Please be sure to reach out to us to discuss your options and we’ll run through the scenarios with and without the election.
(Text below from CA FTB website link here FTB Weblink)
For taxable years beginning on or after January 1, 2021, and before January 1, 2026, qualifying pass-through entities (PTEs) may annually elect to pay an entity level state tax on income. Qualified taxpayers receive a credit for their share of the entity level tax, reducing their California personal income tax.
Do you qualify?
A qualifying PTE is an entity taxed as a partnership or S corporation.
Who does not qualify?
A qualified PTE does not include:
Publicly traded partnerships
An entity permitted or required to be in a combined reporting group
An entity that has a partnership as a partner, member, or shareholder
Who is a qualified taxpayer?
A qualified taxpayer:
Can be individuals, fiduciaries, estates, or trusts subject to California personal income tax
Must be a partner, member, or shareholder of an electing qualified entity.
To be qualified, a taxpayer must consent to have their pro rata or distributive share of the qualified net income of the electing qualified PTE.
A qualified taxpayer is not a:
Disregarded business entity and its partners and members
An annual election is made on an original, timely filed tax return. Once the election is made, it is irrevocable for that year and is binding on all partners, shareholders, and members of the PTE.
How to make the election:
2021 taxable year
The election must be made on a timely-filed tax return.
2022 to 2025 taxable years
Beginning on or after January 1, 2022, and before January 1, 2026, the election must be made when the tax return for the taxable year is filed and the PTE must make an initial payment by June 15.