Still Time |
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Now is the perfect time to review existing estate plans and consider an update.
Although the current federal estate tax exemption for the year 2021 is $11,700,000, it is becoming increasingly likely that this amount will be significantly reduced in the near future. There have been various proposals from the Biden administration to lower this exemption drastically starting in 2021. However, nothing has been formally enacted and therefore, those individuals who are in a position to utilize part or all of their exemptions should consider doing so as soon as possible.
Aside from planning for gifting purposes, all individuals should ensure that their estate plans are updated. There are many other benefits to having up-to-date estate planning documents, regardless of whether an individual has a taxable estate. The importance of updating advanced directives to comply with the current laws, ensuring assets will be distributed to the correct beneficiaries upon one’s passing, and considering ways to maximize creditor and asset protection, are all examples of reasons why reviewing an estate plan should not be delayed.
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Katz Chwat, P.C. is pleased to announce that Brandon Amon has joined the firm as an Associate Attorney.
Brandon obtained his J.D. from the Maurice A. Deane School of Law at Hofstra University, in 2018. He will concentrate his practice in the areas of corporate law, trusts and estates and tax matters, assisting clients with corporate transactional matters, including mergers and acquisitions of small businesses, general corporate counselling, as well as effecting business transition and succession plans. Additionally, he works with clients on their estate planning documents, the utilization of trusts for tax planning and the administration of estates.
Welcome aboard, Brandon!
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Upcoming Speaking Engagements |
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NYS Pass-Through Entity Tax (PET)
Friday, September 24, 2021
10:00 AM - 12:00 PM
Fee: Members $50.00/ Non- Members $100.00
Presented by: Neil D. Katz & Robert L. Goldfarb
Hosted by: NCCPAP Nassau/Suffolk Chapter
Type: Webinar
Guidance regarding the law, the benefit, the election, and how it affects the 2021 business and personal tax estimates and tax liability.
Estate Planning A to Z
Wednesday, October 6, 2021
5:30 PM - 6:30 PM
Fee: $10.00
Presented by: Alyssa Danziger
Hosted by: Lindenhurst Schools | Adult Education
Type: In Person
This course will help you understand the value and importance of Estate Planning. We will explain the different types of documents used in Estate Planning as well as different concepts to be considered throughout the process.
Income Tax & Estate Tax Planning- What Changes Are We Facing?
Wednesday, October 27, 2021
12:00 PM - 1:00 PM
Fee: Complimentary
Presented by: Neil D. Katz
Hosted by: Davidson, Maneri & Associates
Type: Webinar
During this complimentary session Neil will discuss
- Proposals to increase ordinary income tax rates and long-term capital gains tax rates along with other income tax changes
- The current state of the federal estate tax rules and what we might see soon
- Estate Planning ideas that are still available
- Planning for lifetime and post-death IRA distributions
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Katz Chwat, P.C. | 175 Broadhollow Road, Suite 130, Melville, NY 11747 | Website
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ATTORNEY ADVERTISING: This memorandum provides general information on legal issues and developments of interest to our clients and friends. It is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters we discuss here. Should you have any questions or wish to discuss any of the issues raised in this memorandum, please call your Katz Chwat, P.C. contact. |
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