Pass-Through Tax Becoming the Latest SALT Cap Workaround Trend May 21, 2020 This month Maryland became the seventh state to give members of pass-through businesses the option of paying income taxes at the entity level instead of on their personal income taxes. The approach isn’t brand new, but it appears to be a viable workaround for states trying to skirt a measure of the 2017 tax law that capped individuals’ federal deduction for state and local taxes at $10,000. The Maryland measure (SB 523), will take effect July 1 and apply to tax year 2020. It applies to all taxable years beginning after Dec. 31, 2019. The law includes measures: Allowing entities to elect to pay tax with respect to resident members’ shares Requiring each pass-through entity to continue paying tax on nonresident entity members’ shares Establishing provisions for determining the applicable tax rate Allowing individuals or corporations to claim a tax credit equal to the tax paid by a pass-through entity on the member’s share of its taxable income WHAT THIS MEANS FOR YOU The new law could result in significant tax savings for individuals who have been limited to the $10,000 cap on the state and local tax deduction by permitting this deduction at the entity level for federal tax purposes. The Comptroller will need to issue regulations related to making the entity payment election, and various other aspects of the law. Once clarified, individuals may consider having the relevant pass-through entity make estimated tax payments in replacement of individual tax payments. It remains unclear as to how the IRS views these types of legislation. Each organization has its own peculiarities, and how your company may use this opportunity may vary from another entity. If you have questions on how this may impact your tax situation, please contact your KatzAbosch representative or contact us. About KatzAbosch: Founded in 1969, KatzAbosch is one of the largest CPA and business consulting services in the Mid-Atlantic region. As an accounting firm, our mission is to provide the highest quality accounting, tax, financial and management consulting services to our regional clients. We understand the needs and challenges of our clients and we have made it our obligation to create, grow and protect asset value. KatzAbosch is consistently named a Best Accounting Firm to Work For in Accounting Today and has been named a Top 200 Accounting Firms in the Nation by Inside Public Accounting. Our firm is also ranked among the Top 15 Largest Accounting Firms in the Baltimore Area by the Baltimore Business Journal and a Top Workplace four times by The Baltimore Sun.