New Alabama Tax Law has Potential

BISHOP STATE COMMUNITY COLLEGE IS MOVING FORWARD!

Construction on the Advanced Manufacturing Center and the Center for Health Sciences is expected to be completed this fall!

The Advanced Manufacturing Center will be filled with programs approved by businesses and industries to help train a workforce for the manufacturing, process maintenance, and other industry-related jobs and careers in our area. The Center for Health Sciences will provide Nursing and Physical Therapy Assistant students experience in treating patients and solving complex problems in state-of-the-art simulation labs.

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NEW ALABAMA TAX LAW HAS POTENTIAL SAVINGS FOR BUSINESS OWNERS

Anew tax act signed into Alabama law this year has the potential to benefit S-Corporations, sometimes referred to small business corporations, and Subchapter K entities, known as partnerships, and their owners. Gov. Kay Ivey signed the Alabama Electing Pass-Through Entity Tax Act (Act 2021-1) giving businesses the option to pay taxes at the business level and get a federal deduction. According to a June article in The Tax Adviser, published by the American Institute of CPAs, the 2017 Tax Cuts and Jobs Act “limits the amount of state and local taxes individuals can deduct for federal income tax purposes to not more than $10,000.” New Pass-Through Entity laws, similar to what Alabama enacted, give owners a way to bypass that cap. Jeffrey Kintz, a CPA with Wilkins Miller, keeps up with changing tax laws and how they could benefit his clients. He explains the new tax law with a simplified example. Say an eligible business partnership earns $100,000 in taxable income in 2021. At the current tax rate, the business pays 5 percent, or $5,000 in this case, to the state. As equal partners, each reports $50,000 in taxable income and each receives a $2,500 tax credit on their Alabama individual return. The business then deducts the $5,000 tax payment on its federal tax return, lowering the taxable income and thereby lowering the partners’ tax liability on their individual federal returns. Using current projections, Kintz adds, this new pass-through election is sure to save his clients money. “As long as the $10,000 cap is in place, this is beneficial for a lot of people.” One signal your business qualifies is if you receive a Schedule K-1 form, but Kintz encourages business owners to talk with their CPAs to make sure and discuss whether the compliance costs are worth the benefit. For those making this election, it is important to note that to avoid penalties and interest, a business is required to make estimated payments in 2021. Kintz says the state was one of the early adopters of this type of law, and “it goes a long way in making Alabama even more business-friendly.”