Starting this year, Georgia pass-through entities are now allowed to deduct state income tax at the entity level.
Georgia H.B. 149 allows pass-through entities (partnerships, LLCs taxed as partnerships, and S-corps) in Georgia to pay state income taxes at the entity level and claim a full deduction for those state taxes on their federal tax return.
The Tax Cuts and Jobs Act of 2017 limited individual taxpayers to a maximum of $10,000 of state and local taxes as an itemized deduction. For many business owners, their state and local taxes exceeded the $10,000 limit. So, in 2022, the new law was passed as a means of providing relief for taxpayers with taxable business income in Georgia.
This election only applies to income apportioned to Georgia. For many business owner taxpayers, this will reduce the taxable income passed through to owners resulting in a lower federal income tax liability. The election is not permanent, and entities may choose whether they would like to pay tax at the entity level each year.
Taxpayers who choose to make this election and pay Georgia income taxes at the entity level will not include their share of Georgia apportioned income from the pass-through entity on their personal state income tax return. The individual taxpayer’s personal Georgia income tax return will start with their federal adjusted gross income and deduct their respective share of the income apportioned to Georgia and taxed at the entity level.
Sound confusing? This is a great time of year to sit down with your CPA to work through a tax plan and see how this new tax law can help reduce your tax liability for 2022.
Our clients who schedule fourth quarter year tax planning meetings enjoy tax saving opportunities that make a huge difference in their bottom line.
We’ll help you create a strategy to keep more of your hard-earned money and get off to a fast start toward your 2023 business goals. Schedule a complimentary consultation today by calling (404) 668-4713, and walk away feeling confident for 2023!
