Although running a business in Georgia involves making decisions about various taxes, from standard filings to potential entity-level options, one approach you may consider is Georgia’s pass-through entity tax (PTET). Choosing this route can shift how certain owners fulfill their state tax obligations.
This post illustrates how Georgia’s PTET works, who might benefit, and the steps required to complete the election. Whether you’ve been managing a company for years or you’re just getting acquainted with entity-level taxes, these insights can help you chart a clear course.
Under traditional pass-through rules, owners report business profits on their personal returns. However, Georgia’s pass-through entity tax moves the liability to the entity itself, which then pays Georgia income taxes at the corporate level. This arrangement can turn individual tax payments into business expenses, giving certain owners a different way to address state obligations.
A major incentive for putting a pass-through entity tax (PTET) in place originated with the 2017 Tax Cuts and Jobs Act legislation (TCJA). That federal law placed a \$10,000 cap on state and local tax (SALT) deductions, creating complications for many high-earning business owners.1 Georgia joined a roster of states that introduced an entity-level tax option to work around that cap.
Tax Savings and Benefits
Once the entity elects Georgia’s PTET, the business itself pays state income taxes as a corporate outlay—effectively converting what would be personal payments into a deductible expense on the federal return. This adjustment often lowers each owner’s adjusted gross income, reducing their overall federal income tax burden. PTET may offer a clear advantage for many high-earning business owners by sidestepping the SALT limit at the individual level.
When PTET applies at the entity level, it cuts into profits before they’re distributed, thereby shrinking each owner’s share of taxable income on the federal return. Consider a partnership generating $1 million in profits. Without PTET, each partner covers their own state obligation and faces the $10,000 SALT deduction cap. However, under the PTET election, the partnership pays the levy on everyone’s behalf; this reduces each owner’s reported profit, thus preserving a greater overall deduction federally.
This strategy can further diminish an owner’s income tax liability, especially for individuals subject to higher tax rates. For example, if multiple partners each receive $200,000 in pass-through income, a PTET election could significantly decrease each report’s amount at filing time. Though outcomes vary by circumstance, it’s important to note that the cumulative tax advantage often outperforms traditional SALT limitations.
Please Note: This election can be valuable whether your business income is moderate or significant. The more revenue that flows through, the bigger the potential benefit of avoiding the SALT cap. Still, be mindful of any added administrative work and how it aligns with your broader tax objectives. In many instances, PTET provides a streamlined path to reduced federal obligations, but the final decision depends heavily on each owner’s unique financial situation.
Other Opportunities
The Georgia HEART (rural hospital) and GOAL (private school scholarship) programs both provide dollar-for-dollar tax credits, which can be claimed either through the Pass-Through Entity Tax (PTET) election or on individual tax returns. While it’s possible to use both PTET and individual contributions, these credits generally do not stack to deliver more tax savings beyond what PTET alone would provide. Therefore, business owners typically choose one approach based on how they prefer to allocate their tax liability and support these causes.
Deciding whether to participate in PTET or claim credits individually depends on each person’s overall tax situation and philanthropic goals. Because regulations and individual circumstances can be complex, the best strategy usually emerges from conversations with a qualified CPA or financial advisor who can assess unique factors, including entity structure, potential tax liabilities, and contribution limits.
Key Considerations Before Electing
Before committing to electing pass-through entity status under Georgia’s PTET rules, you’ll want to confirm that your business structure qualifies and that you’re prepared for the administrative obligations ahead. A quick review can help you determine if this election aligns with your broader business goals.
Here are some key considerations before selecting:
Business Structure and Ownership: Your entity must be a partnership, S-corporation, or LLC taxed as a partnership. If you operate as a sole proprietor or single-member LLC, the PTET option is not available.4 Certain partnership rules and state guidance may also apply, so double-check official releases for updated requirements.
Multi-State Income: If your company operates in more than one state, you could face added layers of planning. Some states have their own version of PTET, with different procedures or filing forms. Others might not offer an entity-level election at all. It’s wise to consider each state’s stance to decide if a Georgia PTET will still produce the desired outcome in a multi-jurisdiction environment.
Timing of Payments: To claim the full federal deduction, your entity typically has to pay any required amounts before the year ends. Also, Georgia’s PTET obligations often follow C-corporation payment schedules. This means you may need to align estimated tax payments with corporate deadlines. Missing a due date can undercut your chance to deduct these amounts for the same tax year.
