Is there a deadline to make the PTET election?

Yes. California requires the PTET election to be made by the due date of the original return (without extensions) and requires prepayments. Missing the deadline forfeits the election for that tax year. We manage the election and prepayment timing for all clients who elect.

Pass-Through Entity Tax: Restore the Deduction the SALT Cap Took Away

Since 2018, the $10,000 SALT cap has cost S-Corp and partnership owners thousands in lost deductions. The PTET election moves state tax payments to the entity level — where the cap doesn't apply.

Book a Free Consultation

$10,000

SALT cap limiting your individual state tax deduction since 2018

Unlimited

federal deduction at the entity level — no cap applies

30+

states with active PTET elections, including California

What Is the Pass-Through Entity Tax?

The Tax Cuts and Jobs Act of 2017 capped individual state and local tax (SALT) deductions at $10,000. For business owners in high-tax states like California, this eliminated a major federal deduction overnight — effectively increasing their tax burden.

The PTET election is the IRS-approved workaround. Instead of owners paying state income tax individually (subject to the cap), the entity pays the state tax directly. That payment is fully deductible as a business expense at the federal level — no $10,000 limit, no phase-out.

Owners receive a state-level tax credit for the amount paid, so there is no double taxation. The result is a full federal deduction restored on what you were already paying in state taxes.

Before vs. After PTET Election

Without PTET

CA state income tax owed$80,000

Federal SALT deduction allowed$10,000

Lost deduction$70,000

With PTET Election

Entity pays CA PTET$80,000

Federal deduction (no cap)$80,000

CA owner credit$80,000

California PTET: What You Need to Know for 2025

California's elective pass-through entity tax (AB 150) has been extended through 2025. Here is the current state of the law.

9.3% Entity-Level Rate

California taxes qualifying PTEs at a flat 9.3% on California-source income. Owners receive a California credit equal to the amount paid — no double tax.

Prepayment Required

California requires a prepayment of at least the lesser of the prior year's PTET liability or 50% of the current year's estimated liability by June 15. Missing this forfeits the election.

Eligible Entities

S-Corporations, partnerships, and LLCs taxed as partnerships or S-Corps with California-source income. Single-member LLCs and C-Corporations do not qualify.

IRS-Approved Workaround

The IRS explicitly approved PTET elections as a valid SALT cap workaround in Notice 2020-75. This is a fully sanctioned strategy — not a gray area.

Multi-State Owners

If your business operates in multiple states, each state with a PTET may offer a separate election. We coordinate multi-state PTET strategy to maximize federal deductions across all jurisdictions.

2025 Extension & Beyond

California's PTET is authorized through the 2025 tax year. The federal SALT cap is scheduled to expire after 2025 — PTET remains beneficial either way and may become permanent in California.

Who Should Make the Election?

The PTET election is not automatic — it requires analysis of your specific situation. It is most valuable when:

Your California state income tax liability exceeds $10,000 per year
You own an S-Corp, partnership, or multi-member LLC taxed as a partnership
You itemize deductions on your federal return and are in the 32%, 35%, or 37% bracket
Your entity has not already applied for the election this tax year
You have not already maxed out your CA credit carryforward from prior PTET elections

Important: When PTET May Not Help

Not every business owner benefits. The election requires careful modeling.

If you take the standard deduction federally, the PTET deduction flows through at the entity level but may not generate additional benefit at your individual level

If your CA credit carryforward is already large, adding more credit may not improve your near-term cash position

If the entity has multiple owners with different tax situations, unanimous or majority consent requirements may complicate the election

If the June 15 prepayment deadline has passed for the current year, the election cannot be made retroactively for that year

How We Handle the PTET Election

We model, elect, prepay, and file — so nothing is missed and no deadline slips.

Model the Savings

We run a side-by-side projection of your federal and state tax with and without the PTET election, so you know the exact dollar benefit before we commit.

Make the Election

We file the PTET election with California FTB on time and confirm the election is accepted before the prepayment deadline.

Manage Prepayments

We calculate and schedule the June 15 prepayment and any balance-due payments to avoid penalties and keep the election valid.

File & Claim the Credit

We include the PTET deduction in the entity return and the corresponding credit on each owner's California return — fully coordinated, no moving pieces left to chance.

Frequently Asked Questions

The Pass-Through Entity Tax (PTET) is an elective tax that allows S-Corps, partnerships, and multi-member LLCs to pay state income tax at the entity level rather than passing it to individual owners. The entity-level payment is fully deductible for federal purposes — bypassing the $10,000 SALT deduction cap that has limited individual deductions since 2018.

California's PTET (AB 150, extended through 2025) allows qualifying pass-through entities to elect to pay California state income tax at the entity level at a rate of 9.3%. The entity receives a federal deduction for the full payment, and owners receive a California tax credit equal to the amount paid — eliminating double taxation while restoring the lost SALT deduction.

S-Corporations, partnerships, and multi-member LLCs taxed as partnerships or S-Corps with California-source income. Single-member LLCs taxed as sole proprietors do not qualify. Owners must also not be a C-Corporation. Eligibility depends on the state; most states with PTET have specific requirements.

The $10,000 SALT cap was enacted under the Tax Cuts and Jobs Act and is currently set to expire after 2025. Proposed legislation may modify or eliminate the cap. However, the PTET election provides value regardless — the entity-level state tax deduction reduces federal taxable income independently of the SALT cap rules.

Yes. California requires the PTET election to be made by the due date of the original return (without extensions) and requires a prepayment by June 15. Missing the deadline forfeits the election for that tax year. We manage the election and prepayment timing for all clients who elect.

Find Out If the PTET Election Makes Sense for You

Book a free consultation with our team to model your exact savings, review your entity structure, and determine whether making the PTET election this year is the right move.