Tax Deadline Extension & IL Pass-Through Entity Tax to Avoid SALT Limit
Tax Deadline Extension
On December 20, 2021, the IRS announced an extension of the tax deadline to May 16, 2022, for taxpayers in certain counties. This includes the filing of individual and business tax returns along with their estimated tax payments. This relief is being granted to taxpayers affected by the devastating storms that took place on December 10 in many parts of Illinois. This relief is currently available for the following counties: Bond, Cass, Coles, Effingham, Fayette, Jersey, Macoupin, Madison, Menard, Montgomery, Morgan, Moultrie, Pike, and Shelby. The original filing deadline for 2021 individual tax returns was April 18, 2022. The original due date for business tax returns was March 15, 2022, and April 18, 2022. The due date is now May 16, 2022, for both individual and business returns to be filed by taxpayers with an IRS address of record in the above counties. This also means taxpayers in the affected counties will have until May 16, 2022, to make 2021 IRA contributions. The quarterly income tax payments originally due on January 18, 2022, and April 18, 2022, are now also due on May 16, 2022. Also, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1, 2022, will now have until May 16, 2022, to file their 2021 tax return and pay any tax due.
The IRS automatically provides this filing and penalty relief to anyone with an IRS address of record located in the counties listed above. There is no need to contact anyone to get this relief.
Illinois Pass-Through Entity Tax to Avoid SALT Limit
In 2017, the Tax Cuts and Job Act limited state and local income taxes paid by individuals, whether from pass-through entity income or other income to a SALT (State and Local Tax) cap of $10,000. Several states, including Illinois, enacted a pass-through tax to be paid at the entity level and credited at the individual level as a workaround to the federal SALT limit. The IRS recently released guidance approving these state workarounds.
An election is made by the partnership or S corporation for the Illinois pass-through entity (PTE) tax and estimated payments are required. An election may be made each year and is irrevocable for the year made. If you decide to elect the PTE tax, the partnership or S corporation is not required to withhold income tax on the partners that do not reside in the state of the partnership or S corporation. This allows a partner or shareholder to deduct Illinois tax on the business income in full on the federal return. This will benefit taxpayers who itemize and are subject to the $10,000 SALT limit and those who do not itemize.
Until further guidance is issued, we are recommending that the IL pass-through entity tax be paid on or before 12/31/21 in order to claim a deduction on the partner’s or shareholder’s tax return. This payment may be made using a payment voucher or through MyTax Illinois.
Shareholders of the S corporation and partners of the Partnership are allowed a refundable credit for the PTE tax paid by the pass-through entity. Those partners and shareholders must add their distributive share of the PTE tax back to their Illinois income. The tax liability at the partner level will then equal the PTE tax paid at the entity level.
Our team will continue to monitor the status of these and any other tax laws that change. Please contact your trusted Scheffel Boyle team member with questions. We are always here to help!