Business Alternative Income Act (BAIT) for NJ Clients

For anyone affected by the SALT (State and Local Tax 10K) limitations and / or has a flow through business/trade entity, there is a new (NJ) tax law called the Pass-Through Business Alternative Income Act (BAIT).  This act makes your personal state (NJ) income taxes (related to the income from your flow through trade or business (ie, S-corp K1 and partnership K1) a deduction on your S corp /Partnership federal return (this includes real estate holding companies).

BAIT allows pass-through entities (including partnerships) to elect to pay an entity level income tax to New Jersey. The amount of this tax would reduce the income of a pass through entity for federal tax purposes and thereby indirectly allow a deduction of such state income taxes that would otherwise be subject to the federal $10,000 cap on SALT (State and Local Tax) deductions. This would result in less federal income (and therefore less federal income tax) for those who receive Form K-1 from the pass-through entity. We are recommending that New Jersey businesses and corresponding New Jersey resident shareholders should review their situation to see if they can take advantage of this program.

The flow thru entity rates for NJ state taxes that you can deduct based on the amount of income from the flow through as a total are:

First $250,000 5.675%

Amount between $250,000 and $1 million 6.52%

Amount between $1 million and $5 million 9.12%

Amount over $5 million 10.9%

The state tax MUST BE PAID by the end of the year IF you are a cash basis taxpayer. 

Here is some additional information: https://www.state.nj.us/treasury/taxation/baitpte.shtml

Please reach out to us with questions to make sure, you, as our client, is taking advantage of this.  This is all new law and more information will become available, we will try and update you as best as possible so please follow up yourself as well and feel free to reach out with any questions you may have and we can try and research your specific question/situation.

This is the link if you wish to make a (BAIT) payment: https://www1.state.nj.us/TYTR_BusinessFilings/jsp/common/Login.jsp?taxcode=09