- December 1, 2020
- Posted by: Jamie Nardello
- Category: Blog
This webinar will include a discussion about the effects of the NJ BAIT and federal guidance the IRS has provided after its recent acceptance of NJ BAIT tax deduction in its release of Notice 2020-75.
The Tax Cuts and Jobs Act (TCJA) limits the itemized deduction for state and local taxes (SALT) on federal individual income tax returns to $10,000. A number of states have proposed or passed legislation that attempt to reduce the SALT limitation effects on taxpayers without reducing their own respective tax revenues. New Jersey is one of the latest states to enact such SALT workaround, using an entity-level tax, known as the Pass-Through Business Alternative Income Tax (BAIT).
See transcription below:
Amanda: Hi, everybody. So welcome, everyone, to today’s webinar, NJ BAIT and New SALT Guidance to what you need to know. We know that there’s going to be a lot of questions today. So as a little bit of housekeeping, we’re going to try and get through as many of these questions as we can. There’s going to be a section on your GoToWebinar panel that you can type in any questions that you have. If we don’t get a chance to answer your question by the end of this, we’ll stay on for a couple of minutes later, but if we don’t get to it, someone from the team will definitely get back to you with an answer on that.
So with us today, we have Dave Molinaro. Dave is a Member of the Firm and a licensed certified public accountant in New Jersey, and he’s been practicing for over 30 years. We also have Joe Grillo. Joe is a Senior Member of the Firm, and he’s also a licensed certified public accountant with over 34 years of experience. And we also have Christine Melilli. Christine is a Manager of the Firm. She’s a licensed certified public accountant, and she’s also licensed to practice law as an attorney in New Jersey and New York. So we have a lot of experience on the panel today for you guys. So with that, I will pass it along so you guys can get everything started.
Dave Molinaro: Thank you, Amanda. Thank you for reminding me that I’m in the business for over 30 years. I was supposed to be retired by now, but that didn’t work out. So welcome, everybody. We appreciate you participating in today’s topic. For a change, New Jersey did something good here. So we want to get to it. It’s called the New Jersey Business Alternative Income Tax or New Jersey BAIT for short. It’s a recent law passed in New Jersey to help calculate New Jersey tax owed through your business, through a partnership, or S Corporation, and allow you a federal tax deduction, which is great. As you know, most of the people are limited through their state and local income tax deduction to $10,000 on an individual tax return. This is going to allow you to take a New Jersey tax payments through the company, take a federal tax deduction and save some taxes. So with that, we have two people today, two of our tax leaders, Joe Grillo, and Christine Melilli who are going to make the presentation. Joe, take it away.
Joseph Grillo: Thanks, Dave. Good afternoon, everybody. Thanks for joining us. Just going to go through a general overview of what’s going on here with the New Jersey BAIT tax. So for New Jersey tax purposes, income and losses of a pass-through entity are passed to its members. But for taxable years beginning on or after January 1st, 2020, pass-through entities may elect to pay Pass-Through Business Alternative Income Tax due on the sum of each of the member’s share of distributed proceeds. The members will then claim a tax credit for New Jersey, for the amount of tax paid by the pass-through entity on their share of distributive proceeds. Basically, what’s distributive proceeds?
Essentially, that’s your New Jersey source income. Christine will get into a little more detail on that later on in the presentation. Next slide, Dave. So the purpose. Main purpose here is getting around the $10,000 state and local tax deduction limitation, which has been enforced since the 2018 tax year. So before the Tax Cut and Jobs Act, which was passed in late 2017, as you know, individuals who itemized deductions could deduct their state payments in full on Schedule A, Itemized Deductions on their federal 1040s. So basically, this came about the premise of a simple workaround as show up on the connotations.
You now get to deduct your state tax in full at the entity level as a trader business expense, reducing your federal income, there by reducing your federal taxes. Next slide. So the clients who could benefit the most on this are your multi-member LLCs, your partnerships, and your S Corporations. Not applicable for C Corporations, not applicable for single member LLCs. The obvious thing is you need to have New Jersey source income. Assuming you have that, this is going to be a great tool to cut your federal income tax to each of these types of entity classes.
