Indiana's Governor passed Senate Bill 2: Taxation of Pass-Through Entities (SB2) on February 22. This law creates a new tax break for owners of pass-through entities with Indiana income.
This bill is similar to laws other states have passed in recent years. It is effectively a work-around the federal deduction cap on state taxes individual taxpayers are subject to on their Federal Form 1040 Schedule A, Itemized Deductions. SB2 allows pass through entities (S-corps and tax partnerships) to pay state taxes rather than the entity owners and deduct the payment of these taxes without a cap.
WHAT DOES THIS MEAN?
The result of this will for many result in a new tax deduction and ultimately federal income tax savings. However, each circumstance is different and the value and benefit will vary from taxpayer to taxpayer and business to business.
It will also change the way state estimated payments are made. Going forward, to take advantage of the benefit, the company will pay some of your state income estimated tax payments.
TIMING CHALLENGES
This law is retroactive to 2022. However, since it was just passed, it creates some timing challenges for the 2022 filing season. The state will have to create forms, create regulations, and provide guidance on how they want this implemented. As a result, to take advantage of this for the 2022 tax year, taxpayers will have to extend their business filing and possibly their personal income tax returns for the 2022 tax year.
OUR ADVICE
This new law will be a benefit to many of you. We are reviewing this as we prepare your 2022 income taxes for applicability and impact. We will be providing you a recommendation on 2022 steps as we near conclusion of your filing. In addition, as we move into 2023 and our planning meetings, we will be assessing the long term impact and any possible adjustments we should make to your situation.
Questions?
Contact TrueBlaze Advisors or read more about simplified information about your complex tax concerns.