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Where to to input PTET as a deduction item at 1120S? (California S-Corp, 1120S and 100S, TurboTax Business, PTET)

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January 31, 2024
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Dear Expert:

I am asking the question regarding where to input the PTET as a deduction item in 1120S when using Turbo Tax Business version. (Or did I misunderstand something here).

Here is the background: I am a California based S-Corp. I am using the TurboTax Business desktop version. 2023 is the first tax year I am electing for PTET. I have paid the initial $1000 during year 2023. Now I am preparing the business tax return by using TurboTax Business.

I have read the community articles regarding the PTET topic. I have learned how to go through Form 3804.

I am using the accrual method. So my understanding is that I may deduct the PTET payment (due 03/15/2024) as a deduction for year 2023. My question is where to input this PTET payment as a deduction item on 1120S.

Let us say I have business income 1000 for year 2023. Expense is X excluding the (tax and license) items. State Income Tax had been calculated as Y. PTET had been calculated as Z.

In TurboTax Business--> Federal Taxes-->Deductions --> Business Expenses --> Taxes and licenses:

I input the State Income Tax as Y. (This is the TurboTax calculated result from State Tax part)

I input the Other Taxes as Z. (PTET amount, This is the turbo Tax calculated result from State Tax part)

I can see that on the federal side, my income is being calculated as (1000-X-Y-Z), which is reflected in the K-1 as well, the income is showing as (1000-X-Y-Z) on the K-1.

However when I look into the calculation of the state income tax on the 100S, I can see that the state income was inheriting from the federal income of (1000-X-Y-Z) and then by adjusting back to the recognized state income tax. I can see that on the resulted 100S, the state was recognized as (1000-X-Z).

This seemed to be something wrong, since I believe that the state recognized income should be (1000-X), i.e. both the PTET and State income tax should be adjusted back.

So again my immediate question is where to input the PTET on the federal tax deduction part? Or should it be input on the federal tax deduction part?

Did I misunderstand something here? Your advice will be most appreciated.

Thanks.

Andrew

TurboTax Business Windows

Best answer by PatriciaV

In order for both CA income tax and PTET payments to carry over to the California Form 100S, you'll need to enter both under the Federal Deductions >> Taxes and Licenses >> State Income Taxes. You can either add them together, or right-click and use Add Supporting Details to document the calculation. The result will appear on Form 100S p1-3 Line 1 under State Adjustments.

Be sure you have the PTE box checked for all partners on the CA Schedule K-1 Worksheet. This activates Form 3804 to calculate the elective tax credit amount for each partner.

Also, open CA Form 3893 to enter the amount of the pre-payment on page 1 of that form. The tax due then appears on page 2.

Report the amount you pre-paid for California income tax during the California interview by checking the box for "Estimated Tax Payments." Enter the amount paid and payment date for the appropriate quarter(s). You can also enter this manually on the CA Information Worksheet using Forms Mode.

PatriciaVAnswer

Employee

In order for both CA income tax and PTET payments to carry over to the California Form 100S, you'll need to enter both under the Federal Deductions >> Taxes and Licenses >> State Income Taxes. You can either add them together, or right-click and use Add Supporting Details to document the calculation. The result will appear on Form 100S p1-3 Line 1 under State Adjustments.

Be sure you have the PTE box checked for all partners on the CA Schedule K-1 Worksheet. This activates Form 3804 to calculate the elective tax credit amount for each partner.

Also, open CA Form 3893 to enter the amount of the pre-payment on page 1 of that form. The tax due then appears on page 2.

Report the amount you pre-paid for California income tax during the California interview by checking the box for "Estimated Tax Payments." Enter the amount paid and payment date for the appropriate quarter(s). You can also enter this manually on the CA Information Worksheet using Forms Mode.

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Y

yangguoguoAuthor

@PatriciaV Thank you for your great help on this one.

I observed your input on several threads of the similar PTET topic. It helped a lot.

I also have a follow up question. What are the relevant output (forms) from the business tax return which I may bring to my individual tax return preparation?

For example, I have a S-Corp located in California. I prepared 1120S and 100S for my business tax return.

The K-1 (with a reduced income amount by the PTET payment amount) will be used for my individual Federal tax return 1040.

How about my individual state income tax return 540 side?

What form coming out of my business tax return should be used for my individual state income tax return? i.e. which form to be used to claim the state tax credit out of PTET in my individual state income tax return? Is it form 3804 or some other form?

Thanks.

Andrew

PatriciaV

Employee

Your California S-Corp return includes a California Schedule K-1 for each shareholder. You can either include a copy of Form 3804 with the CA K-1, or manually enter the amount of PTET allocated to each shareholder on Sch K-1 Line 18e. This is the amount the shareholder would report on their Federal return as California taxes paid on their behalf.

@yangguoguo

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