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State and Local Tax (SALT) Deduction

state and local tax deduction (SALT deduction)

The state and local tax (SALT) itemized deduction allows certain taxes paid to state and local governments to be itemized deductions on their federal income tax return.

State Pass-Through Entity Tax

A total of 21 states have enacted or are considering legislation that creates a pass-through entity tax as a workaround to the $10,000 cap on the state and local taxes (SALT) itemized deduction. What is Pass-Through Entity Tax? The pass-through entity tax (PTE) allows partnerships and S Corporations to elect to be taxed at the entity level for state income tax purposes. If the entity makes this election the partner or shareholder is usually allowed to: (1) Claim a credit on their state individual income tax return for the amount of their distributive share of the pass-through entity tax paid by the partnership or S Corporation, and (2) Allows the partner or shareholder to not have to report their distributive share of income on their personal state income tax return. States with a Pass-Through Entity Tax A pass-through entity tax went into effect in the following states before 2022: Alabama California Connecticut Idaho Illinois Louisiana Massachusetts Maryland Minnesota New Jersey New York Rhode Island South Carolina Wisconsin States with Pass-Through Entity Tax Starting in 2022 A pass-through entity tax goes into effect in 2022 in the following states: Arkansas Arizona Georgia North Carolina Oklahoma Oregon States with Pending Legislation The following states have pending legislation to enact a pass-through entity tax: Iowa Mississippi Ohio New Mexico Pennsylvania Utah Virginia Pass Through Entity Tax Rules by State Here are brief details as well as where to learn more about the pass-through entity tax rules for the following States that have enacted a pass-through entity tax: Alabama Partnerships and S Corporations may elect to pay a 5% tax on their Alabama taxable income. The entity makes the election by submitting Form PTE-E via My Alabama Taxes. This form may be submitted any time during the year, or on or before March 15 of the following year. Partners or shareholders are entitled to a refundable credit in an amount equal to their pro rata distributive share of the Alabama income tax paid by the entity. Applicable for Tax Years 2021 and later. See the Alabama Electing Pass-Through Entity Tax Guidance page on the Alabama Department of Revenue website for more information. Arkansas Partnerships, S Corporations, or a limited liability company with one or more members may elect to pay a 5.9% flat tax on their net Arkansas business taxable income. The election must be made on an annual basis and must be approved by business owners holding more than 50% of the voting rights in the business. An entity makes the election by completing and filing Form AR362 (Arkansas Pass-Through Entity Income Tax Election or Revocation Form). Applicable for Tax Years 2022 and later. For more information, see the Pass-Through Entity Tax: FAQs on the Arkansas Department of Finance and Administration’s website. Arizona Partnerships and S Corporations may elect to pay a 4.5% flat tax on their Arizona business taxable income.   The election must be made on an annual basis. Partners or shareholders may opt-out of the election. Partners or Shareholders are allowed to claim a Credit for Entity Level Income Tax on their individual income tax return. The amount of credit is the pass-through entity tax that is attributable to a partner’s or shareholder’s share of income taxable in Arizona. Applicable for Tax Years 2022 and later. For more information, see the Senate Fact Sheet for HB 2838 on the Arizona website. California Partnerships, S Corporations, and LLCs taxed as partnerships may elect to pay a 9.3% tax on each consenting partner’s or shareholder’s pro-rata share of the entity’s income subject to tax in California. The election is made on the entity’s timely filed tax return. If entity makes the election, the individual partners or shareholders can choose not to have their income included in the calculation of pass-through entity tax. Partners or Shareholders that consent to the election are eligible to claim a nonrefundable credit for the amount of tax paid on their pro rata or distributive share and guaranteed payments included in the entity’s qualified net income. Unused credits can be carried over for up to 5 years. Applicable for Tax Years 2021 and later. For more information, see the Pass-through entity (PTE) elective tax page on the California Franchise Tax Board’s website. Colorado Partnerships, S Corporations, and LLCs taxed as partnerships or S Corporations may elect to pay a 4.55% flat tax on their Colorado business taxable income. The election must be made on an annual basis and it is binding on all of the pass-through entity’s owners. The election is made by checking a box on the entity’s applicable Colorado state income tax return. Applicable for Tax Years 2022 and later. For more information, see Colorado House Bill 21-1327 on the Colorado website. Connecticut All pass-through entities are subject to the pass-through entity tax.   Tax is calculated by one of two methods. The Standard Base is the default method. An entity may elect to use the Alternative Base method. The tax rate applied to the applicable base is 6.99%. Partners may claim a PE Tax credit on their personal income tax return. This credit is a refundable credit. Applicable for Tax Years 2018 and later. For more information, see the following on the Connecticut Department of Revenue Services website: Pass-Through Entity Tax Connecticut Publication OCG-6 (Regarding the Calculation of the Pass-Through Entity Tax) Connecticut Publication OCG-7 (Regarding the Pass-Through Entity Tax Credit) Georgia Partnerships and S Corporations may elect to pay a 5.75% tax on their Georgia business income. Entity can make the election by checking a box and completing the applicable schedules for Form 600S for S Corporations or Form 700 for partnerships. Applicable for Tax Years 2022 and later. For more information, see Rule 560-7-3-.03 Election to Pay Tax at the Pass-Through Entity Level on the Georgia Department of Revenue’s website. Idaho Partnerships, S Corporations, and LLCs taxed as partnerships may elect and pay a 6.5% tax on the distributive share of their Idaho taxable income. The election is made on the entity’s timely filed return. All partners or shareholders must agree. Each resident partner or shareholder is allowed a

