July 2022 – Colorado PTE Election

By

COLORADO SALT CAP WORKAROUND:

“PTE Election”

 

A Summary

In 2018, the Tax Cuts & Jobs Act (TCJA) placed a $10,000 limit on Schedule A (Itemized Deductions) for the state & local tax (SALT) deduction for individual tax returns. The SALT deduction limit has since impacted high-income taxpayers who itemize their deductions.

In 2021, the SALT Parity Act was initiated in Colorado to provide relief on this $10,000 limit. Effective starting January of 2022, the SALT Parity Act allows business entities to make an annual “check the box” election known as the Colorado Pass-Through-Entity (PTE) election. This election allows businesses to pay and deduct state income taxes on behalf of the owners of the entity, therein bypassing the SALT limitation at the individual level.

 

What We Know
  • The PTE Election is an election to be taxed at the entity level, and is made on an annual basis.
  • Partnerships and S-Corporations are eligible to make this election.
  • The PTE Election is not available until December, 2022. As such, entities can begin making this election in the normal course of filing starting with their 2022 tax returns.
  • Electing entities will pay a flat tax rate of 4.55% of total income to cover the individual taxes due. Additionally, owners of electing entities will not be held liable for the tax.
  • If the entity pays too much tax, the entity is eligible for a refund or carryforward credit.
  • Electing entities with a net Colorado tax liability of $5,000 or higher will be subject to a quarterly estimated payment schedule similar to C-Corporations. For calendar year entities, the payments will be due April 15th, June 15th, September 15th, and December 15th.
  • For tax years 2023 and beyond, each quarterly estimated payment must be 25% of the required annual amount.

For tax year 2022, the required annual amount is 70% of the actual net Colorado tax liability for the current year.

 

 

Next Steps

While the state of Colorado is still finalizing regulations and processes for the PTE election, our goal is to provide a brief overview of what taxpayers can anticipate. We plan to follow up with more information as we learn more from the state of Colorado as we have many questions yet to be answered by the state of Colorado.

In the meantime, please review the Colorado Supplemental Instructions for Partnerships and S Corporations Making an Election under the SALT Parity Act handout for additional information.

If you wish to evaluate your status and determine if this PTE election would be beneficial for you and your business, please reach out to us. We will be happy to assist you with your individual eligibility and provide guidance regarding the most advantageous plan for you.

 

 

SEPTEMBER 15, 2022 – 3rd quarter estimated payments for 2022 are due to the IRS and Colorado Department of Revenue

JANUARY 15, 2023 – 4th quarter estimated payments for 2022 are due to the IRS and Colorado Department of Revenue

 

 

EMPLOYEE SPOTLIGHT: KAELA URSICH

Kaela Ursich

Kaela, a Colorado native, joined the Soukup, Bush & Associates team in 2021 as a full-time member. She attended the University of Northern Colorado with a Bachelor of Science degree in Accounting and has a background in tax before joining the firm.

Kaela works as an associate in the tax department of the firm.

In her free time, Kaela enjoys horse riding, reading, hiking, fishing, camping, other general outdoor activities, and spending time with her family.