Reminder: If you wish to participate in the optional PTET for 2021, the deadline to opt in is October 15, 2021.

PTET is a beneficial tax election without much negative effect. Basically its an official double dipping benefit for owners of pass through entities subject to tax in NYS. PTET shifts personal NYS tax from owner to pass-through entity (LLC, partnership or S-corporation) and allows entity to take a deduction for it for federal Income tax purposes.

NYS has finally caught up with other states and now allows Pass through entities (i.e. LLC and S-corp) to pay taxes on K-1 distributive share of profits that historically has been taxed on recipient’s personal return. Now business can pay and deduct said tax (designated as “PTET”) as legit business expense. The direct partners, members or shareholders of an electing pass-through entity receive a refundable credit against their New York personal income tax based on their respective share of the PTET. Therefore not paying tax on K-1 income anymore personally.

Although electing into the PTET regime can result in substantial tax saving to the owners, it is important to consider that it temporarily decreases an owners’ cash flow. This is because many pass-through entities will make estimated tax payments computed at the highest (10.9%) PTET rate while the entity’s owners may incur New York personal income tax at lower individual tax rates. The excess PTET paid by the entity is recouped when the owners file their returns to claim their refundable credit.

Please contact www.cloudcpas.net if you need assistance with PTET or any other Tax amtter.