As far as a single member LLC, just a planning note, we had one large single member LLC reporting their income on Schedule C of their 1040. What we were able to do was make a retroactive F election for both New Jersey and for federal purposes. And we’re able to take advantage of this tax. So that’s something to keep in mind. I guess there is a possibility where you could partner up with somebody else, it’s kind of late in the game for that, but for opportunities, the S Corp seems to be the best way that you could probably get into this before the year is out. I’ll just pass it over to Christine next.
Christine Melilli: Okay, next slide. Thanks, Joe. So good afternoon, everyone. I’m Christine Melilli. I recently joined Smolin Lupin as a tax manager. I hope everybody had a good Thanksgiving last week. It’s hard to believe it’s December already, but my opinion November and December are the best months to do some tax planning and look ahead and see what’s on the horizon. And this year is no different than any other in terms of tax planning, but certainly, there’s a lot of meat and potatoes out there to consider. So as Joe just mentioned, or Dave mentioned, I think, New Jersey originally passed it’s legislation regarding the election it’s passed-through entities may make to be subject to the New Jersey State back in January of 2020, I think.
Wow, that’s already 11 months. Anyway many taxpayers were still skeptical about the position that the IRS would take with respect to the state and local tax deduction that it’s meant to provide. So recently, on the evening of November 9th, the IRS released Notice 2020-75, and that announced its intent to issue proposed regs to clarify that indeed the state and local income taxes imposed on and paid by a flow-through entity would be allowed as a deduction by the entity in computing its federal taxable income or loss. And therefore, the flow-through income that would go to its owners.
You notice 2020-75 makes it clear that if a partnership or an S Corp makes what is called a Specified Income Tax Payment during a taxable year, the partnership or S Corp is allowed a deduction for that Specified Income Tax Payment in computing it’s taxable income for the tax year in which it was made. And so the key point here is what’s a Specified Income Tax Payment and the keyword being income. Let’s go to the next slide. Notice 2020-75 does define what a Specified Income Tax Payment is, and it’s what you would expect.
It’s an amount paid by the partnership or the S Corp to a state, political subdivision, or basically a city, or the District of Columbia to satisfy its liability for income taxes imposed by the domestic jurisdiction. So now we’ve gone over, Joe’s gone over, I’ve gone over what the NJ BAIT is and what’s intended to do. And so I’m sure you all want to know, how do I compute it? So the first thing an entity would need to do to compute it, NJ BAIT, would be to arrive at its distributive proceeds. And the distributive proceeds is the net income, the dividends, the royalties, interest, rents, any guaranteed payments, gains of the pass-through entity that are derived from or connected within sources of New Jersey. And I just want to point out that this presentation is on NJ BAIT, but there are many states out there.
There are several states out there. We’ve looked into them and they have enacted their own legislation regarding the pass-through entity taxes. So to the extent that your business operates in, or you have partners, members or shareholders that reside in other states, you may want to reach out to one of us to help you take a look into whether those local states have enacted their own legislation, and whether you could take advantage of a state and local tax deduction in connection with a possible pass-through entity election. Next slide. So as we’ve said, as long as the entity is a partnership, an S Corp or a multi-member LLC, as Joe pointed out, it cannot be a single member LLC, they’d have to make an S Corp election or become a partnership.
And it has at least one member. So you just need one member who’s liable for the tax on their share of distributive proceeds in New Jersey. Then the entity itself, that pass-through entity may make an annual election to have a tax assessed on the New Jersey Distributive Proceeds at the entity level. And then the tax that’s then computed at the entity level will qualify as a deduction for state and local taxes paid by the entity. And then whereby reducing federal income for purposes of federal tax reporting. However, for New Jersey tax reporting and the K-1s that the members, or shareholders, or partners will get, the state and local income tax deduction would not be allowed. So there would be an adjustment or an add back to the federal taxable income. And I will show you how all this works in a few minutes, we’ll go over a couple of examples. But now Joe will walk us through on how the New Jersey BAIT impacts the New Jersey return.
