All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.We are an independent, advertising-supported comparison service. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein Grant Thornton LLP assumes no obligation to inform the reader of any such changes. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. The information contained herein is general in nature and is based on authorities that are subject to change. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. 1, 2023 and July 1, 2024, PTE owners do have a significant amount time to evaluate the benefits and costs of a possible election. Because retroactive elections must be made between Sep. Finally, questions surrounding how to reflect the federal tax benefit accruing from such retroactive election will need to be resolved.Īs a result of these uncertainties and the potential prospect of significant tax compliance necessary to properly effect the retroactive election, PTE owners should examine their specific facts and circumstances to determine whether such election in Colorado may be worth pursuing. Further, the Department is entitled to audit the amended composite return filed by the PTE within one year of filing. The Colorado Department of Revenue is tasked with providing regulations and setting up a process to facilitate the new PTE tax regime. For example, there is no mention of whether a PTE may choose to elect to enter the PTE tax regime for selected years from 2018-2021, or whether an electing PTE is compelled make the election for all of these years. The legislation does not specifically address several logistical and practical issues that will need to be resolved in the near future. However, the amended return process may be labor-intensive for certain businesses-particularly larger organizations with numerous partners. This opportunity gives owners of partnerships and S corporations the opportunity to mitigate owner-level impacts of the federal SALT deduction cap for all tax years to which it has been applicable. have enacted various PTE tax regimes since the passage of the TCJA, Colorado is the first state to permit PTE elections retroactive to 2018. While more than half the states in the U.S. 8 PTEs electing into the regime are required to file a composite amended tax return on behalf of all the PTE’s owners. The election to participate in the PTE tax regime on a retroactive basis must be made on or after Sep. 6 The tax is imposed at the corporate income tax rate applicable to each of the tax years covered by the retroactive election-4.63% for 20, 4.55% for 2020, and 4.50% for 2021. 5Ĭolorado recently amended the 2021 legislation to permit partnerships and S corporations to retroactively elect to pay Colorado income taxes on behalf of the owners at the entity level for tax years beginning on or after Jan. 4 That legislation allowed partnerships and S corporations to annually elect to pay Colorado income taxes on behalf of the owners at the entity level for tax years beginning on or after Jan. Last year, Colorado enacted legislation to provide an elective PTE tax as a means to provide a level of parity on the deductibility of state income taxes for C corporations and PTEs alike. 3 The “SALT cap” impacts mainly high-income tax earners who have the ability to itemize their deductions. 2 This limit allows a deduction for only the first $10,000 in state and local taxes for individual income taxpayers. In 2017, the Tax Cuts and Jobs Act (TCJA) placed a limit on the state and local tax (SALT) deduction at the individual taxpayer level.
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