Does Your State Offer a PTE Tax Election?

September 21, 2022
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Recently, we posted an article about pass-through entity (PTE) taxes and how you can use your business entity structure to maximize tax deductions and minimize your business and personal income tax liabilities. Click here to read the full article.

States with PTE Tax Election Benefits

As of 2022, 29 different states have enacted PTE tax benefits. These tax rules allow owners of pass-through entities such as partnerships, multi-member LLCs and S-Corporations to get around the federal $10,000 limit on state and local tax (SALT) deductions. The 29 states adopting similar tax laws so far include:

  • Alabama
  • Arizona
  • California
  • Colorado
  • Connecticut
  • Georgia
  • Idaho
  • Illinois
  • Kansas
  • Louisiana
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • New Jersey
  • New Mexico
  • New York
  • North Carolina
  • Ohio
  • Oklahoma
  • Oregon
  • Rhode Island
  • South Carolina
  • Utah
  • Virginia
  • West Virginia

Three more states are in pending legislation to pass the PTE tax law: Iowa, Pennsylvania and Vermont. As you can see, there are plenty of states on both sides of the political spectrum which have decided pass-through entities should be allowed more tax benefits. It’s good for businesses and encourages business ownership. 

Use Your PTE Election to Save on Taxes

If your pass-through business is located in one of these states, you may be able to save thousands of dollars in federal income taxes. You can elect to have your PTE pay the state tax due on its income at the entity level instead of paying your share of such taxes on your personal income tax return. This provides a significant benefit as a business owner. When your PTE pays these taxes, it is allowed to deduct them in full. The tax deduction is not subject to the individual $10,000 SALT limit that would be applied to personal income taxes.

Understanding Your State’s PTE Tax Laws

It is important to understand each state has its own unique PTE tax law definitions and regulations. Before you make a PTE tax election, you and all other owners must know the specific issues involved for your state. These include:

  • Is your PTE eligible for a PTE tax election?
  • What percentage of ownership is required to make an election?
  • What is the deadline for the PTE election?
  • Are estimated PTE taxes due?
  • How much is the PTE tax?
  • Does your state give electing PTE owners a tax credit or income exclusion?
  • How are non-resident PTE owners treated?

These are just some of the key questions to research and/or ask your tax advisor. To learn more about PTE taxes in your state and how to make the most of your PTE election deductions, contact Illumination Wealth today to schedule an introductory consultation with one of our leading financial specialists.