Joseph Grillo: Thanks again, Christine. So just a couple of aspects on the New Jersey return. As Christine mentioned, the federal income, which is going to be the income that passes through to you will be reduced by the New Jersey BAIT tax it had paid at the entity levels. So reducing your taxpayer’s federal tax BAIT, your New Jersey income, that income is going to pass-through to you, but that’s going to be higher by the amount of New Jersey tax that’s paid at the entity level because that’s a disallowed deduction for New Jersey tax purposes. So that was one of the ways New Jersey pushed this through was because it was revenue neutral for New Jersey.
They weren’t losing any money on it. It was always going to be treated this way and federal purposes to catch a big break. And there was just sick of people leaving New Jersey and that was one of the reasons why they were able to get this through for the state. As far as noncorporate New Jersey K-1s recipients, they will have a New Jersey credit on their return and that’ll be from the pass-through entity and they’re going to be used on their individual return. It is a refundable credit. As far as the Corporate K-1 or an S Corp K-1, the recipients will have the New Jersey credits for the recipients pro rata share just like the individuals, but it can be used against their New Jersey corporate business tax and the temporary surtax.
The credit cannot reduce the tax liability below the statutory tax minimum or the applicable surtax. And any excess that’s not used gets carried forward 20 years. So the S Corp K-1s, it’s a little bit cloudy here. We’ll get into a little more detail with the tiered structures because we’re not sure at this point based on what’s out there as to whether or not it’s going to be trapped at the S Corp level, which really wouldn’t do you a whole lot of good, because typically, in New Jersey, you have minimum taxes. And since you can’t use that credit to reduce your minimum tax, it’s really going to just sit there and get carried forward for the next 20 years. Next slide. I think we’re a slide behind. Next slide. The effect on New Jersey nonresident partners.
So what happens if the pass-through entity makes the Pass-Through Business Alternative Income Tax election? Well, the pass-through entity tax stands on its own and the pass-through entity will still have to remit the New Jersey nonresident tax for nonresident shareholders. So ultimately what will happen here is the nonresident shareholder is going to have, or partner, is going to have a lot of tax paid in and it’s going to lead to a larger refund. And it could be a cash crunch situation, a cash flow situation where both of these taxes are going to have to be paid at the same time. I don’t think New Jersey thought this through thoroughly. So we’re going to see if this is going to change or stay the same in the future.
So that remains to be seen. But at this point, each regime of tax stands on its own. So both taxes, even if you make the election for BAIT, you still have to make your tax payments for New Jersey nonresidence through the partnership. Next thing is will the nonresident members still have a New Jersey Gross Income Tax filing obligation when the pass-through entity is their own source of New Jersey income. And the answer is, it depends on if the Gross Income Tax filing threshold is met. So you need to look at your gross income thresholds in order to see whether or not you still have to file. You’re not absolved from filing potentially by making the BAIT election at the entity level.
Next slide. So how will the pass-through entity source its income? Basically, this really hasn’t changed. If services are performed in New Jersey, it’s considered to be a New Jersey source income amount. If goods are delivered into New Jersey, it’s a New Jersey source income amount. It’s pretty much straightforward. So what I was alluding to before was the possible double taxation, and Christine will get into a little more detail. We’re awaiting further guidance on this. It’s on a state by state basis. You really need to check on each state, whereas you’re filing another tax return in addition to New Jersey.
So you may have a situation where a credit for taxes paid to other jurisdictions is not permitted in your resident state since the New Jersey BAIT tax is not paid at the individual level, which was one of the requirements for you to get a credit for taxes paid to other jurisdictions. So got to be careful there. Have to look at each state, which has an income tax if you reside in that state. Example for Florida, if you live in Florida, no income tax there. You’re only paying tax in one state, and that’s New Jersey, but you’ll have to look into the other states that are imposing their own income tax. And that’s really something to keep an eye out for. I’ll just go and turn it over to Christine to go through some of the examples.
Christine Melilli: Okay, thank you. So next slide, the example. Great. So the first example is a very simple scenario. It’s an easy way to see how the BAIT tax works and how it will benefit a New Jersey taxpayer. So the first example is a three member LLC having total distributive proceeds equal to $275,000. I just made it up. And all the members of the pass-through entity are New Jersey residents. So the first thing we want to do is compute the BAIT and look at the tax consequences to the pass-through entity. So if we could just go forward two slides, please, and then jumped back. Okay. So we included this slide just for a quick reference.
