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.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.