We just closed the tax filing period, and most residents of Rhode Island are feeling the pinch of the many adjustments made to federal tax laws on last year’s returns.Regrettably, most microbusiness owners are among those who ended up paying in the skies due to the new tax laws that set a limit on their credit for settling local and state taxes.
These financial constraints and tax burdens come at a time when microbusinesses are doing double duty to keep up with the competitive online market.It’s no wonder many Rhode Islanders are backing legislation (2019-H 5576) to allow entrepreneurs owning “pass-through” corporations with state and local taxes (SALT) that go over the new $10,000 limit to settle taxes in their income.
We saw Connecticut pass a similar law last year and it has led to a revenue-neutral situation that is benefitting the state.As of 1913, taxpayers have been paying all their state and local taxes from taxable income based on the SALT deduction.But President Trump’s Dec. 2017 Tax Cuts and Jobs Act now caps the SALT deduction at $10,000 from 2018 to 2025.
For Rhode Islanders and most US taxpayers, these changes could add up to an exorbitant hike in tax liability.Rhode Island is one among the 19 states where SALT credit surpasses the new-fangled $10,000 cap.
This proposed law will enable pass-through companies like sole proprietorships, limited liability companies (LLCs), partnerships and S corps, to settle state taxes on their income, rather than passing it over to their partners to lay claim on their personal income tax returns like it has been.
If enacted, the bill will also permit partners to take credit on their personal and business income tax returns to make sure that the company is taxed only once.Hence, it will provide a fair ground for small businesses because established C-corporations are usually comfortable deducting their SALT before settling federal income taxes.
Small businesses are the pillars of the economy, and they face too many challenges to have to put them through such a tax burden.In a nutshell, this is the only practical approach to help entrepreneurs get credit for the taxes they’ve been paying and avoid disrupting their businesses or forcing them to delay or reduce payroll, or even shut down.
This legislation intends to prevent Trump’s tax plan from extorting small businesses, in Rhode Island and other parts of the nation.
Residents are positive the bill will pass to become a law. If enacted, Rhode Islanders will see changes in the 2019 tax year.
Author bio:As the FAM account executive, Michael Hollis has funded millions by using cash advances. His experience and extensive knowledge of the industry has made him finance expert at First American Merchant.