Tax Strategy #7 - Maximizing Tax Savings with PTETs - Palma Financial

In this email, we introduce Tax Strategy #7: Purpose of PTETs (Pass-Through Entity-Level Taxes).

PTETs are your secret weapon against reduced state and local tax deductions. They are state or other jurisdictions’ mandatory or elective entity-level income taxes on partnerships and S corporations strategically designed to circumvent the $10,000 cap on the federal deduction for state and local taxes (SALT) for tax years 2018 through 2025.

How PTETs Work:

When a taxpayer elects to pay a PTET, the pass-through entity (PTE) pays the tax directly to the state. The PTE then reduces its ordinary income by the amount of

the PTET paid and reduced the income passed through to the PTE’s owners.

The owners of the PTE then receive a credit for their share of the PTET paid on their state income tax returns. This credit offsets the state income tax the owners would otherwise owe on the income they passed through from the PTE.

Benefits of PTETs:

PTETs can provide an arsenal of benefits to taxpayers, including:

1. Turbocharged federal tax savings: By reducing the income passed through to the PTE’s owners, PTETs can send your federal tax savings into orbit.

2. Recover your state deductions: The credit PTE owners receive for their share of the PTET paid can help you recover the state tax deductions you thought were lost.

3. Boost state revenues responsibly: PTETs offer a win-win solution, providing an additional source of revenue for states without burdening individual taxpayers.

Drawbacks of PTETs:

While PTETs are a powerful tool, it’s essential to be aware of potential challenges:

1. Increased tax complexity: PTETs can add complexity to your tax strategy, but our experts will guide you every step of the way.

2. Managing costs: PTETs may entail some costs, but the potential tax savings often outweigh these expenses.

3. State competitiveness: Some argue that PTETs can make states less competitive, but your financial well-being comes first.

As we conclude this series, we invite you to schedule a one-on-one consultation with our tax experts to discuss how PTETs and the other strategies we’ve covered can be tailored to your unique financial situation.

Schedule your Tax Assessment by clicking here, replying to this email, or calling us at (408) 708-9330.

Don’t let the $10,000 SALT cap hold you back! Reclaim your tax savings and take control of your financial future now.