Alan Sobel headshot

Alan Sobel, of SobelCo, a longtime NJBIA member.

Alan Sobel, managing member of the certified public accounting and consulting firm SobelCo, breaks down New Jersey’s new law providing small businesses with a workaround for the State and Local Income Tax (SALT) deduction limitations that were enacted as a result of the federal Tax Cut and Jobs Act of 2018.

Sobel first wrote to Gov.-elect Phil Murphy in 2018 about his idea to to help New Jersey pass-through business entities save money on their taxes without costing the state any lost tax revenue.  Working with the New Jersey Society of CPAs, Senate President Stephen Sweeney and other legislators, he helped shepherd the Business Alternative Income Tax (BAIT) Act through the Legislature.  NJBIA advocated strongly for this bill, which was signed by the governor on Jan. 13, 2020,  the last day of the two-year legislative session.

“Starting in 2020 under the Business Alternative Income Tax Act (BAIT), LLCs, Partnerships, and S-Corporations will be able to elect to be taxed in New Jersey at the entity level which will create a full deduction of those taxes when computing federal taxable income,” Sobel explains. “Adopting this as an elective tax was important to ensure that out-of-state business owners would not get double taxed for the same income in their resident state and thereby maintain the goal of revenue neutrality.”

Aside from non-resident New Jersey business owners, there may be other scenarios in which opting out of being taxed at the entity level may make sense. Sobel discusses those specific circumstances in his column here.