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Indiana Senate Bill 2: Taxation of Pass-Through Entities

By Amy Sandlin, CPA, Tax Senior Manager and Laura Rakaska, CPA, Tax Manager

Indiana is expected to enact pass-through entity (PTE) level tax legislation in mid-February 2023.

The tax changes in the bill are intended to be retroactive, which means it could have a significant impact on your 2022 taxes for pass-through entities and PTE owners.

This bill has bipartisan support and is being fast-tracked through the legislature, so we wanted to ensure you are aware of it, and to let you know we are following its progress.

Indiana Senate Bill 2: Taxation of Pass-Through Entities (SB2)

SB2 will allow pass-through entities (PTEs) to elect to pay Indiana income tax at the entity level.

PTE level tax is a workaround the $10,000 cap on the state and local tax deduction for individuals who itemize their deductions. Nearly 30 states have already enacted PTE tax legislation.

The goal of the PTE tax is to maximize the individual state tax deduction for federal purposes and reduce federal income tax.

For more information on PTE taxes, see our article here.

What Does That Mean For You?

The retroactive date of the bill, if successful, will allow you to take advantage of the tax savings earlier.

However, this legislative change is happening during tax filing season for 2022 tax returns.

The downside of the timing is that it limits the timeframe in which we can work through its impact and best advise you for your specific circumstances.

Additionally, for PTEs that make this election for 2022, the election will not be available until after the original due date of the PTE’s federal income tax return (March 15, 2023).

Therefore, we may advise certain clients to extend their returns, so they can take advantage of this election, if it is determined to be the best tax savings strategy.

What’s Next?

There are still many unanswered questions on how this legislation will be implemented.

We are optimistic that Indiana Department of Revenue will provide much-needed guidance shortly after the bill is expected to pass.

We encourage you to submit all tax information and documentation as soon as possible.

This will allow us to evaluate all potential tax savings opportunities for you using the most accurate information for your 2022 taxes.

Remember to be on the lookout for more information from us on this legislation once it passes.

Once all the information we need to advise you becomes available, we will also reach out to provide personalized recommendations to you as soon as possible.

For now, don’t hesitate to reach out to your local Blue & Co. advisor with any other questions or concerns you may have regarding your 2022 taxes.

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