Effective for tax years beginning January 1, 2020, the New Jersey Business Alternative Income Tax (NJ BAIT) took effect. The NJ BAIT allows New Jersey business owners the opportunity to elect to pay an income tax from their pass-through business entities. Businesses structured as Partnerships and S-Corporations are pass-through entities and eligible for this election. The Internal Revenue Service has confirmed they will honor such payments made as deductions on the businesses federal tax returns. Owners of the pass-through entities can then take a credit for the taxes paid via their business entity on their New Jersey personal tax return. The NJ BAIT was implemented to help business owners lessen the negative impact of the federal state and local tax (SALT) limitation enacted in 2018.
In order take advantage of this new tax, there is an election form that needs to be completed by the business owner on the New Jersey Division of Taxation website for tax year 2020. Once this election is made, the business owner can make a fourth quarter 2020 estimated tax payment. Cash basis tax payers will need to make this payment by December 31, 2020 to be able to take the deduction for the current tax year. Accrual basis taxpayers have until March 15, 2021 (the current due date for this tax filing) to make the election and payment.
Kevin Kanouse, CPA
kkanouse@ljcpa.com