After the enactment of the Tax Cuts and Jobs Act in 2017, the limitation on an individual’s ability to itemize tax deductions resulted in higher income tax for many Maryland business owners. On May 8, 2020, Maryland enacted legislation allowing pass through entities (primarily LLCs, partnerships and S corporations) to elect to pay tax on a member’s distributive share at the entity level. As a result, the taxable gross income of individuals receiving distributive shares of the entities net income is less. In addition, the election creates a federal income tax deduction for the business that is not subject to the $10,000 itemized deduction limit established by the Tax Cuts and Jobs Act.
Single member LLC’s, partnerships and S corporations are the most likely beneficiaries of the pass-through election and they should carefully consider their options. C corporations and Schedule C taxpayers that are ineligible for taxation at the entity level should seek counsel to determine if restructuring may be beneficial.
Silverman Thompson regularly counsels Maryland businesses, including corporations, partnerships, and limited liability companies. If you would like further information about entity formation and structuring options, please contact Elizabeth Fitch at firstname.lastname@example.org or at (410) 385-2225. If you would like to learn more about Silverman Thompson’s business practice, please contact its chair, Bill Sinclair, at email@example.com or at (410) 385-9116.