Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Painting Business Owners: Wondering about #PassThroughEntityTax for your business.

Name: Painting Business Owners: Wondering about #PassThroughEntityTax for your business.
Uploaded: 2023-10-11T17:36:33+00:00
Duration: 55 s
Channel: Daniel Honan
Description: In this video, the presenter introduces the Pass‑Through Entity Tax (PTET), a voluntary tax that businesses organized as pass‑through entities can elect…

11 Oct 2023 · 1 min

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In this video, the presenter introduces the Pass‑Through Entity Tax (PTET), a voluntary tax that businesses organized as pass‑through entities can elect to pay at the entity level instead of the individual level. The discussion explains why PTET has become relevant after the 2017 Tax Cuts and Jobs Act, which doubled the standard deduction and imposed a $10,000 cap on state and local tax (SALT) deductions. The presenter illustrates how the SALT cap disproportionately affects owners in high‑tax states such as Illinois, California, and New York, limiting the amount they can deduct on their personal returns. By electing PTET, these owners can potentially offset the loss of SALT deductions, as the entity‑level tax is deductible by the business, preserving more after‑tax income. The segment outlines the basic mechanics, eligibility, and the potential tax‑saving rationale behind PTET for painting business owners.

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PTET, which everyone that's listening is probably like, what the heck are you talking about? And it's kind of a newer thing that's come along in the last couple years, and it could be a good tax saving strategy. Yeah, so PTET is one of a myriad of acronyms that we accountants like to use. It stands for pass-through entity, or I might hear it as PTET, which is pass-through entity tax. It is a voluntary tax that you can pay at the entity level that covers the tax that you would normally pay at the individual level. For the longest time, we were able to deduct our state income tax payments on our 1040s. So if you had the privilege of living in a high tax state like I do in Illinois, or even worse, California, New York, you would deduct your state income taxes on your Schedule A when you itemized. And that went on for a long time until we came to 2017. the Tax Cuts and Jobs Act. Two things of that act changed how people deducted their taxes. One is the standard deduction was doubled, so now fewer people are actually itemizing and more people are taking the standard deduction. And two, there was a limit placed on state and local taxes. So regardless of how much income tax you actually pay to your state and how much property tax you pay to your state, the most you can deduct on your taxes is $10,000. So you could be paying $50,000, $60,000 in income tax, have $20,000 a year in property tax, and your deduction is $10,000. That's if you're married. If you're single, it's half that, at $5,000.