When the Tax Cut and Jobs Act imposed the 10k SALT deduction limit, states with high taxes, like California, were outraged. Their taxpayers faced significantly higher federal tax bills. As a workaround, the Pass-Through Entity Tax Election was created.
PTET is an elective tax that business owners pay at the entity level. Instead of business income passing through to their individual return, they pay a separate state tax on their business income.
This pass-through entity tax is 100% deductible at the federal level, and generally, you receive a dollar-for-dollar credit on your personal state tax return.
Key Topics:
- 10K SALT Deduction Limit and the Workaround: PTET (Pass-Through Entity Tax) (01:30)
- An Example of PTET in Action (02:52)
- A Few Important Issues and Limitations with PTET (04:00)
- Breaking Down How PTET Saves on Taxes (05:47)
- All Business Owners Must at least Consider and Explore PTET (07:27)
This Episode is intended to be financial education only and is not intended to be specific tax, legal, or investment advice. Please consult a professional for specific advice.
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