How California PTET Tax Credit Works. Contact us now!

The state has determined a percentage to be used. For example, in California it is 9.3%.
This percentage is multiplied by the net ordinary income (profit) of the business. So, quick math… $100,000 in profit means $9,300 PTET payment to California (as an example) made by the business.
This $9,300 is a federal tax deduction on your business (but it is also added back to the state). As such, you might have a $90,700 taxable profit to the IRS but $100,000 to California.
Figure how much of your state income tax bill is not deductible on your Schedule A of your 1040. Compare that to the $9,300 (again, our current example). Multiply that by your marginal tax rate. Let’s say all of the $9,300 is benefiting you, and you are in the 32% marginal tax bracket… you just saved $2,383 in taxes (cash). Yay! There is a also small reduction in the qualified business income deduction (so… the math is 9,300 x 0.80 x 0.32).
Wait! There’s more. This $9,300 is also detailed on your K-1 from the business, and it flows through to your state tax return, and it is credited (like an estimated tax payment) against your state income tax.