A New Indiana Law Offers Tax Relief to Small Business

April 4, 2023

Here's what you need to know about the SALT parity bill that passed in Indiana

A New Indiana Law Offers Tax Relief to Small Business

Senate Bill 2, one of NFIB’s priority bills in Indiana, is now law. This law provides a new federal tax benefit for small businesses without costing a penny to the State of Indiana. Why is this important? It could provide your small business significant tax relief! The creation of the pass-through entity tax (PTET) law effectively eliminates the $10,000 cap on an individual’s state tax deduction put into place in 2018 by the Federal Tax Cuts and Jobs Act. The Indiana PTET law allows small businesses structured as pass-through entities such as partnerships, LLCs, and S Corps, to elect to pay Indiana income tax at the entity level. The majority of small businesses are structured as pass-through entities and therefore could qualify for this new tax benefit. Indiana’s PTET law is optional with a retroactive effective date of Jan. 1, 2022. Under federal law, large businesses structured as C Corps can deduct their state and local taxes from their federal tax liability without limitations allowing them to take full advantage of the deduction. However, for pass-through entities the deduction is limited to just $10,000. The Indiana PTET law provides a workaround the $10,000 federal cap on the state and local tax deduction for pass-through entities leveling the playing field with large corporations so they can enjoy the same tax relief. The IRS is aware of the now 30 states creating these laws and has blessed the deduction of such taxes at the federal level through the guidance issued in IRS Notice 2020-75. NFIB encourages small business owners structured as pass-through entities to talk with their accountants about this new option to determine if it would be beneficial. For more information on the bill, click HERE.

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Indiana

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