Administrative and Compliance Work: Choosing PTET means establishing or updating your entity’s corporate tax account on the Georgia Tax Center, working with new forms, and keeping organized payment records. Every step requires careful scrutiny, especially in cases where a business is shared among many owners.
Effect on Owner’s Returns: Each person’s federal income tax return should reflect a smaller share of pass-through profits because the state tax has already been handled at the entity level.
Step-by-Step: Making the Election
Georgia’s PTET rules can offer significant advantages for your business. If you decide they’re a good fit, you’ll need to explore the creation process.
Below is a step-by-step process to make things official:
Step 1) Confirm Eligibility: Check that your business meets Georgia’s requirements. Only partnerships, S corporations, or LLCs taxed as partnerships (with multiple owners) can choose PTET. Review any relevant Department of Revenue bulletins, especially if rules have changed since the last tax cycle.2
Step 2) Register or Update Your Business Account: You will need a Georgia Tax Center (GTC) login for entity-level obligations. If you lack a corporate account, set one up. If you already have one, confirm the details are accurate. Classification errors or missing data can cause delays when paying through the entity.
Step 3) Calculate and Pay Estimated Taxes: Once you choose PTET, the entity is in charge of state payments. Rather than owners sending individual checks, the company submits these amounts. Georgia typically requires quarterly payments that may resemble C corporation rules. Keep an eye on the relevant schedule, as missing deadlines can lead to penalties.
Step 4) File Your Entity Return with the Election: When tax season arrives, S corporations use Form 600S, and partnerships use Form 700. Within these documents, you’ll mark your decision to pay at the entity level. This election applies only for the year of filing, so it must be made again annually. Once you submit the return, the choice cannot be reversed for that year. Each owner then files a personal return that shows less pass-through income, reflecting the PTET payment made by the business.
Step 5) Keep Thorough Records: Document each payment, including dates, amounts, and any confirmation numbers from GTC. Track how much is allocated to each owner so that any inquiries from the Georgia Department of Revenue or the IRS can be answered promptly. If reconciling prior overpayments or credits, be mindful that money applied to an old composite return will not simply switch to the PTET. Proper tracking helps everyone avoid confusion down the line.
Please note: You don’t have to navigate these steps alone. Accountants, attorneys, and financial advisors can share insights on corporate structures, filing requirements, and ongoing compliance. A financial advisory team can also act as a “quarterback,” pulling together expertise from various professionals to align your entity-level taxation with broader financial plans. Such collaboration often reduces the chance of oversights, helping you and your business confidently move forward.
Common Pitfalls and Misconceptions
Outside of verifying that your business is properly structured for PTET and factoring in any multi-state considerations, there are still additional pitfalls and misconceptions to be aware of when making a PTET election.
Below are some missteps that can undermine the advantages of PTET:
Late Payments: Putting off your PTET payments until after year-end can block the deduction for that specific tax period, effectively negating the main benefit of entity-level taxation. To capture the federal deduction advantage, certify that PTET payments are made before your business’s year-end closes.
Annual Choice: A common misconception is that once you elect PTET for one year, it automatically continues. In reality, you must re-elect PTET each and every tax season. Missing that deadline—even by oversight—can mean losing out on the entity-level tax deduction for that year.
Penalty Confusion: Owners often keep making individual estimated tax payments when shifting to PTET. Without adjusting those payments, you could face underpayment penalties or overpayments that are stuck in the wrong place.
We Can Help You Further
Georgia’s Pass-Through Entity Tax provides a powerful avenue for reducing the impact of the federal SALT deduction cap. By shifting certain state-level liabilities to the business, owners may enjoy a more favorable federal tax treatment while still managing Georgia obligations effectively.
Just remember that the PTET election involves more than just ticking a box. It’s important to understand how it interacts with existing credits, multi-state income, and your entity’s structure is your key to success.
Consulting with experienced professionals can help you weigh the pros and cons, keep your filings accurate, and avoid common missteps in the process. If you’re looking for comprehensive financial planning that includes personal tax planning, we invite you to schedule a consultation.
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Clayton joined AP Wealth Management as a fee-only financial planner in 2019 bringing with him over a decade of experience working as a financial planner and investment advisor. Clayton is passionate about the commission-free business model that allows him to sit on the same side of the table as the client, serving as a fiduciary for them.
