Senate Bill 2 (SB2)
Gov. Eric Holcomb signed SB2 into law Feb. 22, 2023, authorizing certain pass-through entities to voluntarily elect to pay tax at the entity level based on each owner’s total share of adjusted gross income. It is retroactively effective for taxable years beginning on or after Jan. 1, 2022.
The bill also provides a refundable tax credit equal to the amount of tax paid by the electing entity with regard to the owner's share. Another credit is available for pass-through entity taxes that are imposed by and paid to another state. This change seeks to provide tax relief to Indiana small businesses by allowing them to receive an unlimited federal deduction for their state tax payments. For more information, see here.
To elect that the partnership be taxed at the partnership level:
- Go to Screen 37.111, Indiana Miscellaneous Information.
- Under the Indiana Miscellaneous section, check the Partnership has elected to be taxed at partnership level (Amended only) box.
- This checks Box R on IT-65, page 1.
It is important to note that Box R of IT-65, page 1 should only be checked on an amended return. In order for this box to be checked, there must have an election on file with the department of revenue, or a valid election must be provided with the amended return.