PTE Tax Election

PTE (Pass Through Entity) tax is an entity-level income tax that Idaho allows partnerships and S Corporations to elect to pay. The PTE tax can reduce the federal tax liability of the owners by allowing the entity to deduct the Idaho State income taxes paid on the Partnership or S Corporation tax returns. The PTE tax election requires the consent of a majority of the owners and is irrevocable for the tax year. Different states have different eligibility requirements.

How this works: Partners or S Corporation Shareholders make the election on the entity level to pay the PTE Tax. The tax is deducted on the entity’s federal tax return, then applied on the individual’s state return as a credit as to not pay the state tax twice.

Q&A:

1) Q: Do all states have PTE Tax election and are all states the same? A: No. Not all states have a PTE Tax election and not each state has different tax treatments.

2) Q: Why would I want to make this election? A: If you are a partner in a partnership or a shareholder in an S Corporation, PTE Tax Election may be a good idea if you are limited to the $10,000 SALT cap when itemizing your deductions or you take the standard deduction.

3) Q: Is the PTE Tax mandatory? A: No. The PTE Tax is elective.

4) Q: Must the entity make an election to pay the PTE Tax each year? A: Yes. The entity must make an election each year. The election is made when the return is timely filed.

5) Q: Which entities may elect to pay the PTE Tax? A: A PTE is a partnership or S corporation or limited liability company electing to be treated as a partnership or S corporation. Trusts and Estates ))))Sole proprietorships and single member LLCs (Schedule C) electing to file as sole proprietorships may not elect to pay the PTE Tax.

6) Q: When is a fiscal year partnership eligible to make the PTE Tax election? A: A fiscal year pass-through entity may make the election for taxable years beginning on or after January 1, 2022.

7) Q: Can a taxpayer transfer an overpayment from a composite return or an individual estimated payment to a PTE's elective tax account? A: No. The PTE Tax is a separate tax, apart from the composite tax return filed on behalf of individuals. The overpayment from the composite return and an individual’s estimated payment cannot be transferred to the pass-through entity's elective tax account.

8) ​Q: What income is subject to tax by the eligible pass-through entity? A: The PTE will pay tax on the distributive proceeds of the entity. Distributive proceeds include net income, dividends, royalties, interest, rents, guaranteed payments, and gains of a PTE.

9) Q: Where can I find more information? A: Reach out and we will answer any other questions you may have! You may also visit the applicable state tax authority’s website.