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Michigan Governor Approves State and Local Tax Deduction Limit Workaround

Michigan Governor Approves State and Local Tax Deduction Limit Workaround

Legislation was signed by Michigan Governor Gretchen Whitmer December 20, creating an optional entity level tax on many Michigan businesses for tax years beginning on or after January 1, 2021. The change helps business owners work around the $10,000 deduction limit on state taxes imposed by the 2017 Tax Cuts and Jobs Act. This has the potential to reduce the overall tax bill for many business owners in the coming years but it may not be right for everyone - there are a number of factors to weigh, ongoing action at the federal level, and other issues to consider.

Some taxpayers will need to take action before December 31, 2021 to take advantage of the new rules. The election for 2021 tax returns must be made by April 15th, 2022, under the new law there’s usually estimated payments required but Michigan Treasury has said that there will be no penalties imposed on entities that make the election and pay the amount by April 15, 2022. For cash basis businesses to take full advantage of this they will need to make payment before the end of the year. This is a big change in the Michigan tax landscape with a lot of savings potential. This bill was given immediate effect by the legislature and we expect Treasury to move extremely fast in issuing forms and guidance. We’re monitoring these changes in Michigan very closely and have experience working with similar changes implemented in other states. If you have any questions or would like to know more please contact us to discuss.

12/22/2021

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