On Nov. 9, the U.S. Treasury issued a proposed regulation on state and local income taxes imposed on and paid by a partnership or S corporation on its income. The rule would allow states to permit individually and family-owned business to continue to deduct state and local taxes, just like larger corporations can. This would be an important win for smaller businesses and a significant incentive for more states to provide this critical tax relief.
The IRS did not provide a timetable for issuing the proposed regulations but said it will apply to specified income tax payments made on or after Nov. 9, 2020. The proposed regulations will also permit a deduction for payments made by a partnership or S corporation for tax years ending after Dec. 31, 2017, and before Nov. 9, 2020, if the specified income tax payment is made to satisfy the liability for income tax imposed on the partnership or S corporation pursuant to a law enacted before Nov. 9, 2020.