NYS PTET tax?

[LEOPINTAX]

Has anyone heard of this new tax? The PTET tax that NY has. Thoughts?

 

Thanks!

Yvonne

[Lee B]

Oregon has passed a very similar bill which goes into effect the beginning of next year. It allows PTEs to pay state income tax and then the owners/partners

get an equivalent credit on their personal tax return.

While Oregon hasn't written any rules or regulations yet, so far it seems like a win- win. I plan to use it with my own business.

[BulldogTom]

Is this the state's attempt to get around the SALT cap?

Tom
Sparks, NV

[Lee B]

 

Yes, there are at least 16 states that have passed a PTE Tax law now.

It is a SALT workaround that actually does work. but only for S Corp owners and PTS partners.

[Sara EA]

CT started this practice, and its history tells you to beware!  The entity must pay 6.99% for each partner/shareholder (the state's top tax rate that usually applies to people who make $1 million or so).  Initially only 93% of that got passed through to the individuals.  Made sense--the entity deducted 7% from its income and the individuals got 93% of the payment because the income passed through has already been reduced.  Now, however, the individuals only get 87.5%, so the state is keeping the difference (a disguised entity tax?)  Also, entities must pay quarterly and electronically--no excuse if they don't have any money like some small entities (like a partnership that has to pay say $3k quarterly but only has $2k in the bank at the time--what to do?)  While it sounds like the state is trying to help folks overcome the SALT limit, it's a money grab.  Some states only require the tax on nonresident partners whom they might not otherwise hear from.

[Patrick Michael]

Here's a link to a good summary of NY's PTET from Deloitte.

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-overview-of-new-yorks-new-pass-through-entity-tax.pdf 

[Lee B]

The key difference is that the CT PTE Tax is mandatory, while I believe the other state's PTE Taxes are voluntary.

[TAXMAN]

Do we have a list somewhere of the states that have this so that we may be on the lookout for?

[BulldogTom]

48 minutes ago, cbslee said:

The key difference is that the CT PTE Tax is mandatory, while I believe the other state's PTE Taxes are voluntary.

If something is "voluntary", is it really a tax, and if not a tax is it eligible for deduction?

Not getting political, but getting ready, as CA is supposedly got some similar legislation in the works.

Tom
Sparks, NV

[Lee B]

Copied from Accounting Today:

 

"Following enactment of the state and local tax deduction limitation in the Tax Cuts and Jobs Act in 2017, many states began looking for structures to circumvent the limit. These included trying to shift to a deductible charitable contribution, shifting to a payroll tax, and shifting to an entity-level tax.

The Internal Revenue Service took a dim view of the charitable contribution approach, and the payroll tax approach appeared to be too complicated to implement. However, the entity-level tax has been blessed by the IRS, leading to a stampede among states to implement that approach.

Notice 2020-75, issued Nov. 9, 2020, states that the IRS intends to issue proposed regulations clarifying that state and local income taxes imposed on and paid by a partnership or an S corporation are allowed as a deduction by that entity in computing its taxable income or loss in the year of payment. The notice also clarifies that the rule applies in a tax year ending after Dec. 31, 2017, covering the period back to implementation of the state and local tax deduction limit."

[Lee B]

Here is an in depth analysis of all the states ( almost 20 states now ) that have passed a PTE Tax:

 

https://www.bdo.com/insights/tax/state-and-local-tax/five-more-states-enact-pte-tax-elections#:~:text=On July 19%2C 2021%2C Oregon enacted S.B.&text=An eligible PTE%2C which is,through business alternative income tax.”

[Abby Normal]

I hope the states keep the ability to have PTEs pay and deduct taxes for individuals, even if the SALT limit is repealed by the feds. It helps those who take the standard deduction a lot.

