In most states, business owners of pass-through entities, including S-corporations and partnerships, are able to take advantage of pass-through entity tax payments. Whereby, you elect to pay the state income tax on the profits of the business at the business level, instead of the personal level. The benefit is deducting the state tax payments as a business expense, thereby reducing the federal taxable income that flows through to your personal income tax return.
States have varying rules and due dates to opt-in to take advantage of pass-through entity tax payments.
For cash method businesses, you have to pay the taxes during the year in order to deduct it as a business expense for that tax year.
For most states, business owners claim a tax credit on their personal state income tax return for their share of pass-through entity tax paid on their behalf by the business.
Pass-through entity tax payments allow business owners to deduct state income tax payments on the profits on their businesses, even when they claim the standard deduction or run into limitations with claiming the payments as an itemized deduction on their personal income tax returns.
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Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.