AB 150 SALT WORKAROUND - Spidell

AB 150 SALT WORKAROUND

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Message Board AB 150 SALT WORKAROUND

  • This topic has 3 replies, 4 voices, and was last updated 1 week, 1 day ago by David Blankstein.
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    • #323828
      Gregory Nathan
      Participant

      Can some one help me with the SALT workaround.

      1.  Does the Entity need to send a letter to each partner/member/ shareholder to see if they  want to opt out of the state tax credit?
      2. If they do and I am still required to instruct the client to pay in the 9.3%, what happens to the amounts that are calculated for the members that do not opt in.  Is the excess allocated to the members that opt in, or is there a request for refund by the entity

       

      If I have an S corporation when the income is all earned by the shareholder should there be even

      be a state tax credit computation as the income should all theoretically be on a W-2.

       

       

    • #323889
      Lynn Freer
      Participant

      They must let all shareholders agree or disagree. If they don’t, they must withhold on the total amount of estimated profit for all employees and the employees get the credit.

      Each case is individual but if there is zero net income, there is no withholding allowed.

    • #324642
      Celia Lau
      Participant

      I can try to further address your qs if you still need help:

      1. There’s no formal guidance that I am aware of on how the passthrough entity needs to check with its owners on who wants to participate in the election. I’m sure a letter would work. I’ve seen a couple entities my individual clients are owners of simply send out an email notifying the owners of the entity’s intent to make the election and asking each owner to let the entity know by a certain date if they want to opt out.
      2. The 9.3% tax is only computed and payable on the net qualified income allocable to the owners that consent. For example, if you have a partnership with 2 equal partners and only 1 consents to participate while the other opts out:

      Assuming partnership income is $1M and it’s allocated 50/50, the PTET due is 9.3% x $500k. = $46,500. That deduction and the CA credit would be specially allocated to the consenting partner.

      3.  Lynn already answered this, but if all of the S corporation’s income gets paid out as compensation to the shareholder, the entity’s net income is 0 and there is no point in making the PTET election, as there is no tax to pay at the entity level and therefore no benefit to the owner.

    • #324718
      David Blankstein
      Participant

      Thanks Cecilia for your comments above.

      Please provide your authority that will allow special allocations  of the AB 150 deduction/ credit to consenting Partners/ Shareholders? Spidell’s upcoming seminar materials( see page 6-13)suggests that there is no clarity on this issue.

      Thank you,

       

      David Blankstein CPA

       

       

       

       

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