Oklahoma Pass-Through Entity Tax Equity Act of 2019
For all of you who saw their 2018 itemized deductions reduced because of the $10,000 cap on state and local taxes, there may be some relief beginning in 2019 if you are a member of a pass through entity (PTE). A pass-through entity is a general partnership, a limited partnership, a limited liability partnership, a limited liability limited partnership, a limited liability company, or an S corporation. Oklahoma passed a new law on April 29, 2019 that allows a PTE to file an election to pay Oklahoma income tax at the entity level. The PTE members then reduce their Oklahoma taxable income by their share of the PTE income that has already been taxed by the state. The effect is to reduce the individual state income tax that is being limited on the federal return.
Too good to be true? That remains to be seen. Several states have also enacted similar statutes and the IRS is already saying that it is considering issuing rules that could invalidate some of these strategies.
The Oklahoma bill establishes a deadline for the PTE to make the tax election for 2019 tax returns of June 27, 2019 (60 days from enactment of the legislation). The Oklahoma Tax Commission has been tasked with issuing guidance on making this election. Once that guidance is available, you will have a very short window to make a decision.
What should you do? If this election applies to you, contact us to discuss the pros and cons of making the election for 2019. There are many nuances to how this election works for different mixes of pass-through entity members. The benefits to you will depend on your specific facts and circumstances.