MARYLAND: PASS-THROUGH BUSINESSES CAN ELECT TO BE TAXED AT THE ENTITY LEVEL STARTING IN 2020
DECEMBER 2020Legislation enacted in Maryland on May 8, 2020 creates an election for pass-through entities (PTEs, e.g., partnerships, S corporations, limited liability companies (LLCs) that are not taxed as corporations in Maryland, etc.) to pay tax at the entity level rather than at the level of the members of the entity, which creates a corresponding tax credit for members. The law was enacted in response to the annual $10,000 cap on state tax deductions introduced under the federal Tax Cuts and Jobs Act enacted in December 2017. Maryland was one of several states searching for ways to help residents mitigate the impact of the SALT cap. The law applies as from July 1, 2020, and the election for PTEs applies to tax years beginning on or after January 1, 2020.
Significantly, on November 9, 2020, the IRS released Notice 2020-75 to announce that the IRS and Treasury intend to issue proposed regulations to clarify that state and local income taxes imposed on and paid by (which the IRS has coined “Specified Income Tax Payments”) a PTE on its income may be deducted by the PTE in computing its non-separately stated taxable income or loss for the taxable year of payment.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.