Wisconsin Enacts Election for State Tax Deduction for Pass-Through Entities
On Friday, December 14, Governor Scott Walker signed 2017 Wisconsin Act 368. The law allows tax-option (S) corporations to elect to be taxed at the entity level for taxable years beginning on or after January 1, 2018, and partnerships to make this election for years beginning on or after January 1, 2019.
An elective 7.9% entity level income tax is created. Paying this tax at the entity level provides an option to reduce the impact of the Federal $10,000 limit on individual deductions for state and local taxes paid. The Wisconsin tax paid at the entity level may provide a deduction to the pass-through entity, computed without regards to the Federal $10,000 individual deduction limitation. Comments from the Federal taxing authorities on their treatment of these entity level Wisconsin tax payments are expected.
This election requires the consent of the majority of the pass-through entity’s ownership and is made annually by the due date or extended due date of the entity’s Wisconsin income tax return. There are limitations related to this election, including the ability to use credits and deduct losses. This election may not be beneficial to everyone, and we are developing criteria and tools to assist in evaluating this opportunity and potential tax savings.
We are awaiting more information from the Wisconsin Department of Revenue on the logistics of making this election and filing of the affected 2018 tax returns. Pending the State and related Software Providers’ ability to update forms and systems, extensions may be required for the upcoming filing season. Please contact your MBE CPAs, LLP tax professional with questions on this election and its potential impact to you.