Benefit Meets Opportunity: There is a brand-new benefit for pass-through businesses, allowing a SALT (state & local income tax) limit workaround, coupled with a more generous GOAL tax credit opportunity, per Georgia HB 149.
Pass-through businesses may elect to pay state income tax at the entity level and may contribute to GOAL at the same generous limits as C corporations (effective in 2022)
Through IRS Notice 2020-75, issued on November 9, 2020, the IRS has allowed for a “SALT Workaround” for pass-through entities paying state income tax. In other words, the IRS will allow for state and local income taxes imposed on and paid by a pass-through entity with respect to its income to be taken as a deduction by the pass-through entity in computing its taxable income or loss for the year. These taxes are not subject to the SALT limitation for partners and shareholders who itemize deductions.
HB 149, which the Georgia General Assembly passed during its 2021 legislative session, represents Georgia’s response to this IRS Notice, and provides that pass-through entities may make an annual election to pay the tax due on income earned by the entity at the entity level at the rate of 5.75%.
HB 149 specifically provides that the electing entity shall be eligible for the Georgia GOAL credit and will be treated as an “other entity” that is eligible for a credit in an amount up to 75% of the entity’s Georgia income tax liability. Additionally, the electing pass-through entity will not be required to claim any business purpose for the payment besides satisfying the entity’s Georgia tax liability.
We recommend that you consult with your tax professional about this tax planning opportunity, as GOAL does not provide tax advice.