California Tax Law Changes Await Governor’s Signature
Governor Newsom is expected to sign SB 113 soon, which contains several tax-related changes that impact 2021 tax returns and the current filing season.
Expansion of the Pass-through Entity (PTE) Tax for Additional Relief from State and Local Tax (SALT) Deduction Limits In 2021, California established an elective PTE tax framework to allow certain California taxpayers to pay their California personal income tax in a way that provides relief from the current $10,000 federal limit on individual SALT deductions. While implementing the new framework, limitations were identified that would prevent taxpayers from realizing the full intended benefit of the PTE tax and subsequent credit. SB 113 address some of these issues:
- For taxable years on or after Jan. 1, 2021:
- Clarification that a taxpayer can apply the full PTE credit against their California tax liability as originally intended without limitation due to tentative minimum tax.
- Expansion of eligible taxpayers to include tiered partnerships and those that own their share of a business through a disregarded entity, such as a single-member LLC.
- Clarify that PTE tax provisions can apply to guaranteed payments as part of the distributive share of net income from an entity.
[…]