Virginia issued pass through entity guidance for 2022 tax returns:
Virginia issued draft guidelines for making the pass-through entity tax (PTET) election for tax years 2022 and after. These guidelines do not address tax year 2021. The election allows pass through entity owners to pay tax at the entity level instead of at the individual level as a work around for the state and local tax deduction limitation.
A qualifying PTE may make the election during tax year 2022 by filing Form 502V and submitting a payment of PTET. The tax is 5.75% of the Virginia pass through entity taxable income. The entity would then file a Form 502PTET on or before the extended due date for the tax year. Once the election is made it is binding for that tax year. To take the deduction on the federal tax return in 2022 the tax must be paid by 12/31/2022.
A PTE may make the election only if it is 100% owned by a natural person. A natural person excludes corporations or other pass-through entities. This is an annual election. For 2023 and after, if the PTE intends to make the election, the entity is required to make estimated payments.
Elective Pass-Through Entity Tax Guidelines | Virginia Tax
New Exception to 2022 K-2/K-3 filing requirement – notification required by 1/15/2023:
The IRS recently issued draft instructions for partnership and S-Corporation 2022 Schedule K-2s and K-3s adding a new “Domestic filing exception”. Under the instructions, partnerships and S-Corporations do not have to file these two schedules if the four criteria and the notification dates described below are met.
1. The business had no or limited foreign activity.
This includes foreign income taxes paid or accrued or ownership in a foreign entity. If there is more than $300 of foreign income tax withholding on foreign investments you will not meet this exception.
2. During the 2022 tax year, all direct owners are U.S. citizens or resident aliens
3. Partner/Shareholder notification
Assuming a business meets the first two criteria, a notification must be sent to all partners/members/shareholders –electronically or by mail – dated no later than January 15, 2023. The notification must state the owners will not receive Schedule K-3 from the business unless the owner requests the schedule.
4. No 2022 owners request a Form K-3 by February 15, 2023.
Under these draft instructions, if an entity misses the January 15, 2023, date to notify the owners, it would be required to prepare and file the 2022 Schedules K-2 and K-3 with Form 1065 or 1120S.
Businesses should consider sending notifications by the January 15th deadline to avoid the costly compliance requirements of preparing the Form K-2 and K-3 with the 2022 business income tax returns.
2022 S Corporation Instructions for Schedules K-2 and K-3 (Form 1120-S) (irs.gov)
2022 Partnership Instructions for Schedules K-2 and K-3 (Form 1065) (irs.gov)
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