Flat-Fee Tax Preparation for Illinois Residents

Illinois has a flat personal income tax rate of 4.95%, but also a 1.5% personal property replacement tax (PPRT) imposed on pass-through entities (partnerships and S-corps) that is paid at the entity level

The IL Pass-Through Entity Tax (IL PTET) election allows pass-through entities to pay IL income tax at the entity level, bypassing the federal $10K SALT cap and generating a federal deduction

Illinois imposes a state estate tax on estates over approximately $4 million — significantly lower than the federal $13.61M threshold — making IL estate planning an important consideration for business owners and real estate investors

Chicago imposes several city-level taxes including a Chicago lease tax, Chicago amusement tax, Chicago ground lease tax on commercial real estate, and personal property lease transaction tax — highly relevant for businesses operating in Chicago

Illinois does not tax Social Security benefits or retirement income from qualified plans, but does tax IRA distributions for taxpayers under age 67 (though partial exclusions exist for certain income levels)

IL real estate transfer tax: state transfer tax is $0.50 per $500 of value, but Chicago imposes a dramatically higher city transfer tax of $3.75 per $500 ($7.50 on purchases over $1M), making Chicago transactions significantly more expensive

Illinois has a $100,000 charitable asset protection exemption that affects business succession and charitable giving planning for IL business owners with significant assets

IL conformity to federal depreciation is generally favorable — IL follows federal bonus depreciation elections, unlike CA, which is significant for real estate investors doing cost segregation

Illinois Real Estate Tax

Chicago's real estate market is one of the most active in the Midwest, with significant multifamily and commercial investment activity. The Chicago transfer tax (effective up to $15 per $1,000 on larger transactions) significantly impacts deal economics and must be built into underwriting. IL's flat income tax rate and conformity to federal depreciation rules make it relatively investor-friendly compared to states like CA or NY, but the IL estate tax threshold at ~$4M affects estate planning for successful RE investors.

Illinois Business Tax

Illinois business owners benefit from a predictable flat income tax rate, but must account for the 1.5% PPRT on pass-through entity income and the potential IL PTET election for SALT cap relief. Chicago-based businesses face an additional layer of city taxes that can materially increase the effective tax burden. The IL estate tax at the ~$4M threshold makes business succession and life insurance planning critical for IL business owners with significant enterprise value.

Does Illinois have an estate tax, and how does it affect my small business?

Yes. Illinois imposes a state estate tax on estates with a taxable value over approximately $4 million (the exact threshold adjusts annually). The federal estate tax only applies to estates over $13.61M in 2024, so many IL business owners with real estate, retirement accounts, and business interests will owe IL estate tax but not federal estate tax. IL estate tax rates range from 0.8% to 16%. For a business owner with a $5–$10M estate, IL estate tax planning — including life insurance trusts, annual gifting, and business succession structures — is a high-priority issue.

What is the Illinois PTET and should my S-corp elect it?

The Illinois Pass-Through Entity Tax allows S-corps and partnerships to elect to pay IL income tax at the entity level rather than passing it through to individual returns. The payment is deductible on the federal return as a business expense, providing relief from the $10,000 SALT cap. Partners and shareholders receive a credit on their individual IL returns for their proportionate share of the PTET paid. For most IL business owners subject to the SALT cap, the election is highly beneficial.

I own rental properties in Chicago — what Chicago taxes do I need to worry about?

Chicago imposes a real estate transfer tax on property sales (significantly higher than the IL state transfer tax), and commercial lease tenants in Chicago face the Personal Property Lease Transaction Tax. If you rent residential units, you may owe the Chicago Residential Landlord Ordinance compliance costs rather than a specific rental tax, but short-term rentals (under 31 days) trigger both Chicago and IL sales tax obligations. Commercial property owners with ground leases also face the Chicago Ground Lease Tax.

Does Illinois tax my retirement income?

Illinois does not tax Social Security benefits, pension income from most public and private pensions, or distributions from qualified retirement plans (401(k), IRA, 403(b)) for taxpayers age 65 and over. However, IRA distributions for taxpayers under age 67 may be partially taxable under IL's retirement income subtraction rules, which have income-based phase-outs. IL is considered a retirement-friendly tax state for those who qualify for the full exclusion.