Oregon offers new pass-through entity tax election to get around SALT cap

Due to a recent Oregon tax law change that affects all pass-through entities (Multi-Member LLCs, Partnerships and S-Corps) we want to inform you that there is a new tax election that may save a significant amount of money.

Income from your business is normally passed through to your personal tax returns and taxed there.  Beginning January 1, 2022, S-corporations and partnerships may elect annually to pay Oregon tax at their business level, rather than paying it at the personal tax level.  This is called the Pass-Through Entity Tax, or PTE-E.  The tax rate on Oregon-sourced net income is 9 percent on the first $250,000 of distributive proceeds and 9.9 percent on anything above $250,000.  Distributive proceeds are net income, dividends, royalties, interest, rents, guaranteed payments, and gains from Oregon sources.  This law will expire if the federal SALT (state and local tax) deduction limitation expires or is repealed.  The SALT tax pertains to your ability to itemize on your personal tax returns.

If you make this election for your business, on your personal Oregon return you are eligible for a credit equal to the Oregon business tax paid. Also, the state tax payments that you pay on behalf of your business will become a deduction on your federal business income which is where the tax savings come in.  You get no deduction for state tax paid through your individual tax return.

To make this tax election, you must register to make payments for the PTE-E tax with the Oregon Department of Revenue at https://revenueonline.dor.oregon.gov/tap/_/.  Because you would be paying the tax through your business, you would be required to make estimated tax payments.  You can make payments by ACH debit/ credit online, or by mail with check/money order submitted with Form OR-21-V, which is an estimate voucher.  Once you’ve registered, it doesn’t mean you have made the election.  The election to pay the PTE-E tax is made when the return is timely filed.

We recommend registering for this method of paying your Oregon business tax for the following reasons:  1) The tax paid is deductible on your federal business tax return, and 2) It will lessen the amount of self-employment tax, if any, that would have been paid on your personal tax return.

If you need assistance, ABTS can help recalculate your state estimated tax payments and the estimated PTE-E estimated tax payments, as well as register your business and set this up through Oregon Revenue Online. Our fee will range between $250 – $500, depending on the complexities of your business.

Please call us if you have any questions or would like us to do the setup for your business to take advantage of this beneficial tax election.