January 18, 2021

Art & Lifestyle:

New Tax Relief for MD Businesses

tax relief

2020 tax year brings some new tax relief to Maryland partnerships, S-corporations, and other pass-through entities, reports Askey, Askey & Associates, CPA, LLC,  as the firm prepares for the upcoming tax filing season.

The change allows for the pass-through business to pay Maryland state income tax instead of the tax obligation passing through to be paid by the individual business owners. The new Maryland tax legislation is aimed to recapture the federal income tax deduction lost by business owners whose state tax deduction was capped at $10,000 under the Tax Cuts & Jobs Act of 2017. This drove up the tax rate for most taxpayers with substantial business income from pass-through entities.

With the state tax paid at the business level, the Maryland legislation provides an option for a substantial company-level tax deduction. The amount of the business’ deduction is not capped.

“This provision,” explains Christa L. Hood, CPA, Audit Principal with Askey, Askey & Associates, CPA, LLC, “allows a pass-through business entity to elect to pay Maryland income tax on the taxable income created by the business. In this way, the business will be able to deduct the tax payments. Without this option, business owners pay the state taxes individually. Paying the taxes at the business level can provide some business owners with tax savings on their federal income tax returns.”

Askey, Askey & Associates, CPA, LLC can advise business owners on how this election on 2020 taxes will be accounted as a tax liability in financial statements going forward. To take advantage of this deduction for 2020, the business will need to make an estimated tax payment to Maryland by December 31, 2020.

“Business owners may need to alter their Maryland estimated tax payments if the business will be paying the Maryland taxes on the owners’ behalf,” Ms. Hood said.

The election is not currently available for nonresident owners of Maryland businesses, and there will be some changes necessary for businesses with nonresident owners which elect to use the new provision. There are some limitations, and they are expecting more guidance from Maryland on the deduction. Please consult your tax adviser for further details.

The IRS has recently issued Notice 2020-75, which confirmed that statutes such as this will be respected by Treasury and the deduction will be allowed at the entity level. Some states, and Washington DC, already allowed business-level tax payments from partnerships and S-corporations. Maryland joined several other states in adopting enabling legislation.

Askey, Askey & Associates, CPA, LLC, have two full-service offices located in Leonardtown, MD, at 23507 Hollywood Road, P.O. Box 662, Leonardtown, MD 20650, phone: 301-475-5671; and in La Plata, MD, at 105 Centennial St., Suite D, La Plata, MD 20646, phone: 301-934-5780

For more about Askey, Askey & Associates, CPA, LLC, visit their Leader Member Page, Facebook, or LinkedIn.

Leave A Comment