Unlock tax benefits with expertise in pass-through entity taxes

Even if you don’t prepare business returns, you should understand how pass-through entities operate and how their owners are taxed because you probably have clients who own small businesses (most of which operate as pass-through entities).

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: How is the pass-through entity tax (PTET) election made?

A: The process varies by state, but typically, the election is made by checking a box on the state return when it is filed.

Q: If the pass-through entity is paying the state tax on behalf of the partner or shareholder, does that eliminate the requirement for the partner or shareholder to file a state tax return?

A: Generally, no. However, there are instances where the entity income is excluded from the individual state return. It is advisable to check state law for specifics.

Q: How do you determine whether the taxpayer should participate in the PTET election?

A: This decision comes down to planning and discussion with the taxpayer. It’s a matter of whether the taxpayer wants to participate. There is no definitive right or wrong answer.

Q: Does the PTET payment get added back to state income?

A: This depends on the state. It is best to consult state law for accurate information.

To learn more about understanding PTET, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.