INSIGHTS AND RESOURCES
Georgia continues trend of SALT deduction workarounds in 2021
TAX ALERT |
Authored by RSM US LLP
On May 4, 2021, Georgia Gov. Brian Kemp signed House Bill 149, making Georgia the latest state to adopt an elective pass-through entity tax as a workaround to the $10,000 limitation on the federal state and local tax (SALT) deduction. The election is effective for tax years beginning on or after Jan. 1, 2022.
Beginning in 2022, S corporations and partnerships may elect to be taxed at the entity level. The tax is imposed at 5.75% of the entity’s net income and allocated and apportioned for the period. The shareholders or partners of the entity would not recognize their respective share of the income that is subject to the entity-level tax on their individual returns. Noteworthy, the Georgia law prohibits the subject entity or its members from the credit for taxes paid in another jurisdiction. However, the law provides that the subject entity is considered an ‘other entity’ for purposes of the qualified education tax credit, certain tax contributions to rural hospital organizations and tax credits for qualified education donations. The election will not impact the determination of the basis of the shareholders or partners of an electing entity, except that the distributive share of the tax paid or accrued by the member will be taken into account when determining basis.
The election must be made annually on or before the due date for filing the applicable income tax return, including any granted extensions.
The Georgia entity-level tax is imposed at the highest individual tax rate for the state. Like many of the other state SALT deduction limitation workarounds, no negative impact on state revenues is anticipated.
Georgia joins a growing number of states to adopt a similar workaround: Alabama, Arkansas, Connecticut, Idaho, Louisiana, Maryland, New Jersey, New York, Oklahoma, Rhode Island and Wisconsin. California is also considering a workaround proposal. Importantly, not all pass-through entity members may benefit from the election. Taxpayers are cautioned that the workaround is not a panacea to the SALT deduction limitation and any federal savings may be offset by increased state liabilities. Taxpayers should also consider that changes in the SALT deduction or other state and federal tax provisions may further impact whether the election is beneficial. Taxpayers are encouraged to contact their state and local adviser to discuss the Georgia SALT deduction limitation workaround.
Call us at +1 213.873.1700, email us at email@example.com or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Mark Siegel, David Brunori , Mo Bell-Jacobs and originally appeared on 2021-05-10.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.