Marcum 2021 Year-End Tax Guide

New Jersey New Jersey enacted its Business Alternative Income Tax (“BAIT”), effective for tax years starting after January 1, 2020. A tiered partnership will claim a credit in the amount of tax paid by the PTE on its share of distributive proceeds. The credit does not flow through directly to the tiered partnership’s partners. The PTE is still responsible for remitting tax on behalf of its nonresident partners. New York New York’s PTE tax is effective for tax years starting on or after January 1, 2021. It is made at the entity level, so each partnership within a tiered structure is responsible for its own election. While all partner types would benefit at the federal level, an upper-tier PTE will not receive credit in New York for its share of the PTE tax paid at the lower-tier PTE. The rules and analysis regarding whether a pass-through entity should, or is required to, make an election are complex, especially when varying ownership structures come into play. For example, electing to pay PTE tax in New York may benefit individual owners, but end up being disadvantageous to a PTE. Before making an election, PTE owners should consider all of these issues, as most elections are irrevocable in the year made.

MARCUM RECOMMENDATION Taking into account the changes of the past few years as well as necessary actions such as cash infusions, taxpayers should be prepared for all of the decision-making involved in upcoming deals: • For those who received cash to stay afloat during the pandemic, it is important to review the partnership agreement and determine whether the intended effects occurred on the investors’ capital accounts. • With the guidance released on the carried interest rules, taxpayers can now more precisely predict the outcome of real estate sales and the impact on the bottom line. • New workarounds are being introduced at the federal and state levels to assist with the dreaded TCJA SALT cap. With all of the changes of the past year-and-a- half, it has become a large task to stay on top of the tax landscape. Speaking with your tax advisor throughout the year as well as at year-end is crucial in order to find any areas in tax planning and compliance that could require modification to get the best outcome for your business and your investors.

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