So if you want to compute your BAIT quickly, you know about where you’re at in your business and your distributive proceeds. But basically in my example, you’d have $275,000, you’d have $14,187.50 plus an additional $1,630, which is a 6.52% on the $25,000 difference and the total BAIT tax, then it’s $15,817.50. Well, go back two slides. So there’s our BAIT tax, $15,817.50. That is paid by the pass-through entity, and that will be allocated to each member or partner pro rata to take a credit, which we’ll see later comes up to $5272.50 per member. So then we’ll look at the consequences to the New Jersey residents. So on the federal side, we have the $275,000 of distributive proceeds.
We’re going to take a deduction for the New Jersey BAIT paid in $15,817.50, resulting in $259,182.50, a federal income and allocated the three ways, $86,394.17. Now, if we apply the max rate in 2020, 37%, that will result in a tax of $31,966 to each member. If you just look below, I’ll get here, but you could see where I have the federal $31,966, when you make the BAIT election, otherwise it’s $33,917 without the BAIT election. So the difference is $1,951 for each member. And you can imagine as these numbers grow, so does the difference. If you do not make the election, you can see here, you have your $275,000 divided by three, and again, you’ll have the $33,917.
Now, what happens to the New Jersey tax laws? As Joe mentioned, New Jersey does not want to give up any of its revenue. It’s trying to help everyone out with not losing that federal deduction on the state and local side. So here you have your New Jersey income is going to be your $275,000 because you can’t take that state and local deduction. Divide that, of course, by the three members and each member will have $91,667. And for this purpose, I just applied the 6.37%, which is the second highest in New Jersey, just to be consistent with the example of $275,000. But the highest rate in New Jersey 2020 would be 6.97. So for these purposes, I’m computing New Jersey income tax of $5,839.
So what will happen? Each member will have a credit of $5,272.50 for the BAIT, and they’re paying an additional $567 with their New Jersey income tax. So you could see below, New Jersey is made whole. There’s no difference there. It’s just what you’re calling it up. You’re getting a credit for your BAIT and you’re paying it in that way. And then you’re paying the difference with the income tax return now. Just for this year, New Jersey has not assessed anything on the New Jersey State, any estimated penalties.
There’s a safe harbor in effect, basically, for this year. So the fact that you haven’t been making payments for your BAIT, is fine. You won’t be assessed penalties, but just keep in mind, you will have to pay that with the filing of the return. And so there might be a lag if you’ve been making your normal estimated payments as an individual. There’s going to be a timing difference. You’re going to have to get a refund on your individual and pay with the BAIT. And assuming the BAIT is owed first, there’s going to be just a little timing difference there. But then going forward, you would make your estimated payments as long as you’re making this election with the BAIT and then reduce your personal income tax payments, if need be.
And, of course, again, keep in mind the difference between the BAIT rate and your personal rate, and whether or not additional payments need to be made so that you don’t fall into that spot of any penalties and interest during the year. Next example. So the same example, but now what we’re doing is taking that three-member LLC and having one of its members being a Connecticut resident. And I chose Connecticut on purpose. We do see a lot of this scenario at Smolin where we have New Jersey and Connecticut residents who own businesses. And interesting is that Connecticut actually enacted their own pass-through entity legislation back in 2019 and New Jersey actually pretty much copied it.
So what we’re going to see is, as we mentioned, that you need to take a look each state by state if there is something that will allow a pass-through entity deductions, but in the case of Connecticut, it’s clear that it is. And I’ll walk you through it now. So New Jersey nonresident return, you have your New Jersey income, right? It’s $275,000. So that’s all the same. I use the third highest nonresident rate, which happens to also be 6.37. So the numbers are actually the same. So you have $5,839.19 due to New Jersey on your nonresident return. And then you get to your Connecticut resident return. And now you’re at 6.9%. And now I owe another $6,325 to Connecticut.
So the question that’s been raised is, well, am I going to get a credit on my Connecticut return for those taxes paid to New Jersey if it’s a BAIT tax. And, again, in the case of Connecticut, it’s clear that you will see the Connecticut Department of Revenue issue guidance. And it states that any jurisdiction where a pass-through entity tax is substantially similar to the pass-through entity tax imposed in Connecticut, that they will recognize that payment as a state and local income tax deduction, and they will recognize that you can take a credit for the taxes paid to another state.
