Should You Elect PTET for Your S-Corp?

💡 Should You Elect PTET for Your S-Corp?

Pass-Through Entity Tax (PTET) is a strategic state-level workaround to bypass the $10,000 SALT deduction cap on your federal return. It lets your S-Corp pay state income tax at the entity level, turning a limited personal deduction into a full business expense. Here's how to evaluate if it’s right for you:

✅ Step-by-Step PTET Decision Checklist

❓ Question	✔️ Consider This
Does your state allow PTET?	Over 30 states offer PTET elections—check your state rules.
Do you owe significant state income taxes?	PTET is most valuable if your state tax exceeds $10,000.
Are all shareholders residents of the state?	Nonresident shareholders may disqualify or complicate election.
Does your business qualify (not SSTB)?	Some states or new laws may exclude service-based entities.
Are you set up for entity-level payments?	You must file, pay, and record PTET correctly through the S-Corp.
Are you ready to track PTET credits?	Owners receive credits or deductions on personal returns.

🧾 PTET Election Process

Here’s how to initiate PTET if it fits your strategy:

1. Review State PTET Guidelines
   Find your state's election forms and filing deadlines.
2. File the Election on Time
   Some states require it before year-end; others allow it on tax returns.
3. Make Estimated PTET Payments
   States often require quarterly estimated tax payments under PTET.
4. Record the Payment as an Expense
   Use an account like “State Income Tax Expense – PTET” on your books.
5. Report Pass-Through Income After PTET
   Shareholders get K-1s with adjusted net income.
6. Claim PTET Credit Personally
   Owners may need to file a state credit form to recoup tax paid on their behalf.

✨ Pro Tips for CPAs and Planners

• Pair this checklist with a journal entry cheat sheet.
• Track deadlines across states in a monthly tax calendar.
• Include PTET in year-end tax strategy sessions with clients.