Kansas PTE law act now

ALERT: Kansas tax law requires action now for the SALT cap workaround

November 30, 2022

Kansas is helping PTE partners/shareholders reduce their federal income tax liability. To benefit, action is needed now.

In May 2022, the Kansas legislature passed legislation referred to as the SALT parity act providing a workaround to a provision in the federal 2017 Tax Cuts and Jobs Act that caps the individual itemized deduction for state and local taxes (SALT) at $10,000. The law went into effect on July 1, 2022, and is effective for tax years beginning after December 31, 2021.

The workaround

The new law allows pass-through entities (PTEs), such as S corporations, partnerships, and limited liability companies, to elect to pay the state income tax due on the company's income rather than the individual partners or shareholders paying the tax. The individual gets the benefit of the additional deduction at the federal level by way of a reduction to their share of reportable income from the PTE. At the state level, the partners or shareholders get a credit on their Kansas tax returns for the state income tax paid by the PTE on their behalf.

Planning considerations

PTEs need to review the company’s income tax circumstances and that of the partners/shareholders before making the election. Consider the source and amount of income or loss of the PTE and, if the PTE is filing in multiple states, whether a PTE election may be available in one or more states. PTEs should also consider the residency status of the partners/shareholders and whether the individuals should adjust the amount of their state-estimated tax payments to take into account the tax the PTE may pay.

If you determine the election would be beneficial for the 2022 tax year, then payment of the tax by the PTE should be made by December 31, 2022, to be allowed as a reduction in Federal taxable income this year. The payment amount should be based on the PTE’s projected 2022 taxable income. Any resulting overpayment on the owner’s 2022 Kansas tax returns will be refunded.

In summary

Kansas is helping PTE partners/shareholders reduce their federal income tax liability. Eligible companies need to act before the end of the year if their owners want to benefit from the law for the 2022 tax year. Pay before year-end to avoid the loss of the election benefit for the 2022 tax year.

To learn more or if you have any questions about your situation, contact Shawn Sullivan using the information below.

Shawn Sullivan

Executive Vice President
Tax Services

Shawn leads the firm’s tax group and serves on AGH’s board of directors. In addition to enhancing business performance to minimize tax consequences, he has extensive experience in mergers and acquisitions, international tax and business structuring. Shawn has public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, automotive, wholesale distribution, real estate development and construction industries.

A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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