Minnesota income tax brackets 20214/12/2024 ![]() ![]() In Notice 2020-75, the IRS announced its intention to issue proposed regulations that would follow the treatment given in Revenue Ruling 58-25. Notice 2020-75 points out that Revenue Ruling 58-25 11 provided that a tax Cincinnati, Ohio imposed on the profits of a partnership was treated as deductible in computing the profit or loss of a partnership, and the tax was not separately stated but rather was treated as a non-separately stated deduction in computing the partnership’s business income or loss reported on Schedule E of the individual tax returns of the partners. The IRS ultimately decided that it would be difficult or impossible to issue guidance to eliminate the benefit. Put simply, the PTE tax allows individual owners to deduct state and local taxes in excess of the $10,000 limit on such taxes claimed on Schedule A. But the federal tax treatment outlined in Notice 2020-75 of such taxes provides the reason. It still may not immediately make sense why entities and owners would want to go through a process that doesn’t really change the overall taxes ultimately paid but requires preparing additional forms and the costs to create them. 9 If that tax is in excess of the tax the qualifying owner owes for the year to Minnesota, the excess is refunded. If you are mystified about why an entity would elect to pay a tax that is not required to be paid, it is because the qualifying owners are going to receive a state income tax credit for the PTE tax liability paid by the entity for that owner. Is irrevocable once the election is made for a year.Is binding on all qualifying owners, not just those that elected.Can only be made by qualifying owners who hold more than a 50% interest in the entity.Must be made on or before the due date, including extensions, of the entity’s pass-through entity income tax return.The election may be made by a qualifying entity in which the taxes of a qualifying owner are limited by the $10,000 limit on deducting state and local income taxes for federal tax purposes. 25, 2021, to be filed with Form M3 or M8 that will be used to elect and compute the 2021 pass-through entity tax. 6 The Minnesota Department of Revenue posted a near final draft version Schedule PTE dated Aug. Income is generally defined as items of federal adjusted gross income for the qualifying member subject to certain Minnesota modifications. Note that this excludes trusts that are partners in a partnership. A trust that is a shareholder of a qualifying S Corporation.A partner, member or shareholder of a qualifying entity (resident or nonresident individual or estate).3 The tax is imposed on the income of qualifying owners from the entity. ![]() ![]() Thus, calendar year partnerships and S Corporations are eligible to elect to have this tax apply for 2021.Ī Minnesota partnership, limited liability company or S Corporation (other than those that have a partnership, limited liability company or corporation as a member) 1 may elect 2 to pay a tax at the highest state tax rate, 9.85% for 2021. The effective date of this provision is for taxable years beginning after Dec. Minnesota was one of those states that adopted such a tax in 2021, found at Minnesota Statutes 2020, Section 289A.08, subdivision 7a. The IRS endorsement of this approach - which had been adopted in modified forms by several other states by that time - pushed many states that had not adopted an entity level tax mechanism like Connecticut’s to enact one in 2021. When the IRS issued Notice 2020-75 in November 2020, it represented a vindication of the approach first taken by Connecticut to work around the limitation on the deduction of state and local taxes on Schedule A of Form 1040. Minnesota’s pass-through entity tax credit What has, hasn’t changedĮd Zollars, CPA, Kaplan Financial Education | November 2021 Footnote Log in My Account | Pay an Invoice Log in ![]()
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