Action Item: California businesses: PTE tax deduction - due 6/15!
- Ezekiel Korobkin
- May 9, 2024
- 2 min read
This is friendly reminder for California business owners:
Profitable California taxpayers with S-Corporations and LLC's (aka Pass- Through Entities) have the opportunity to make Pass Through Entity (PTE) elective tax payments.
Some background:
This method is a "workaround" in order to reduce your federal tax liability by taking a tax deduction for your individual California tax payments for which you would anyways have to pay for Year 2024.
The Tax Cuts and Jobs Act ("TCJA") effective Year 2018 limits State and Local Tax ("SALT") deduction for individual taxpayers to $10,000.
That means that if you paid SALT (which includes property taxes and California income tax) in excess of $10K, you will NOT get credit for any SALT payments greater than $10K UNLESS you use this method. You can take the deduction on your business tax return - the amount calculated at a maximum of 9.3% of the entity's qualified NET INCOME- and receive a credit on your individual tax return. See link below for details.
The election must be made when the tax return for the taxable year is filed and the PTE must make an initial payment by June 15.
The initial payment is $1,000 or 50% of the PTE elective tax paid for the prior taxable, whichever is GREATER.
The SECOND payment must be made on or before the due date of the original return without regard to extensions (For Year 2024, this is due 3/15/2025).
Instructions for payment are as follows:
go to FTB.CA.GOV
Click "PAY"
Click "Bank Account"
Click "Business - Use Web Pay business"
Entity Type - Corporation or LLC (depending on your entity type)*
Enter your Entity ID (this will be on your Articles of Incorporation / Organization)
Enter your Contact Information
S Corporations Click "Form 100,100S,100W or 100X" (For LLCs skip this step)
Click "Pass-Through Entity Elective Tax (Form 3893)"
Click Period Beginning Date Jan 1, 2024 and Period Ending Date Dec 31, 2024
Pay amount calculated at a maximum of 9.3% of the entity's qualified NET INCOME
Pass-Through Entity Elective Tax (Form 3893)
* if you are an LLC electing to be treated as an S- Corp, you may need to use "LLC" if you have not yet received your California corporate number.
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