Election for Pass Through Entity at State level – effect on 1120s

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    boydra
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    I am trapped in a circle formula.

    Oklahoma and other states now allow an S Corp to be taxed at the entity level for state income taxes, effectively bypassing the 10K SALT limit on personal returns.

    My confusion is this – does this create a circle formula due to the state income tax being deductible on the 1120s, which then lowers the members income, which then would lower the amount subject to the passthrough tax rate, and on and on.

    Or is the state income tax applied to the members income before any reduction for state income taxes paid? If so, is there then an entry on the Federal K1 for these state income taxes so the member can reduce their federal taxable income?

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