Pass-Through Entity Tax (PTET) Election
A state-level tax elected at the entity level to allow pass-through owners to circumvent the federal SALT deduction cap.
Detailed Explanation
Roughly 36 states offer a PTET election. The entity pays the state income tax that would otherwise be paid by the owners and deducts it federally as a business expense, reducing federal taxable income. Owners then receive a credit on their state return for their share of PTET paid. Election timing, filing mechanics, and credit treatment vary significantly by state. The PTET election is one of the most impactful planning opportunities for owners of profitable pass-through businesses.
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Learn about Tax Planning & StrategyRelated Terms
Pass-Through Entity
A business entity that does not pay federal income tax at the entity level; instead, profits and losses pass through to owners who report them on their individual returns.
S Corporation
A pass-through tax election under Subchapter S of the Internal Revenue Code that avoids corporate double taxation while allowing shareholder-employees to reduce self-employment tax.
Partnership
A business entity owned by two or more persons who share in profits and losses, taxed as a pass-through with each partner reporting their share on their individual return.
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