SALT Parity Act

The 2017 federal Tax Cuts and Jobs Act (the TCJA) went into effect on January 1, 2018. Among other things the TCJA capped the amount of state and local taxes (or SALT) that an individual could deduct to $10,000. This cap extends to individual owners of pass-through entities because business income generated from pass-through entities like LLC's, partnerships, and S-Corps, is assessed at the individual owner level rather than at the business level. This limitation does not apply to C-Corporations. On June 23, 2021, Governor Polis signed into law the "SALT Parity Act" which allows owners of Colorado pass-through entities to obtain substantial federal income tax savings. The SALT Parity Act allows pass-through entities to elect to be taxed at the entity level, thereby bypassing the $10,000 SALT cap and allowing business owners to obtain substantial federal income tax savings. On May 16, 2022, Governor Polis signed another bill that makes the election available going back to 2018. Speak with your CPA about whether making this election is appropriate for your business, and what needs to be done differently to make sure your taxes are paid on time.