California Expands Availability of Pass-Through Entity Tax Credit

California Expands Availability of Pass-Through Entity Tax Credit

What Happened

On February 9th the Governor signed SB 113, which expands the pass-through entity elective tax benefits

Details of the Benefits

• Repealing the tentative minimum tax limitation on the Pass-Through Entity Elective Tax Credit;
• Allowing partnerships/S corporations/LLCs with owners that are partnerships to make the election (although the tax can’t be paid on behalf of the partnership owner);
• Allowing SMLLCs that are pass-through entity owners to claim the Pass-Through Entity Elective Tax Credit (although SMLLCs are still prohibited from making the election themselves); and
• Changing the credit ordering rules related to the Pass-Through Entity Elective Tax Credit to increase the benefit for taxpayers that claim the Other State Tax Credit (beginning with the 2022 tax year).

Conclusion

The expansion of the pass-through entity tax regime means taxpayers who previously did not make the payment as a result of the previous California tentative minimum tax limitations by December 31, 2021 may now do so and still receive a benefit for the 2021 tax year.

We’re Here to Help

Please reach out to your HKG accounting professional if you have any questions.

Brian serves as the Director of Tax at HKG. With more than 10 years of experience, he began his accounting career at KPMG, LLP working in the federal tax group. He later joined Moss Adams, LLP providing tax services to midsize manufacturing clients. Brian provides a full range of tax services to a variety of industries including manufacturing and banking.