Author: Adam O’Feeney, CPA, Senior Tax Manager

Enacted on April 19, 2021, New York’s 2021-2022 Budget Act included a new elective pass-through entity tax (PTET).  Already enacted by a number of other states (including Connecticut), this type of tax is generally designed in response to the $10,000 cap on the federal, state, and local tax (SALT) deduction as added by the Tax Cuts and Jobs Act in 2017.  This SALT deduction limitation applies to taxable years beginning after December 31, 2017, and before January 1, 2026, and limits an individual’s deduction to $10,000 for the aggregate amount of the SALT paid during the year.

New York’s PTET was enacted in Article 24-A effective for taxable years beginning January 1, 2021, and is generally applicable to partnerships, limited liability companies treated as partnerships for federal income tax purposes, and New York S corporations (including limited liability companies treated as S corporations for federal income tax purposes that make the New York S corporation election).

Generally, taxpayers must make an annual PTET election by March 15 of the tax year, at the same time that the first quarter estimated payment is due.  However, for 2021, the election is due on October 15, 2021.  The pass-through entity (PTE) would generally need to pay its PTET liability during calendar year 2021 to qualify for the federal SALT workaround under Notice 2020-75 and to be deductible on the 2021 federal return of the PTE.  Once an election is made for a given year, it cannot be revoked.

For each taxable year beginning on or after January 1, 2021, the tax rates are graduated based on the total taxable income of the PTE:

PTE Taxable Income                 Rate

Under $2 million                          6.85%

$2,000,000 – $5,000,000             $137,000 plus 9.65% of the excess over $2 million

$5,000,001 – $25,000,000           $426,500 plus 10.30% of the excess over $5 million

Over $25 million                          $2,486,500 plus 10.90% of the excess over $25 million

A partner or shareholder of an electing PTE is entitled to a dollar-for-dollar credit against New York personal income tax equal to such partner or shareholder’s “direct share” of the PTE tax.  Electing PTEs generally must make quarterly estimated payments based on the expected income of the PTE.  For 2021, such payments are not required, although full payment of the PTET would generally be necessary under Notice 2020-75 to qualify for the federal SALT deduction.

The New York State PTET annual web application is now available at https://www.tax.ny.gov/bus/ptet/.

An authorized person can opt in to the PTET on behalf of an eligible entity through the entity’s Business Online Services account.  If the entity does not have a Business Online Services account, the authorized person will need to create one.

To opt in to the PTET:

1. Log in to (or create) the eligible entity’s Business Online Services account.
2. Select the ≡ Services menu in the upper-left corner of the Account Summary homepage.
3. Select Corporation tax or Partnership tax, then choose PTET web file from the expanded menu.
4. On the Form Selection page, choose Pass-Through Entity Tax (PTET) Annual Election. 

Important: The authorized person must electronically sign and attest to having the electing entity’s authorization.

If you need assistance or have any questions related to the New York State PTET, or any other potential tax law changes, please call your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton) or email us at info@cironefriedberg.com.

Author: Patrick Dunleavey, CPA, Principal

In May we discussed the benefits of a base line valuation even if you have no plans to sell your current business. However, what if you are contemplating a merger or acquisition?

If you are the owner of a small or midsize business who is looking toward retirement, this could be the time to start thinking about selling your company. Business valuations are at all-time highs spurred on by low interest rates and available capital. We continue to see significant activity in the marketplace.

Perhaps you have a family-owned business poised for growth. This could be an opportunity to increase your market share, integrate vertically, or achieve economies of scale.

In either case, avoid the FSBO (for sale by owner) route. Whether you’re looking to buy or sell, this is not the time to do it yourself. Quality advisors are a key to successful transactions.

Humans are not the only ones who follow a standard life cycle. Businesses do, too. As a matter of fact, every business — no matter how large or small — goes through these phases:

1. Concept and Startup
2. Growth
3. Maturity
4. Decline
5. Death/Closure/Sale or Rebirth

If you’re in Stage 2: Growth or Stage 5: Rebirth, you might be thinking about acquiring or merging with another business, commonly known as M&A (mergers and acquisitions). If you’re in Stages 3: Maturity, 4: Decline or 5: Death/Closure/Sale, M&A could be the solution for you too.

The following scenarios might be reasons for you to consider M&A. You’d like to:

• Increase your market share by taking over a competitor.
• Use surplus cash for more profitable endeavors than investing in your existing business for a possible lower return.
• Survive! By partnering with another business or selling outright, you can avoid withering on the vine and taking a loss.
• Diversifying your holdings, the majority of many small business owners wealth is tied to a single investment. 

Any path toward success must be well prepared, especially if you have little or no M&A experience. If you’re a potential buyer, you’ll need help with the following:

• Arranging the necessary finances for the deal, including support in negotiations with the financing company.
• Structuring the transactions, scheduling the payments and getting agreements from all involved stakeholders.
• Drafting the terms of the deal and finalizing legal terms.
• Performing due diligence on the potential target.
• Making the necessary strategic decisions, such as when to publicly announce the deal to the open market and to employees.

If you’re a potential seller, you’ll need help with:

• Substantiating all reported income, especially if it’s been deferred to reduce tax liabilities. Same goes with any expenses that have been pushed forward.
• Filling in any gaps of weak or missing documentation. This is especially important with key intangible assets such as patents, licenses, employee contracts and proprietary software.
• Analyzing and strengthening internal controls, and standardizing any casual systems by implementing formal policies and procedures and documenting them.
• Preparing financial information to be included in the marketing documents
• Fulfilling documentation and reporting requests of the acquiring entity and the banks providing their financing.
• Structuring the transaction to maximize tax effectiveness.
• Preparing for post-acquisition accounting and reporting requirements including audits.

Whether you are a buyer or a seller, the more you know, the more you realize what you don’t know.  Contact your CironeFriedberg professional for more information on mergers and acquisitions. Call us for more information, at 203-798-2721 or 203-366-5876, or email us at info@cironefriedberg.com.