A California painting business owner earning $270,000 as an S corp pays $26,000 in pass-through entity tax, which becomes a federal deduction worth $6,220 in savings. The PTE structure lets the corporation deduct the full amount, bypassing the $10,000 SALT cap that would limit an individual's deduction.
Chapters
I just got done doing tax planning for a client of ours. This gentleman lives in California. He has a successful painting business, and during our tax planning, we projected that he was going to have about $270,000 in profit. His S corp would pay the 9.6% on the $270,000. Total on that is just under $26,000. Now that's not an additional tax because the $26,000 PTE is going to be a credit on his personal return. So what he would've paid $26,000 on his California individual income tax return, he's now going to get a credit for that because the corporation is paying it on his behalf. So that's a wash. But where the savings do come in is that this $26,000 in taxes now becomes deductible on the federal level because it is being paid by the corporation and the corporation is able to take the full deduction. If he paid it individually, he'd run up against that $10,000 SALT cap. But because the corporation's gonna handle it, there is no limitation and he's going to get a $26,000 tax deduction. We multiply the tax deduction by his tax bracket and his tax savings are about $6,220. So that is very significant.
