By Susan Penno & Thomas Kross
On October 1st we sent a communication to our clients advising that Illinois enacted a bill allowing for a pass-through entity to elect to be taxed at the entity level, in an effort to help individual residents mitigate the impact of the federal $10,000 cap on state and local tax deductions.
Since that communication, the state has clarified the following:
- The election to pay the tax at the entity level will be made when timely filing the tax return for the year.
- Estimated tax payments are not required for 2021. If an election is made to pay the tax, the balance owing must be paid prior to March 15, 2022. Estimated tax payments will need to be made for any year ending after December 31, 2021 that a business intends to make the election. Otherwise, late payment penalties might apply in that year.
- If the business would like to take advantage of claiming a federal deduction for the taxes paid related to this election for the 2021 tax year, estimated taxes need to be paid in calendar year 2021.
In summary, pass-through entities have until the timely filing of their 2021 tax return to elect to remit and pay the pass-through entity tax on behalf of their partners or shareholders for the 2021 tax year. However, if a business knows that they intend to do so, they should consider making a pre-payment of this tax before the end of 2021 to be able to also take a state tax expense deduction on their 2021 federal tax return. If the business waits to make this payment at the time of filing their 2021 tax return, they will still be able to take this deduction on their federal tax return but not until 2022.
If you have any questions, please feel free to call us at 708-386-1433.
