Senate Bill 2 Provides a Federal Tax Savings Opportunity for Indiana Pass-through Entities

The recently signed Senate Bill 2 provides Indiana taxpayers who own a pass-through entity filing as an S-Corp or a Partnership a Federal tax savings opportunity. If elected, the Pass-Through Entity tax (PTET) allows pass-through entities to pay Indiana income tax at the entity level, based on an individual owner's state tax liability. In turn, the PTET paid becomes a state income tax deduction on the federal return of the pass-through entity, maximizing the individual state tax deduction claimed on the owner’s personal returns. For state purposes, the PTET is a credit intended to offset the impact of state tax liability generated by the pass-through entity.

Elections for tax years beginning after December 31, 2021 and before January 1, 2023, must be made after March 31, 2023 and before August 31, 2024.

To learn more about the PTET election and how it may impact your taxes, please contact your trusted KL advisor.