So in this case, the federal, right, that’s the same as the last slide, the New Jersey taxes are going to be the same. But now on Connecticut, the member owed $6,325, but they’re going to get a credit for the $5,839 due, that they paid into New Jersey. So on both instances, with or without the BAIT, the Connecticut tax is the same. And again, that was the whole purpose. The states that are enacting this, they still want their revenue. They’re just trying to give you a break on the federal side. And so in the case of Jersey, that works out. I know we also looked into New York, and New York has not passed a pass-through entity statute at the moment.
And so if you look at New York Tax Law, Section 620, that’s the law that deals with credit for income taxes to another state. It says that it recognizes any income taxes paid. And a BAIT is considered an income tax. So the position being taken is that New York will allow the credit for any income taxes paid to another state, and that would include BAIT. However, 620 D clearly says that payments made by S Corps are not considered income taxes.
So if you have an S Corp making the election, it’s not going to New Jersey S Corp making the election, and it is owned by a New York member, that New York member is not going to get a credit for any of the taxes that it’s paying as a result of the NJ BAIT. So something to just keep in mind. Again, look at the structure of your business and have to determine whether or not it makes sense for the entity to do. So now, we’ve covered how the BAIT tax deduction actually works. I’m going to turn over to Joe to take us through some other areas that should be given consideration before making the NJ BAIT election.
Joseph Grillo: Thanks again, Christine. Next slide. Two slides actually. Just a quick thing here, a couple of other items to consider just mentioning tiered structures. So questions remain on how the New Jersey BAIT election will be applied to tiered partnership structures, including those having a corporate partner in an upper-tiered partnership. Further guidance is accepted. So basically here, you may have an S Corp partner in a top-tiered partnership. What happens with the New Jersey credit?
Does it trickle down to the S Corp individual shareholders? Or does it get stuck at the lower tier to be used on the S Corp’s CBT 100 S which is typically the minimum tax, and you cannot be reducing your tax below that amount? Not really clear. C Corp partners, it is clear. You can use the credit against any of your corporate business tax and surcharges, but not less than the corporate minimum. Just going to give it back to Christine for I believe one slide.
Christine Melilli: Okay. Next slide. So New Jersey composite returns and the combined reporting. And there’s not a whole lot to discuss on the composite and combined reporting returns. I’m keeping my eye out to see if anything else comes out. But essentially the Pass-Through Business Alternative Income Tax Act does not prevent a group of pass-through entities under common ownership from filing a composite returns, so long as they meet the composite return requirements. So any pass-through entity that is required to file a composite return, would do so, and can make the election if it so chooses, to be subject to the BAIT tax.
And then that credit will flow through to each owner ratably. There’s nothing out of the ordinary on a composite return. For combined reporting, there was some questions raised. So keep in mind that combined reporting is elective, and those methods were created by statute for convenience purposes for taxpayers. So if the pass-through entity is owned by a corporation, could be C Corp, S Corp, who is a member of a combined group, and is part of the unitary business of that combined group, and that pass-through makes a BAIT election, the pass-through entity itself does not become a member of the combined group.
So the attributes of that pass-through entity will just flow to its owner. So, I guess, there was some questions circulating out there, if my pass-through makes the election and one of my owners is a corp that’s part of a combined return, does it flow to all the members of the combined? The answer is no. It does not. It will just flow to its owner. Okay. So, Joe, do you want to continue with some of the compliance issues that we’ve identified in making the BAIT election?
Joseph Grillo: Sure. Thanks, Christine. Next slide, please. So some of the compliance issues and considerations here, the cash versus accrual. So your cash basis taxpayers will need to make their New Jersey BAIT payments by 12-31-20 in order to get their deduction in for the 2020 tax year. As far as the accrual basis taxpayers, they’ll accrue their tax as a deduction for 2020 deduction purposes, but will have until January 15th, 2021 to make their payments for the 2020 tax year. So there was some debate and chatter about whether or not you have until 03-15-21 to make your BAIT payment, which is when the tax return, your BAIT return would be due.
