Important Tax Considerations for Utah Pass-Through Entities Before the End of the Year
We want to make you aware of a new Utah law affecting pass-through entities (PTE) and their partners, shareholders, or beneficiaries (PTE Taxpayer). Beginning in 2022 a PTE may elect to pay the Utah tax (4.85%) on the total amount of the PTE’s income that flows through to a PTE taxpayer. The election and tax payment must be made before December 31st.
The PTE taxpayer claims a tax credit against their Utah individual income tax. The amount of the credit equals the amount of Utah tax paid by the PTE on the income attributed to the PTE taxpayer.
The PTE is responsible for payment of the tax. Payment must be made online with the Utah State Tax Commission before December 31, 2022 in order to receive the deduction at the entity level and the associated credit of paid tax for the resident owner.
Why Pay the Utah Tax:
PTEs can help PTE Taxpayers to avoid the $10,000 limit on federal itemized deductions for state and local taxes, also known as the “SALT cap.” For PTEs electing to pay the state tax, the federal pass-through income of PTE Taxpayers is reduced by the amount of the state PTE tax, effectively bypassing the PTE Taxpayer’s state and local tax itemized deduction limitation.
Which Taxpayers will Benefit:
The Utah tax payment will be most beneficial for taxpayers who:
- Receive a K-1 from a Partnership, S-Corporation, Estate or Trust that includes income subject to Utah state tax; and
- Itemizes deductions on Schedule A and have reached the $10,000 deduction limit for state and local taxes, which includes income tax and property tax.
Squire can Help:
It is worth considering if your Utah PTE should make this election and tax payment on behalf of your owners.
For example, if your 2022 PTE net income is expected to be $100,000, we estimate that making this election will result in $4,850 (K-1 net income $100,000 x 4.85%) additional deductions for the 2022 tax year. If you receive PTE from other states, similar tax savings opportunities may exist.
Squire can work with you to determine the Utah tax payments. Please contact us if you would like to discuss this tax saving opportunity.