We wanted to provide you with an update regarding tax legislation recently passed that may affect you.
If you are a shareholder, partner, or member of an S corporation, partnership, or LLC, you may be able to reduce your federal income tax liability.
The Tax Cuts and Jobs Act reduced the amount of the state tax deduction individuals may claim on their federal tax return to a maximum of $10,000. This limitation caused significant tax increases to taxpayers living in high property and high state income tax states (such as California).
To assist business owners who are recovering from the global pandemic, California recently passed Assembly Bill 150 (AB 150). This bill allows qualified S corporations, partnerships, or LLCs to pay tax on their individual, trust, or estate owners’ share of the entity’s qualified net income at the entity level. Furthermore, the bill also allows these owners to claim a credit for the tax paid on their California personal income tax return. The effect of this is the following: