PTE tax due soon for 3rd Qtr. - are you prepared?

Preparing for the Pass-Through Entity (PTE) Tax

The pass-through entity (PTE) tax is a strategy some states have implemented to help taxpayers get around the $10,000 limit on state and local tax (SALT) deductions created by the Tax Cuts and Jobs Act.

However, properly utilizing the PTE tax requires some advance planning and consideration.

Here are some tips to help you prepare:

Understand If Your State Allows PTE Taxes

• Not all states have enacted a PTE tax law. Check to see if your state is one that allows this strategy.

Check if Your Business Entity Qualifies

• The PTE tax is only available for entities taxed as S-corps, partnerships, or LLCs taxed as one of those entities. C-corps do not qualify.

Review Who Can Participate

• States have different rules on which owners can participate in a PTE election. Understand if you are an eligible owner.

Make Sure Your Operating Agreement Allows Special Allocations

• For partnerships, having flexibility to specially allocate the PTE deduction is key. Review your agreement.

Check State Rules on Timing of Elections and Payments

• Many states require elections and/or payments to be made by year-end or on timely filed returns. Don't miss key deadlines.

Consult With Your Tax Advisor About Expected Benefits

• Work with your CPA to estimate the potential tax benefits for you.
• The PTE strategy may not make sense in all cases.

Planning ahead and understanding your state's specific PTE rules are important to make sure you maximize the potential tax benefits of this strategy.

Reach out to your tax advisor to discuss how the PTE tax can benefit you.

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