California PTE Election - What Business Owners Need to Know
California’s Pass-Through Entity (PTE) tax election continues to be an important planning opportunity for many S corporation and partnership owners. The election may allow owners to receive a federal deduction at the entity level for California income taxes that would otherwise be limited on their individual returns.
Key points
The election generally applies to eligible S corporations and partnerships.
A timely payment is required to make a valid election.
Owners receive a California credit for their share of the PTE tax paid.
The election can be particularly valuable for higher-income taxpayers affected by the federal state and local tax (SALT) limitation.
Common mistakes
Missing the payment deadline.
Assuming all entities qualify.
Failing to coordinate the election with estimated tax planning.
Not evaluating whether the election is beneficial based on the owners’ overall tax situation.
Planning tip
Because the election must be made annually, business owners should review their projected income and tax liability before making the payment. A calculation that works one year may not produce the same benefit the next year.
To read more into this topic… https://www.ftb.ca.gov/file/business/credits/pass-through-entity-elective-tax/index.html