By: Michael Allbee, CFP®, Senior Portfolio Manager
We pointed out last year there was an opportunity for some Californian taxpayers to get relief for the $10,000 state and local tax (SALT) cap through 2021 – 2025. You can do this by paying some of your California taxes through a profitable pass-through business with some limits and nuances. This helps get around the $10k federal cap for state and local taxes.
There is still an opportunity to make the election for your 2021 return and make a payment to CA for 2021 by March 15, 2022, which will give you a higher deduction on your 2022 federal tax return and a credit against your 2021 CA taxes.
As of February 9th, California Governor Newsom signed a consequential new tax bill into law (SB 113) which expands eligibility for businesses who may benefit from the Pass-Through Entity Tax. Note, you can be a part owner of a business and still qualify.
For business owners of S-Corporation or LLC, you will want to discuss this with us and your tax advisor to make sure that it makes sense. The irrevocable election is made on an annual basis. If your business is a sole proprietor this would be a good time to review and see if it makes sense to convert to an LLC or S-Corporation this year.
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