Illinois Governor Priztker recently signed the FY22 budget bill which includes new stipulations that could help small business owners save money on their taxes.
Signed into law, bill SB2531 provides a workaround for the $10,000.00 state and local (SALT) tax cap. The SALT cap workaround provides IL partnerships and S-corporations the option to elect to be taxed (and pay) at the entity level for the IL income that normally would be taxed on the partner’s and shareholder’s tax returns. The workaround allows partnerships and S-corporations to circumvent the $10,000.00 cap on SALT itemized deductions on their federal individual income tax returns.
At this time, we are waiting for additional guidance from the Illinois Department of Revenue on the process and timing of making this election. However, we have included information below on what we do know from the bill that was passed.
- The election is effective for tax years ending on or after December 31, 2021, and beginning prior to January 1, 2026. If the federal state and local tax cap is repealed, this election will be revoked.
- The election must be made annually, and once made, is irrevocable for that year.
- The tax rate is 4.95% of IL net income.
- Partnerships and s-corporations are eligible to make this election.
- The taxpayer is allowed a credit in an amount equal to 4.95% of the partner or shareholder’s distributive share of the Illinois net income of the electing partnership and s-corporation.
Other states have recently passed SALT cap workarounds including California and New York.
At The Hechtman Group, our goal is to provide high-quality, customized solutions that support clients’ current financial objectives and achieve future financial goals. As new information becomes available, we will reach out to ensure you are informed of the latest updates.