Amended Tax Return

When a taxpayer discovers they made a mistake on their tax return, or they are provided with or find additional tax related information after they have filed their return, they can file an amended tax return to correct the errors or add the additional information.

IRS Approved Tax Preparation Courses

Why Use a Tax Preparation Course Tax preparation courses can benefit tax preparers in multiple ways. Whether they lead to credentials or just continuing education credits, IRS-approved tax preparation courses may produce many opportunities for you in today’s industry. In this article, we will review the positives of these courses and discuss some details pertaining to them. Employment Opportunities Completing some tax preparation courses can open the door for employment opportunities, depending on what companies are looking for in an employee. Some IRS-approved tax preparation courses can lead to specific credentials or continuing education credits that are highly praised in today’s tax industry. Education Lawmakers decide to remove, update, and/or extend the tax code each year, bringing new challenges to the tax preparation industry. Even the most knowledgeable preparers still need some sort of education seasonally to make sure that these regulations are understood. Limiting yourself to your own understanding can be dangerous, and therefore a tax preparation course is always an opportunity for you to make sure you are understanding these changes. Marketing Obtaining credentials, credits, or certifications in the field of tax preparation are not only desirable to an employer, but they can also be used in your marketing strategy. Millions of taxpayers file tax returns every year with a tax professional, and if you market yourself correctly, you may be just what they are looking for. The IRS has a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications that allows taxpayers to search for preparers that hold any of the following credentials: Attorney Credential Certified Public Accountant (CPA) Credential Enrolled Agent (EA) Credential Enrolled Actuary Credential Enrolled Retirement Plan Agent Credential Annual Filing Season Program (AFSP) Participant Tax Preparer Requirements According to the IRS, any tax professional with an IRS Preparer Tax Identification Number (PTIN) is authorized to prepare federal tax returns. However, tax professionals have differing levels of skills, education, and expertise. A significant difference in the types of practitioners is “representation rights.” Here is guidance on each credential and qualification according to the IRS: Unlimited Representation Rights Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals. Limited Representation Rights Some preparers without one of the above credentials have limited practice rights. They may only represent clients whose tax returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees including the Taxpayer Advocate Service. These preparers cannot represent clients whose returns they did not prepare, and they cannot represent clients regarding appeals or collection issues even if they did prepare the tax return in question. Tax return preparers with limited representation rights include: Annual Filing Season Program Participants PTIN Holders Certain States Require Hours California Connecticut Illinois Maryland Nevada New York Oregon Types of Tax Prep Courses IRS-approved tax preparation courses can come in multiple formats, different sizes, and have different costs associated with them. Depending on how you prefer to learn or obtain your continuing education, the IRS has multiples routes that you can go. These formats include, but are not limited to: Online/Virtual courses On-site testing (e.g., Special Enrollment Exam) In-person seminars Each year the IRS has traditionally hosted three days of seminars at the IRS Nationwide Tax Forum with the latest from IRS leadership and experts in the industry. Recently, these events have been virtual due to the pandemic, but in years past these seminars have been in multiple cities around the country. Paid Courses that require payment can typically be paid for online to gain access to the course. The prices can vary depending on the package or course you are trying to complete. Some courses may be packaged with an event registration as well. Free Believe it or not, you can find courses for free. The IRS typically offers multiple courses throughout the year for free that are CE accredited. Online Today, online courses are the most popular way to earn CE credits, as compared to a classroom environment. Most of the major providers will offer online courses that can be easily tracked for reporting purposes. How to know if a course is IRS approved The IRS maintains an online database for their approved continuing education providers. This resource will display all the approved continuing education providers registered with the IRS and what courses they offer. The IRS continuing education provider site can be found at: https://www.ceprovider.us/public/default/listing. IRS website The IRS offers many resources on continuing education for tax professionals that can be found at: https://www.irs.gov/tax-professionals/continuing-education-for-tax-professionals. Crosslink Tax Software for Tax Preparers Looking for professional tax preparation software? CrossLink Professional Tax Solutions has multiple product offerings from the industry-leading desktop professional tax software (CrossLink 1040) to our powerful online professional tax solution that scales with your business (CrossLink Online). Contact our team today for more information.

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