As the March 15, 2025 deadline approaches, business owners operating as S corporations and partnerships should take proactive steps to review their state extensions and determine whether to elect and pay the Pass-Through Entity Tax (PTET). This election can provide significant tax benefits, particularly by allowing businesses to work around the $10,000 state and local tax (SALT) deduction cap imposed on individual taxpayers.
Why the PTET Election Matters
The PTET is an elective tax that allows pass-through entities (S corporations and partnerships) to pay state income taxes at the entity level instead of passing the income tax liability to individual owners. The benefit? Business owners may receive a federal deduction for state taxes paid at the entity level, rather than being subject to the individual SALT deduction limit.
Key Actions Before March 15, 2025
Confirm State-Specific PTET Rules – Each state has different regulations and requirements for electing and paying the PTET. Some states automatically extend the deadline if a federal extension is filed, while others require a separate state extension.
Assess Whether the PTET Election is Beneficial – Not all business owners benefit equally from the PTET. Consult with your tax advisor to evaluate how electing PTET could impact your federal and state tax liability.
File Necessary Extensions – If your business plans to extend its tax return, ensure that any state-specific PTET extensions are also submitted timely.
Make the Required Payment by March 15, 2025 – Many states require that the estimated PTET payment be made by this deadline to qualify for the deduction in the 2024 tax year.
Potential Pitfalls to Avoid
Missing the Election Window: Some states require the PTET election to be made annually, and failing to elect by the deadline means you forgo the tax benefit for that year.
Underpayment Penalties: Ensure your estimated PTET payment is sufficient to avoid penalties and interest.
Overlooking Multi-State Considerations: If your entity operates in multiple states, the PTET decision should be evaluated for each jurisdiction.
Planning Opportunities for Single member LLC’s Taxed as Sole Proprietors
March 15 is also the date to make an affirmative election under Subchapter K to be taxed as a partnership: Only Partnerships and S Corporations are able to take advantage of the PTE benefits. Married couples (particularly in community property states) can elect to be taxed as a partnership. That would then require an extension for the Federal Form 1065 be made on March 15, 2025, and payment of the respective states PTE tax.
Final Thoughts
Making the PTET election by March 15, 2025, can provide meaningful tax savings, but it requires careful planning. Review your state’s extension requirements, confirm your eligibility, and ensure any required payments are made on time.
At Keystone CPAs, we are here to help guide you through the PTET election process and ensure you maximize your tax benefits. Contact us today to discuss your state-specific PTET options and compliance strategies before the deadline!
Who We Are: Keystone CPAs is a forward thinking CPA firm dedicated to proactive planning. Keystone CPAs is affiliated with Keystone Wealth Advisors, and Keystone Business Brokers. Together the firms are committed to delivering Integrated Service Delivery of services in a collaborative manner.