OREGON – State And Local Tax (“SALT”) Cap Workaround
Oregon passed legislation allowing for a SALT Cap workaround beginning in the 2022 tax year.
In the past, many taxpayer’s were able to include all of their State and Local Taxes (“SALT”) as an itemized deduction. The Tax Cuts and Jobs Act (TCJA) limited the SALT deduction, capping it at $10,000 beginning in 2018.
The Oregon workaround is for taxpayers with Pass-Through Entities (PTEs) such as partnerships, S-corporations and limited liability companies taxed as either partnerships or S-corporations.
The SALT Cap is a limitation at the individual level; there is no SALT Cap at the business entity level. The workaround allows the business (instead of the individual) to prepay its share of state income tax. The business takes a full deduction on its Federal tax return for these state taxes, reducing the net taxable income that passes through to the individual income tax return.
Note that the state tax is a Federal deduction only. It will be an add-back item on your individual state tax return.
To get the deduction in the current year, the state tax payment needs to be made by year-end.
( Read this post for further background and discussion on the SALT Cap Workaround. )
Oregon specific points:
> Oregon Tax rates: 9% for the first $250,000 of distributable proceeds and 9.9% for amounts greater than $250,000.
> All PTE business members must be subject to personal Oregon and consent. An election must be made annually with the State of Oregon.
> To make estimated tax payments (PTE-E tax), the entity must first register with the Oregon Department of Revenue. Even if your business has an online account with the Oregon DOR, you have to register for the PTE-Elective (see ODOR instructional document).
> Registration and state tax estimates will start June 6, 2022. Oregon estimated tax rules apply and payments will match the quarterly due dates for individuals.