New York State Enacts Pass Through Entity Tax as SALT Work-Around

April 18, 2021

David Neuman, JD

The 2017 Tax Act made life harder on individuals living in high tax states (such as New York, New Jersey, and California) by limiting the deduction for state and local taxes (“SALT”) to $10,000. This cap only applied to SALT deductions paid by individuals, not by corporations. On Nov. 9, 2020, the IRS published Notice 2020-75 and endorsed a workaround to the $10,000 cap on state and local taxes when it comes to state and local taxes paid by passthrough entities. 

This put passthrough entities (LLCs, partnerships, and subchapter S corporations) at a disadvantage, since SALT taxes on passthrough entity income are generally not paid at the entity level, but rather by the individual LLC member, partner, or S corporation shareholder, so that the SALT taxes that passed through to the owners were subject to this aggregate $10,000 SALT deduction cap. 

IRS Issues Guidance on 100% Business Meals Deduction

On April 8th, the IRS issued Notice 2021-25 (the “Notice”) providing guidance for taxpayers seeking to take advantage of the temporary 100-percent deduction for the cost of business meals, which was enacted by Congress to provide relief in light of the devastating economic consequences associated with the COVID-19 pandemic.

Under Code Section 274(n)(1), a deduction for any expense for food or beverages is generally limited to 50-percent of the amount that would otherwise be deductible. To assist the US restaurant industry, the Consolidated Appropriations Act, 2021 (CAA) enacted a temporary exception to allow businesses to claim 100-percent of qualifying food and beverage expenses paid to restaurants from January 1, 2021 through December 31, 2022. 

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