Tax and financial advice from the Silicon Valley expert.

IRS relief for domestic passthrough entity reporting requirement

The IRS is waiving the requirement to include international tax information Schedules K-2 and K-3 for most domestic partnerships and S corporations for tax year 2021 (IR-2022-38, February 16, 2022.)

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California expands the passthrough entity tax

The passthrough entity tax is a workaround for the $10,000 individual income tax limit on the deduction for state taxes adopted in the Tax Cuts and Jobs Act of 2017. On February 9, 2022, Governor Newsom signed SB 113, which fixes some of the issues with California's passthrough entity tax.

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Amended 2017 returns required for fiscal year passthrough entities

Since proposed regulations were not issued for owner/beneficiary information relating to the 20% of qualified business income deduction until August 8, 2018 and it wasn’t listed on the 2017 forms, that information was omitted on many passthrough entity income tax returns for fiscal years ending in 2018.  According to proposed regulations issued on August 8, 2018, that information should be included on the 2018 income tax returns for the owner.  (Proposed Regulations Sections 1.199A-1(f)(2) and 1.643(e)-(2)(ii).)  If that information is listed on the owner’s Schedule K-1, it’s presumed to be zero.  (Proposed Regulations Section 1.199A-6(b)(3)(iii).)

Last chance for S corporation shareholders to pay low tax now for avoiding high penalty tax later

Since the 35% federal penalty tax on excessive passive investment income and threat of termination of the S election only apply when the S corporation has undistributed C corporation earnings and profits, these issues can be eliminated by distributing those earnings and profits. The distribution can be "deemed" to be made without making a distribution of cash or assets by election of the S corporation's shareholders. A low 15% federal tax currently applies to these distibutions, scheduled to increase to up to 43.4% after 2012.

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Tax and financial advice from the Silicon Valley expert.