Business Owners Can Save on Federal Taxes!
Oregon has put into place an elective Pass-Through Entity Tax (PTE-E), in response to the $10,000 cap on federal State And Local Tax (SALT) deductions. The elective tax option is effective for tax years starting on or after January 1, 2022.
PTE-E tax imposes an income tax directly on the Pass-Through Entity (PTE). This tax is paid from the entity directly. The member can claim 100 percent of their distributive share of the PTE-E tax paid on their personal income tax return as a credit. This will lower their tax liability and allow a larger SALT deduction. The PTE-E elective tax option is likely to be very beneficial for many PTE business owners!
PTE-E is an annual election that must be made yearly through Oregon Revenue Online. The election can be revoked before the due date of the PTE-E return. Entities that qualify for the PTE-E election include S-Corporations, Partnerships and Multi-Member Limited Liability Companies.
PTE-E can be used by out-of-state entities if the entity is subject to tax in Oregon, if an entity member is a resident of Oregon, or if they are filing an Oregon composite return.
The entity will pay PTE-E tax on the proceeds that are distributed from the entity to its members. This includes net income, royalties, interest, rents, guaranteed payments, and gains. PTE-E begins at a rate of 9 percent on the first $250,000 of distributive proceeds and increases to 9.9 percent on any amounts exceeding $250,000.
The entity is required to make quarterly estimated payments. If the entity does not make quarterly estimated payments, underpayment interest will be assessed when they file their PTE-E tax return.
The PTE-E election will expire if the federal SALT deduction limit expires or repealed.
