On Friday, July 16th, California Governor Gavin Newsom signed into law Assembly Bill 150 (AB 150). For qualified business owners, the bill presents a potential opportunity to mitigate the current $10,000 cap on the itemized deduction for state and local taxes (SALT) on federal tax returns.
You may want to explore the application of AB 150 with your tax professional if:
Effective for tax year 2021, the new California law permits qualified pass-through entities to pay an elective tax of 9.3% at the entity level. Owners of the qualified pass-through entity would then be eligible for a credit against their individual California income tax in an amount equal to their pro rata share of the elective tax paid by the entity.
This may represent a significant federal tax savings opportunity for owners of the qualified pass-through entities subject to California income taxes. We recommend that you reach out to your tax professional to determine how the new California tax law change can be best applied in your business.
Please do not hesitate to contact your Dowling & Yahnke advisor for additional information about AB 150 or to discuss any other matters with which we may be of help.