Tax Tip Tuesday: The PTE Election — A Simple Way California Business Owners Save on Taxes

Saving money using CA PTE Election

If you own an S-corp, partnership, or LLC with multiple owners in California, there's a tax strategy you've probably heard your CPA mention every June: the PTE election. It sounds technical, but the idea behind it is actually pretty simple.

Normally, your business's profit “passes through” to you, and you pay tax on it personally. The PTE election lets your business pay a piece of that California tax itself, instead of you paying it on your personal return.

Here's why that matters: when you pay state tax personally, the IRS limits how much of it you can deduct on your federal return — currently capped at $40,000 for most people. But when your business pays it, there's no cap at all. The PTE election is simply a way of moving that tax payment from your personal return (where it's limited) to your business return (where it isn't).

How It Works, Step by Step

1.    Your business elects into the program and pays California tax directly, at a flat 9.3% rate

2.    That payment is a normal business expense, fully deductible on your federal return

3.    You get a matching credit on your personal California return, so you're not taxed

twice

4.    The end result: the same total tax bill to California, but a bigger federal deduction than you'd get on your own

Who Can Use This

•       S corporations

•       Partnerships

•       LLCs with more than one owner, taxed as a partnership

It does not work for sole proprietors or single-owner LLCs that haven't elected S-corp treatment — there's no separate business return to make the payment from.

The One Deadline to Know

There's a payment due June 15 each year to lock in the election. Missing it used to mean losing the whole strategy for the year. As of 2026, missing it just shrinks your credit a bit (by 12.5% of what wasn't paid on time) — so it's not the disaster it used to be, but paying on time is still the smart move.

One Thing That's Changed Recently

A couple of years ago, this election was a near-automatic yes for almost every eligible business owner. That's shifted a little. The federal cap on personal state-tax deductions went up to $40,000 for most people, which means some owners — especially those earning under about $500,000 — may already get a decent deduction without doing anything special. For higher earners, the PTE election is still very much worth it.

The short version: it's no longer “always do this,” it's “check the math every year.”

The PTE election is one of the easiest ways California business owners can lower their federal tax bill without changing anything about how their business actually runs. It just takes the right entity type, a payment by June 15, and a quick check each year to make sure it still makes sense for your income level.

Wondering if this applies to you? Reach out to us at info@mkhstaxgroup.com and we'll take a look together before the deadline.