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New York Partnerships, Including LLP’s and LLC’s, and S-Corps May Be Eligible for A Tax Benefit, But Must Act Promptly

            In 2017, Congress amended the Internal Revenue Code by limiting the deductibility of taxpayers’ state and local income taxes (“SALT”) on their federal tax returns to $10,000 per year.  This change had its most substantial impact in states, like New York, where state income taxes are relatively high.              Effective this year, New York State has created a workaround for many taxpayers who receive income from partnerships (including LLPs or LLCs) and S-corporations.  These entities may elect to pay a new New York State “Pass-Through Entity Tax,” which will reduce their members’ taxable income for federal tax purposes and hence their federal taxes.

To opt into the Pass-Through Entity Tax, the entity must file an irrevocable election to do so each tax year.  The election must be filed by October 15, 2021 for the current tax year and annually by March 15 for subsequent tax years.  Giving the impending deadline, all taxpayers who might be benefitted by this change in the tax laws should consult with their tax advisors immediately.