FOCUS on self-study CPE
Developments – An Overview
the legislatures of 2016 through 2018 faced deficits that were as high as $1.3 billion in 2016. Because of these deficits, numerous tax laws were modified to increase taxes. While these changes impacted individuals as well as businesses of all sizes, small businesses were impacted disproportionally. Additionally, the 2018 major changes to federal income tax laws impacted Oklahoma income taxes in ways that created uncertainty.
T
Te 2019 legislature enacted relatively few tax law changes, and none that were sweeping in nature. Unfortunately, the current session did little to relieve the burdens placed on businesses during the lean years, nor to clarify issues with state income taxes in light of the federal tax changes.
Electing pass-through entities tax On April 29, 2019, Governor Stitt signed the
40 years.
14 CPAFOCUS
Pass-Trough Entity Tax Equity Act of 2019, initially known as House Bill 2665, and created a new section 2355.1-P of Title 68. Te Act generally provides for entity-level taxation for partnerships and S corporations for tax years beginning in 2019. Businesses that are eligible include pass-
through entities (PTEs) such as an LLC, general partnership, limited partnership and an S corporation. Notably excluded are fiduciaries. Also note that single-member LLCs are not eligible.
Te purpose is to allow PTEs to elect to
pay the related Oklahoma income tax with the filing of the partnership or S corporation return. Loosely worded, where a composite tax return is for the benefit of non-residents, this election provides for a “composite” tax return for the benefit of residents and non-residents. Te most likely taxpayers to benefit will be owners of PTEs (that generate income) and are
July/August 2019
he recently concluded 2019 Oklahoma Legislature had the luxury of a projected revenue surplus at its disposal. In contrast,
limited by the $10,000 cap of state/local taxes in their itemized deductions. Te Oklahoma Tax Commission (OTC) has
released Form 586, which is used to make the election. In order to be effective for the calendar year 2019, the election must have been made within 60 days of the Governor’s signing—which meant by June 28, 2019. For years after 2019, the election can be made at any time before the year begins and two months and 15 days after the beginning of the year. Te election is binding until revoked. Tis election overrides an election to file a composite return.
Te income tax rate to be paid is the highest marginal rate for individuals, trusts and estates (currently 5%) and 6% for corporations. Any tax credits generated by the PTE stay at the entity level. Te tax is due with the original due date of the income tax return. For tax years beginning on or after Jan. 1, 2020, estimate payments are required. Te OTC says state income taxes paid by the PTE would not be a deduction by the PTE to determine Oklahoma taxable income due to §2358(A)(5). Tis effectively mirrors how the Oklahoma individual income tax return flows. It appears the expenditure would be allowed for determining federal-level allocable income. Tis would be a nice avoidance of the $10,000 cap of the state/local income tax deduction. Some PTEs should consider making the
election even if the individual owners are not limited by the $10,000 cap — especially if they are using the standard deduction. Since the Oklahoma tax is deducted at the federal level, the individuals would still benefit from the PTE tax and be able to use the standard deduction for both.
Tere is another nice side benefit of filing the election. Since the election is binding on all owners, including nonresidents, the PTE no longer needs to deal with the Form 512-SA Nonresident Shareholder Agreement or have the otherwise required withholding for nonresident owners.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32