Many farmers are located in states with high income tax rates such as California. Under current federal tax rules, your personal deduction for all state income taxes are limited to $10,000 for a single or married taxpayer (another example of the marriage tax penalty).
Several of these states have enacted a method allowing you to deduct the equivalent of state income taxes on your partnership or S corporation. California is one of those states. California Governor Newsom on July 16, 2021 signed Assembly Bill (AB) 150 into law which permitted these entities to make that change for the period January 1, 2021 to December 31, 2025 (when the federal rule reverts to an unlimited deduction).
However, there were several nuances in that Bill which created issues for many farmers and other taxpayers. The good news is that Governor Newson just signed SB 113 to fix many of these glitches.
Note that the Build Back Better Act sitting in the Senate has a provision to increase the deduction to $80,000 effective for 2021. The chance of this passing is very slim. We will keep you posted.