I’d advise against that because you should pay it by 01-15-2021 because the estimated tax portal was put into operation, I think it was the early part of October. So I wouldn’t take the chance. I’d pay the tax in by January. And then when you file a tax return come March 15th, this is all for calendar-year, obviously, then settle up at that point. This way you could avoid. And I know Christine said there’s going to be no estimated tax payment penalties, but I would play it safe and make that payment by January 15th, 2021, which is your fourth quarter for your calendar-year.
The next thing to consider is your QBI deduction for federal purposes. So when you’re considering making the BAIT election, that’s going to have an impact on your 20% deduction that’s allowed to federal purposes, because the lower the income, the lower the QBI deduction you get. So when you’re doing your planning, just make sure you take that into consideration as you are making a decision on how much that you’re going to be paid in, and then what the overall impact will be. Next slide.
The election. How do we do the election? Each member of the pass-through entity must consent at the time the election is filed. There is an alternative where the election could be made by any officer, manager, or any member who is authorized to make the election on behalf of the pass-through entity. When is it made? It’s made annually on or before the original due date, without extensions of the New Jersey’s entity tax return. The election cannot be made retroactively. So you have until, for calendar-year, 03-15-2021 to make your election.
Currently the forms are not available, but the website is up and running under www.njportal.com. So there’s a checkbox that needs to be clicked when you go to that website, which is essentially making the election, which I think you need to do before you’re allowed to even make any tax payments. So keep that in mind. We’re waiting for the forms to be printed and announced. As far as revocation, any revocation must be made before the original due date of the PTE’s return for the tax year in which the revocation is to be effective.
Next slide. As far as the BAIT tax return. The BAIT tax return has to be filed by the 15th day of the third month following the end of your tax year. So that would be by 03-15 for a calendar-year taxpayer. The estimates are due 04-15, 06-15, 09-15, and 01-15 of the following year for calendar-year taxpayers. That’s basically it for that slide. So, I guess, we could take some of your questions now. I’ll just turn it back to Amanda for that.
Amanda: Sure. The question, it didn’t have a context to it. So it might’ve been from an earlier part of this, but they mentioned that the BAIT tax was imposed or not imposed, that it’s an elective. So how does that fit into the conversation about the actual BAIT tax and what you should do this year for it?
Christine Melilli: So the election has to be made by March 15th. It has to be made by the original due date of the return. I don’t know, Joe, do you want to add to that?
Joseph Grillo: Yeah. I mean, as we said, it’s elective. So you have until March 15th for a calendar-year to make the election. I’m not sure if we’re answering the question. You should have been making estimated tax payments if you felt that you were going to be making the elections throughout the year and you have until January 15th to make your final payment as far as estimates go. So that’s about all I have to add on that one.
Christine Melilli: I don’t know. We don’t have the forms yet for it, but it can be made on the portal. I’m kind of hoping that by the time March 15 rolls around and maybe something that we can file electronically with the return, but I’m not certain nothing’s out there just yet.
Amanda: Perfect. I think that’s a cover. I know there wasn’t a lot of information to go off of that one, but I think you guys covered it. Another question that was asked was, do you have to pay the BAIT in 2020 to deduct in 2020?
Joseph Grillo: I guess, I’ll take that one, Christine. As far as cash basis is concerned, you should be making that payment by the end of the tax year for cash basis taxpayers. This way you could make sure that you’re getting the deduction for 2020. As far as on accrual basis, you’re going to be able to accrue that tax, and you’re going to have up until January 15th to make your final fourth quarter estimated tax payment for the 2020 tax year. And in March of 2021, when you follow your BAIT return, you’ll settle up based on whatever estimate you paid in throughout the four quarters, and pay any balance that’s due in March of next year.
Amanda: Got it. And then someone asked about how you actually make the election.
Joseph Grillo: Christine, you, me?
Christine Melilli: Yes. So, again, right now that’s on the portal. That’s the only place that you can go ahead. You go on a portal, you put in your business, your EIN and all that, and you can make the election. But I’m sure that we’re keeping an eye on this. Hopefully, something will come through that where we can make the election and file it electronically with the return. But if not, right now it’s on NJ portal. It’s on the New Jersey portal.
Joseph Grillo: … Sorry. Go ahead. Sorry, Christine. Go ahead. Oh, I just want to point out that we’ve done for our clients… We’ve actually gone onto the website and made payments for them on their behalf, which is really the only way you can do it at this point.
