Pass-through entity tax election due dates are fast approaching in several states (2024)

FAQs

How many states have state passthrough entity taxes? ›

A total of 34 states have enacted legislation that creates a pass-through entity tax as a workaround to the $10,000 cap on the state and local taxes (SALT) itemized deduction.

What Effect Does Pass-Through Entity Election Have? The key benefit to a PTE election is the full federal deductibility of the entity's state income taxes paid with a PTE tax. While the income and tax reported is dependent on each state's rules, there is no federal limit to the amount of PTE tax that is deductible.

A pass-through entity is a business structure legally akin to the individual(s) who owns it. It gets taxed at individual income tax rates and reports its income on the individual income tax returns of the business owner(s).

Pass-through entity tax optional starting January 1, 2024

Eliminates the standard base method and instead requires all entities electing to pay the tax to use the alternative base method.

As of May 31, 2023, 36 states and one locality had enacted a PTET, including seven states in 2023, in four of which a PTET is effective retroactively to 2022 — Indiana; Iowa (with its Department of Revenue on May 22, 2023, requesting comments on needed guidance by June 7, 2023); Kentucky; and West Virginia — while ...

California, worst state for IRS audits

The Golden State has the largest number of IRS offices of any state and that makes residents more likely to be targeted by federal auditors, according to TaxAudit.com.

If the election is made and the PTE tax is paid, this will generate a tax deduction on the entity's federal return, which in turn reduces the taxable income reported on the owners/partners federal K1.

The biggest benefit is that the PTE payment is a business deduction at the entity level, thus making this state income tax payment deductible on the federal tax return.

PTEs that pay state income taxes at the entity level can then deduct the amounts paid when determining federal ordinary income, in effect creating a deduction for state income taxes that's not subject to the $10,000 limitation.

A pass-through is exempt from business taxes. It passes earnings straight through to stakeholders, who do owe taxes on it. But the money is only taxed once. A pass-through entity also affords owners and investors an extra deduction on their personal taxes in some cases.

What is an example of a pass-through entity? ›

Sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, and S Corporations are all pass-through entities.

Limited liability companies (LLCs) are what's called “pass-through entities.” This means that the business does not pay corporate income taxes. Instead, the individual owners or members of the LLC collect its proceeds as income and then pay personal income taxes on the results.

The law imposes a 6.99 percent tax on partnerships, LLCs, and S corporations. The tax is imposed on either the entity's entire Connecticut-sourced taxable income or an alternative tax base, which reduces taxable income by the percentage of nonresident ownership.

The Business Entity Tax is required to be paid to the Department of Revenue Services (DRS) by a business entity subject to the tax on or before the fifteenth day of the fourth month following the close of each taxable year of the entity.

File Electronically

Form CT‑1065/CT‑1120SI, Form CT‑1065/CT‑1120SI EXT, and Form CT‑1065/CT‑1120SI ES, Estimated Connecticut Pass‑Through Entity Tax Payment Coupon, must be filed and paid electronically. These returns can be filed and paid through the TSC or the MeF Program.

Sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, and S Corporations are all pass-through entities. Corporations, and limited liability companies that elect to be taxed as a corporation, are not pass-through entities.

Section 199A

Currently only three states allow this deduction: Colorado, Idaho and North Dakota, as they start with federal taxable income, conform to the IRC on a rolling basis and have not explicitly decoupled from the deduction.

An electing pass-through entity is required to make estimated tax payments in the same manner as a C Corporation. You can submit the estimated tax payments using Form 602-ES or, if required under Ga.

The Arizona Pass-Through Entity (PTE) income tax is assessed at a rate of 2.98%11 of the income attributable to the partnership's or S Corporation's resident partners or shareholders, and the income derived from sources within Arizona attributable to the nonresident partners or shareholders.