Tax
Pass-Through Entity Tax (PTET)
A state-level tax election that lets passthrough entities pay state tax at the entity level, sidestepping the SALT cap.
PTET workarounds emerged after the 2017 SALT cap limited individual state tax deductions to $10K. Most states with income tax now allow passthrough entities to pay state tax directly, which is then deductible at the federal level.
California's PTET (9.3%) is elected annually with prepayments in June and a final payment with the entity return. Owners take a credit on their CA personal returns.
Common pitfalls
- Forgetting the June 15 prepayment for the next year's election
- Electing PTET when the math doesn't actually save federal tax
- Not coordinating the elected entity with the personal credit on the owner's return
Related service
Visit relevant service