Oregon Pass-through Entity – Elective Tax

Remember back in 2018 when we had a federal tax law change (TCJA), a lot of you were triggered because your state income deduction on Schedule A was stripped away all of sudden?

Since then, you were only allowed up to $10,000 for tax deductions on Schedule A.

This tax consists of both income taxes paid to state and property taxes.

Let’s say you paid $50,000 in state income taxes and $10,000 for real estate property taxes.  Your deduction on your federal tax return was limited to only $10,000.

Auch…

$18,500 additional taxes owed if you are 37% tax bracket!

As you can guess, all California, New York, and Oregon residents who pay high-income taxes were flipping mad.

Besides states trying to sue the federal government, they started finding ways to circumvent this federal legislative nightmare. That is pass-through entity tax.  The idea is basically having the pass-through business entity estimate and pay state income taxes on behalf of the owners.

Many states have already implemented this workaround for the 2021 tax year.  Oregon finally got this starting this 2022 tax year.

Here’s more resources at Oregon Department of Revenue:

https://www.oregon.gov/dor/programs/businesses/Pages/Pass-Through-Entity-Elective-Tax.aspx 

If you are a business owner, you need to work with professionals and plan this out to get the tax savings for 2022.  Reach out to our office for further consultation and tax planning strategy sessions.