The TCJA imposes a $10,000 limitation for deducting state and local taxes. California has finally joined a growing list of states that have implemented a workaround using passthrough entities in order to minimize the impact of the limitation. For taxable years 2021 through 2025 AB 150 allows qualified passthrough entities to pay and deduct a passthrough entity tax. Taking advantage of this workaround can help your clients reduce their federal tax liabilities. However, there are limitations that may affect the utilization of this credit on their personal California state income tax returns. Your clients are asking if they should consent or not consent to the Passthrough Entity Tax election. Should they?
SALT Deduction Cap Workarounds. IRS Notice 2020-75. Build Back Better Act. PTE Taxes. AB 150. Credit Ordering. Governor’s Proposed Budget.
CPAs, financial professionals, enrolled agents and attorneys.
Identify qualified passthrough entities. Figure out the timing issues regarding electing and paying. See how the limitations to the utilization of the PTET Credit may affect your clients. Which clients cannot take advantage of AB150. Learn about potential changes to AB150
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Mr. Pon is a Certified Public Accountant, Personal Financial Specialist, Certified Financial Planner, Enrolled Agent, United States Tax Court Practitioner, and Accredited Estate Planner in Redwood Shores, CA. Mr. Pon has been in practice since 1986 and enjoys helping his clients reach their financial goals. He frequently speaks on tax and financial planning topics to tax professionals, financial advisors, and the general public nationally. Mr. Pon received his BS in Business Administration with emphases in Accounting and Finance from the University of California, Berkeley and MS in Taxation from Golden Gate University in San Francisco.
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