Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 6/12/2019


WELCOME

Thank you for subscribing to our firm’s Tax Law Alert. If you have any questions pertaining to this information, please contact Jeannette Waring and Jack Casanova at (504) 569-2900.

BHBM 36TH ANNUAL SEMINAR FOR CPAs | SAVE THE DATES

Mark your calendars! We will be hosting our 36th Annual Seminar for Certified Public Accountants on the following dates.

LAFAYETTE

Thursday, June 13, 2019

1:30pm-4pm (check-in/program); 4pm-5pm (reception)

City Club at River Ranch

1100 Camellia Boulevard

Lafayette, LA 70508

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MANDEVILLE – *New Location* 

Wednesday, October 23, 2019

8am-8:30am (check-in/breakfast); 8:30am-12pm (program)

Beau Chene

602 N Beau Chene Drive

Mandeville, LA 70471

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METAIRIE

Tuesday, November 5, 2019

12:30pm-5pm (check-in/program); 5pm-7pm (reception)

Sheraton Metairie

Four Galleria Boulevard

Metairie, LA 70001

STATE TAX LAW UPDATE

La. Legislature Approves SALT Deduction Limit Workaround for Pass-Throughs

On the last day of the 2019 Regular Session, the Louisiana Legislature passed SB 223, which will become law if signed by the governor. In sum, SB 223 provides an election for entities taxed as S corporations and partnerships for federal income tax purposes to be taxed at the entity level for Louisiana income tax purposes, rather than at the individual shareholder/member level.

The electing entity would be subject to the Louisiana state tax rates for individuals filing married jointly, i.e., 2% on the first $25,000, 4% on the next $75,000, and 6% on income above $100,000, rather than the corporate tax rates of 7% for income between $100,000 and $200,000, and 8% in excess of $200,000. Once made, the election is permanent until the Louisiana Department of Revenue terminates the election due to a material change in circumstances, such as a significant change in federal tax law. Provided the bill is signed by the governor, the new law will apply to income tax periods beginning on or after January 1, 2019. The election must be made in writing on or before April 15 after the close of the taxable year.

The bill is intended to assist pass-through entity owners with side-stepping the limitation on the state and local tax deduction enacted in 2017 as part of the Tax Cuts and Jobs Act (“TCJA”). The TCJA capped the deduction at $10,000 for individuals, but did not place the same limit on businesses. By shifting the state income tax burden of pass-through entities to the entity level and away from the owners, the bill seeks to prevent pass-through owners from being hindered by the new deduction cap.

Although a few other states have enacted legislation creating state and local tax deduction limitation workarounds such as SB 223, neither the IRS nor Treasury has issued formal guidance on whether the new state-level pass-through entity tax plans would be fully deductible and not limited by the TCJA. However, Treasury recently issued final regulations prohibiting state law workarounds that would allow residents to create charitable funds for a variety of programs where donors can get a state tax credit in exchange, effectively removing the state and local tax limitation. Because it is unclear whether the IRS will respect entity-level taxes enacted as a workaround to the new limitation on state and local tax deductions, taxpayers should carefully consider their facts and circumstances to determine whether the election is beneficial.

For more information or assistance in determining whether the election is beneficial for you in your personal situation, please contact us at (504) 569-2900.


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