The Department of the Treasury and the IRS recently announced regulations confirming that state and local taxes imposed on and paid by partnership or S Corporation will be 100% deductible by the entity and not limited to the $10,000 on state and local tax (SALT) deductions. State income tax codes typically allocate business income from pass-through companies in the owner’s individual income tax returns whereas entity level tax allocates the liability directly on the business before the income passes to the owners.
The following states have created entity-level taxes for pass-through businesses: Connecticut (this tax is mandatory), Louisiana, Maryland, New Jersey, Oklahoma, Rhode Island, and Wisconsin.
View the Notice 2020-75 which explains these regulations.
For more information, visit our COVID-19 tax and business matter page.