Amanda: Right. And then another question that someone asked was related to overpayment. So what would happen in the instance that there was an overpayment?
Joseph Grillo: Go ahead, Christine.
Christine Melilli: So for this year, really, the most common scenario, I think what we’re going to see this year is that people have been paying on the individual level, and then if you go and make this BAIT election, you’re going to have an overpayment on your individual taxes and on your individual estimated taxes paid in to New Jersey, and you’re going to owe the money, the entity is going to pay the BAIT. I think that’s a one-year timing difference because going forward, you’re going to have to have your BAIT estimated taxes paid in quarterly, like Joe laid out. I think though that the question might also be getting at what if I overestimate… Say I’m even in Year 2.
So forget about this year, but I’m making my estimated payments and now I’ve just overestimated my taxes for the year. So the tax is refundable. It’s refundable. You can carry it forward and you will get a deduction for whatever amount estimated payments you paid in. And essentially, it’s a true-up in the following year. The entity will get a deduction for the taxes paid in, and there’s essentially a true-up then in the following year when you compute the next year’s payments since you’re sitting with an overpayment, since it’s sitting there. I think that answers.
Amanda: I think that covered both sides of it really well. I think that that’s mostly the questions that we had. I don’t know if there’s any nuances or any kind of more in-depth information that you guys wanted to cover, or if anyone has any other questions, they can feel free to send them in. I’ll go to the next slide because we have everyone’s email addresses on there, so you can feel free to send them any questions directly that you might have. Did you guys have anything else that you wanted to cover before we wrap up?
Dave Molinaro: This is Dave. Christine, talk about the estimates for 2021. Are they just paid based on 2020? Or can I do it based on if I had a more cyclical business? So say my first two quarters aren’t better, or aren’t as good, but the third and fourth one are. Can I up and down my estimates? Or is New Jersey looking for an even flow of those estimates? Because they don’t know what to expect.
Christine Melilli: Nothing’s changed with regard to the rules in place for estimated tax payments. So if you’re cyclical, that’s fine. You feel like you’re 20 to 20. It does not have to be even at all. But if you’re short in excess of that $400, they will impose the penalty if you’re short. It was very clear that all the normal rules of estimated tax payments apply to the NJ BAIT.
Dave Molinaro: Okay. So for this year for cash basis taxpayers, we’ve discussed, you’re going to want to make that payment by December 31st. So you’re going to have to try to give it, and work with us to try to give it the best estimate of what you think your income’s going to be now within the next few weeks, so that you can get the payment in by the end of the month. And as Christine mentioned, if we underpaid, then you’ll make that up later in March or so. And if you’re overpaid that credit will go towards next year, but you’ll still get that tax deduction in 2020 based on what you paid for cash basis. That’s my way of saying [crosstalk 00:39:52] of the BAIT.
Joseph Grillo: Joe, again. I just wanted to add that we had a scenario where we had… Where this gets involved is when you have the nonresident partners. And in one situation here, we had a PA resident, and the trouble with that is the PA resident, it was a partnership I believe, well, it was an S Corp, and PA does not allow the credit for taxes paid to other jurisdictions that are paid with an S Corp, but it only allows it for partnership entities. So what would happen there is the PA resident is paying tax twice on the S Corp income, once in New Jersey and once again in Pennsylvania since they’re not allowing the credit. So that’s where you’re going to see a lot of the craziness, is when you have nonresidents. And we’re here for you for that, and you can just reach out to us anytime and we could help you along with that process if you have some questions as you’re doing the planning, as you get closer to your end.
Amanda: Okay. Well, we’ll make sure that we send the fliers out to everyone. You’ll get an email after this that has this information in there, and I appreciate you guys for hopping on today. I know there’s a lot of information to take in. This is still relatively new. So if you have any questions, feel free to email us on team. They’ll definitely get back to you with an answer. Thank you guys for joining us today.
Dave Molinaro: Thank you all for participating. We thank our clients for being here. We thank Joe and Christine for their time, and Amanda and Jamie behind the scenes for making this possible. So to everybody, be safe, be well, and be kind to each other. Thank you.