Wednesday, February 22, 2023
Small-business owners were navigating an uneven playing field when it came to qualifying for the same federal tax deductions as larger corporations.
However, the General Assembly recently passed Senate Enrolled Act 2, which changes state tax law so LLCs and S Corps can deduct all state tax payments on federal tax returns, resulting in what may be $50 million per year in federal tax savings for Hoosier small businesses.
Under federal law, businesses can deduct their state tax payments from their federal tax liability. For businesses that pay corporate income taxes, such as C corporations, which are normally larger businesses, this deduction is unlimited. For corporations where owners or shareholders pay their own individual income taxes, such as LLCs and S Corps, this deduction was limited to $10,000.
SEA 2 allows LLCs and S Corps to receive an unlimited federal deduction for their state tax payments, similar to C Corps.
Small businesses are the backbone of our communities and economy, with nearly 500,000 small businesses in Indiana employing more than 1.2 million Hoosiers statewide. Additionally, Indiana was recently named the No. 1 state to start a business in 2023 by Forbes. Offering this targeted tax relief helps continue to make our state an even greater destination for maintaining business and attracting talent.
Indiana joins at least 29 states that have adopted similar language to their tax laws. Eligible businesses can take advantage of this new law on 2022 taxes being filed this year, and Hoosiers are urged to consult their tax advisors for details.
SEA 2 has now been signed into law by the governor.
Eligible businesses can take advantage of this new law on 2022 taxes being filed this year, and Hoosiers are urged to consult their tax advisors for details.
For more information about SEA 2, click here.