Tax Cuts and Jobs Act Archives

Avoid Costly Mistakes with Pass-Through Entity Tax Payments

By Office Staff|2025-01-23T12:18:32-08:00January 23, 2025|Categories: Business Taxes|Tags: California Assembly Bill 150, California Franchise Tax Board, Pass-Through Entity, Tax Cuts and Jobs Act|0 Comments

If you use the State of California’s Franchise Tax Board (FTB) website to make an electronic payment for an elective pass-through entity, you should know ahead of time that it’s easy to make a mistake and get mixed up over personal and business payments.

Here at SWC, a San Diego-based tax planning and financial strategy firm for entrepreneurs and small business owners, real estate investors, and high-net-worth individuals, we see this happening all too often. And that’s why in this post, we explain how California’s version of the elective pass-through entity tax works and provide guidance on how to avoid making costly mistakes when paying your elective tax.

To start us off, if you’re unfamiliar with the elective pass-through entity tax, here’s what we want you to know.

Understanding the Elective Pass-Through Entity Tax

The Tax Cuts and Jobs Act (TCJA), which some have described as “the most sweeping tax overhaul in decades,” was signed into law on Dec. 22, 2017, just 50 days after it was first introduced in the U.S. House of Representative. Once enacted on Jan. 1, 2018, the TCJA limited the amount of state and local taxes (income taxes, sales taxes, and property taxes) that taxpayers are allowed to deduct when filing their federal income tax returns. This resulted in the cap being $10,000 for married couples and $5,000 for individuals (or married individuals who choose to file separately).

For example, suppose you’re a married couple living in California, and you paid $7,000 in state income taxes and $6,000 in property taxes. That’s $13,000 total. Under the TCJA, when you’re filing your federal income tax return, you would be able to deduct only $10,000 from your taxable income, not the full $13,000.

Understanding that this cap could be especially burdensome for taxpayers in states with high income taxes and/or high property taxes, some states, such as California, enacted an elective pass-through entity tax as a workaround. In California, this workaround is detailed in California Assembly Bill 150 — the Sales and Use Tax Law: Personal Income Tax Law: Corporation Tax Law: Budget Act of 2021.

A pass-through entity (PTE) is a legal business structure wherein income flows through to the business entity’s owners and investors, rendering the income of the entity as the income of the owners or investors. Pass-through entities include sole-proprietorships, limited liability companies (LLCs), partnerships, and S-corporations.

How California Elective Pass-Through Entity (PTE) Tax Works

California’s elective pass-through entity (PTE) tax isn’t very complicated, and here’s how it works: Continue reading… Continue reading… Continue reading…

Understanding Small-Business Tax Deductions

By Laura Stees, CPA|2020-04-15T15:45:42-07:00April 15, 2020|Categories: Taxes|Tags: Bank Fees, Business Insurance, Business Meals, Depreciation, Home Office Expense, Legal Fees, Moving Expenses, Standard Mileage Rate, Tax Cuts and Jobs Act, Tax Deductions, Travel Expenses, Write-offs|0 Comments

As part of an effort to mitigate the effects of the spread of the coronavirus known as COVID-19, the Internal Revenue Services has chosen to delay the April 15, 2020 tax filing deadline for most individual taxpayers and businesses to July 15, 2020. Regardless of the deadline, one thing that isn’t expected to change anytime soon is what a business can and cannot claim as a tax deduction. And in today’s post, we offer insight into exactly that — what small businesses can and cannot deduct, regardless of the tax filing deadline.

A deduction (or write-off) is an expense or portion of an expense subtracted from your company’s gross income that reduces the income on which taxes are calculated. Every dollar you claim as a deduction is a dollar less that is subject to federal, state, and local income tax and self-employment tax (Social Security and Medicare).

For example, if your effective federal income tax rate is 25 percent, and you pay 15.3 percent in self-employment tax and 5 percent in state and local income tax, every thousand dollars less you report in taxable income is over 450 dollars you save in taxes: (0.25 + 0.153 + 0.05) x $1,000 = 0.453 x $1,000 = $453.

The Tax Cuts and Jobs Act (TCJA), which became effective in 2018, made it less advantageous for taxpayers to itemize personal deductions. However, if you own a small business — such as a sole-proprietorship, limited liability company (LLC), or partnership — you can deduct a broad range of business expenses to lower the taxable income you earn from that business.

Here are a couple tips for claiming business deductions without getting into legal trouble:

Seek confirmation from a tax specialist or certified public accountant (CPA) before claiming any business expense as a deduction.
Keep accurate, detailed records, including invoices and receipts for all business expenses. (Your CPA can help you find accounting packages and apps to simplify your record-keeping.)

In the following sections, we present a long list of common small-business tax deductions. Continue reading… Continue reading… Continue reading…