The pass-through entity tax allows certain California pass-through entities to pay state income tax at the entity level. In return, qualified taxpayers can get a nonrefundable tax credit for their share of state tax paid at the entity level, thus reducing their individual income tax liability.
It is important to keep in mind that for tax years beginning 2022 through 2025, to be eligible to make the PTE tax election, a qualified entity must pay estimated taxes on or before June 15th, 50% of the elective tax paid during the prior tax year, or $1,000, whichever amount the greater. Failure to make the June 15th payment will bar the entity from making the election.
Because this PTE tax election is new and this payment requirement can be easily overlooked, Moskowitz LLP encourages all Pass-through entity owners to discuss the election with their tax professional and properly plan for any estimated payments required.
To learn more about what types of business qualify as pass-through entities, check out 2 recent episodes of the Practical Tax Podcast:
Business Entities- S-Corporation