[TaxCPANY]

Here's a link to a 10-page New York-centric FAQ I've found most illuminating -- and includes remarks about Connecticut, New Jersey and Pennsylvania residencts:  https://s3-us-west-1.amazonaws.com/groupsioattachments/45544/85380483/359553/0?AWSAccessKeyId=AKIAJECNKOVMCCU3ATNQ&Expires=1630956802&Signature=Z6meD91kXv%2BsPHjRoSKlqqbg0ow%3D&response-content-disposition=inline%3B+filename%3D"New+York+State+Pass-through+Entity+Tax+-+FAQs+-+August+2021.pdf"

[G2R]

I was just reading about this this weekend after NYS sent out an email last week about it.  It's on my list of to-dos so thanks for bringing it up here.  I can see the obvious tax savings in their efforts to work around SALT, but I'm just worried that NYS will get all too comfortable getting this tax income and eventually make it a permanent thing.  NYC doesn't recognize the S-election so a further state tax is tough to explain to clients that don't grasp over tax strategy very well.  (Sigh)

@TaxCPANY I tried to click the link above and it's broken.  

[TaxCPANY]

Sorry about the link which even I can't get to work now -- yet it's still viable in the post in TaxTalk where I first found it.  I'll now try to attach the PDF to which it led.

NYS Pass-thru Entity Tx FAQ.pdf

[KATHERINE]

Hi dear friends here,

Q&A 36: Is IRS allowing deduction?  Currently the tax paid through IT2658 are not deducted?   Any one deducted the tax paid on IT2658?

Thank you!

Kate

 

 

 

[Lee B]

See IRS Notice 2020-75

[KATHERINE]

1 hour ago, cbslee said:

See IRS Notice 2020-75

Hi CBSLEE, thank you!   If it can give some sample will be helpful  

[G2R]

Hi!  Does anyone know of a good website or webclass that might provide a sample of this strategy actually executed? 

[Lion EA]

John Sheeley/Tax Practice Pro did a webinar, which he usually then uploads as an on-demand course (maybe when he comes up for air after today's deadline). He's good about including examples. https://www.bigmarker.com/tax-practice-pro-inc1/The-New-Pass-Through-Entity-Tax

NY/CT-ATP's 2021 Annual Tax Update On Demand Seminar will have an hour on NY updates and an hour on CT updates (both states have a PTET) as well as 14 more hours of federal updates:  https://www.nyctatp.org/event/2021-annual-tax-update-seminar/

[G2R]

I'm doing a side by side analysis of my NY clients and how it affects them.  It seems to be a great deal.  Even with the lower QBID deduction, the fact that it lowers AGI, those on the borderline of phaseouts will reap the benefits.  

I'm still a bit shaky on the NY personal return effects. I read that they get a credit on the NY return, but is that credit AFTER the tax is added back on maybe the IT-225?

[G2R]

37 minutes ago, G2R said:

I'm doing a side by side analysis of my NY clients and how it affects them.  It seems to be a great deal.  Even with the lower QBID deduction, the fact that it lowers AGI, those on the borderline of phaseouts will reap the benefits.

Let me add, it only seemed really advantageous for the higher earning clients.  Those making under $100k profit in their business, and/or not in the higher tax brackets personally, it mathematically didn't justify the election.  

[Lion EA]

I've done CT for a while now. If they've exceeded the $10,000 SALT cap, it's often worthwhile.

My only NY partnership runs at a loss and never exceeds the SALT cap.

However, I have a CT S-corp that does a lot of biz in NY. I don't file their personal returns to know if it's help. I guess I better contact them/other preparer now.

How does a CT S-corp that files a NY return opt in? Online? A form to fill out. (In CT it's mandatory.)

Just efiled my last return for the day, so need to get to these things I postponed !!

[G2R]

38 minutes ago, Lion EA said:

How does a CT S-corp that files a NY return opt in? Online? A form to fill out. (In CT it's mandatory.)

Just efiled my last return for the day, so need to get to these things I postponed !!

Deadline to opt in for 2021 is TODAY.  

This is from an email NY sent out a while back:

To opt in:

Log in to your S corporation's or partnership’s Business Online Services account. (If the business doesn’t have an account, we recommend creating one by October 8 to avoid missing the election deadline.)

Select the ≡ Services menu in the upper left corner of your Account Summary homepage.

Choose PTET web file from the Corporation tax or Partnership tax expanded menu, then select Pass-through entity tax (PTET) annual election.

Reminder: Tax professionals cannot make the election on behalf of their clients.

[Lion EA]

Thank you, thank you!