Taxpayers that itemize their deductions can deduct certain state and local taxes (SALT). These SALT deductions can include property, income, and sales tax. Although all three are eligible, taxpayers must choose between deducting income tax or sales tax, while property taxes are always eligible. In 2017, when the Tax Cuts and Jobs Act was signed, the previously unlimited SALT deductions became limited to $10,000. Many pass-through entity (PTE) owners located in states with high income taxes paid more than $10,000 in state income taxes alone. So, once the new limit was put into effect, many owners couldn’t deduct as much as they previously could on their federal tax returns.

In November of 2020, the IRS issued Notice 2020-75, which vindicated a workaround to this credit. This prompted many states that hadn’t already implemented an elective Pass-through Entity (PTE) tax to do so. In Minnesota, the new PTE tax election is available … Read More