Learn about how Utah’s 2022 Pass Through Entity (PTE) tax law could help you save money on your federal taxes, provided you can pay your State and Local Taxes (SALT) before the end of a year.
Why Utah Passed This Income Tax Law in 2022
In December of 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law at a federal level. This tax law included a limitation on the SALT deductions for individuals on their federal income taxes. The deduction limitation was set at $5,000 for a married person filing separately and $10,000 for married couples or individuals. Individuals in high income tax states were hit the hardest. This tax law is set to be in effect between the years of 2018-2025.
If these taxes are for a business, the $10,000 cap does not apply.
How Pass Through Entities Will Help
In response to this SALT law, many states enacted legislation that would balance the effects of this cap on their residents. The primary method used is the pass through entity (PTE). Essentially, an individual business owner will authorize a pass through entity to pay taxes on behalf of the individual, in proportion to that individual’s ownership in the business.
Here’s how it works when you authorize a PTE to pay a tax on behalf of pass-through entity taxpayers who are individuals. PTE’s don’t pay taxes as a company. The business income is “passed through” to the individual’s tax return. The individual then pays tax according to their personal tax profile. The tax rate for a PTE is the same as standard state income tax.
What is this About New Years Eve?
So this could be a very useful strategy, and could save some Utah business owners a good deal of money, but what’s the catch? Well, you can only use this pass through strategy on state and local taxes your business has paid within the calendar year. This will mean that you must pay the state of Utah your taxes before they are even filed. That means what you are paying is an estimate, and no refunds will be provided. If you overpay, the state of Utah will retain that money as a non-refundable tax credit.
What Utah Business Owners Should Do Next
We are Utah estate planning lawyers who also have taken an interest in tax law. We do not provide tax advice or legal advice on this blog. The purpose of this article is to raise awareness concerning this tax law. So, what does that mean for the Utah business owner who is currently reading this? Well if this $10,000 cap is affecting you on your personal taxes, we think you should do what we did, and meet with your CPA or other tax advisor. Find out if a pass through entity could save you thousands of dollars annually on your federal income taxes.
To listen to our full podcast about Utah Business Taxes click here.