Our friends over at Palius, O’Kelley, and Janzen CPAs, Inc. wrote up a great article on some new CA tax law updates that impact pass-through entities (S-Corps, LLCs, etc.), and we thought we should pass the good news on to you.
These are important changes that you’ll want to talk to your CPA about this year and could result in savings. If you don’t have a CPA and need some recommendations, please let us know and we’ll help connect you to someone who’d be a great fit for you!
Here’s the rundown:
WHAT HAS CHANGED?
- The California passthrough entity elective tax credit received several retroactive adjustments to the beginning of the 2021 tax year, including:
- Repealing the tentative minimum tax limitation
- Allowing passthrough entities with owners that are partnerships to make the election
- Including guaranteed payments made to partners in the entity’s qualified net income
- Changing the ordering of the credit beginning with the 2022 tax year
- Repealing the tentative minimum tax limitation
- California will conform to the federal exclusion of Restaurant Revitalization Grants and allow expenses paid with the grants to be fully deducted, retroactive to the 2020 tax year.
- California will partially conform to the federal exclusion of Shuttered Venue Operator Grants from gross income retroactive to taxable years beginning on or after January 1, 2019. California will allow expenses paid with these grants to be deducted unless the taxpayer is a publicly traded company, or does not meet the 25% gross receipts reduction threshold. (This is the same threshold used to determine second-draw PPP loan eligibility.)
- California has repealed the net operating loss (NOL) suspension for higher income taxpayers for the 2022 taxable year.
WHAT HAS NOT CHANGED?
Noticeably absent from the bill is conformity to the federal Paycheck Protection Program (PPP) loan forgiveness treatment for PPP loans made after March 31, 2021.
If you have any questions about this we’d be more than happy to answer them or put you directly in touch with an expert at POJ.