Where do I incorporate my California Form 3804, which is for Pass-through entity (PTE) elective tax? It is new this year and I can't find it in TurboTax. Thanks!

[DaveF1006 · Accepted solution]

If you entered a K1 in your federal return, there will be questions that will generate when you begin your California state Return. As you navigate through your state return:

1. You will reach an entry that is entitled Partnership Schedule K-1 Summary. Select edit next to the K1. There will be some preliminary questions to enter.
2. Then go to Partnership K-1 Adjustments. Continue past the first page, to go to the second page in the adjustments screen.
3. In the second page, scroll to the section where it says credits and there will be a entry to make that says 15f-Form 3804-CR Pass-Through Entity Elective Tax Credit

[shimmerer]

The numbering was slightly different, but this got me to the right place. Thank you so much!! \o/

[roboyang]

Thanks! You are the only one I found that was able to find this for me!

Question, is the number in that box the total amount of PTET you paid, or the amount you are claiming? For example, if the PTET you paid through the partnership was $30000, but your total taxes was only $20000, which number do you put in the box so the remaining credit gets carried forward 5 years?

Thank you!

[TaxCat1]

But where is the Form 3804 found for TurboTax Business?  Your answer only discussed Form 3804-CR entry in regular TurboTax for individuals.

[PatriciaV]

@TaxCat1

You can trigger the creation of Form 3804 (and related worksheet) in TurboTax Business using Forms mode.

1. Click Forms in the TurboTax header.
2. Go to the Information Wks under California Partnership.
3. Check the box under Part II >> Form 3804 Pass-Through Entity Elective Tax.
4. On the Sch K-1 Wks in the California return, check the box at the bottom of each partner to report the partner's consent for the PTE elective tax.
5. Return to the Information Wks and click "QuickZoom" beside either Form 3804 or 3804 Worksheet to review the calculations.
6. Be sure to address any form errors (red exclamation marks) before leaving Forms.

[TaxCat1]

Thank you.  That was the first solution I received (and I called TT twice).

How come the software is not adding the pass through entity tax to California Form 100S, Line 7, Other Additions? 

That is necessary so that the 9.3% pass through entity tax is calculated on income before the pass through entity tax is deducted.   

In other words, Schedule K-1 (Form 100S), Column C, should add back the pass through entity tax.

[Lillee]

I did that which got the form 3804 filled. But the PTE credit does not seem to flow to california 100s page 6 line 13 as other credit. It also does not flow to california K1 line 13d as other credit. Am I doing it wrong?

[TaxCat1]

@Lillee mine is not flowing to 13(d) of K-1 either.   

Instructions to K-1 say:

"Pass-Through Entity (PTE) Elective Tax
Credit – The PTE Elective Tax Credit is not a passthrough
item, but will be reported on line 13d.
For more information, get form FTB 3804-CR,
Pass-Through Entity Elective Tax Credit."

So maybe we should add that manually to 13(d) of K-1.  And maybe the same for 100S, Side 6, Line 13(d).

[dwu805]

You will also need to go into the Forms mode and manually add that PTE tax amount to Line 35 (Paid with From 3893) , otherwise, that amount will not get reported properly in the paperwork

[PatriciaV]

This issue has been identified by our tech support and will be addressed in a future update. We don't know when that update will be released. But having the focus of the tech team is a positive step toward resolving the issue. If we see a support article released with more information, we'll post that link here.

In the meantime, here is the complete work-around. You will need to manually enter information in Forms Mode (icon in the TurboTax header) to both allocate and pay PTE tax. 

1. On the California Information Worksheet, check the box just above Part VI "Form 3804 Pass-Through Entity Elective Tax" and use the QuickZoom link to open Form 3804.
2. On Form 3804, check the box for identification number you wish to use (typically FEIN). Note the total tax on Line 3.
3. Open Form 3893 (PTE) and check the box to activate the form. Enter the total tax to be paid from Form 3804 Line 3 to the bottom of Form 3893.
4. Open Sch K-1 Wks and check the box for each partner to indicate consent to use Form 3804.
5. Open Form 100S p4-6 and scroll down to Credits Line 13d. Enter a description for the PTE Tax Credit from Form 3804 and the total amount in the middle column. This step will allocate the tax credit to all Schedules K-1.
6. Review each California Schedule K-1 Line 13d to confirm the allocated amount matches Form 3804. The supplemental information is presented under Line 17.

Form 3804-CR will need to be mailed with any payment due, but is not available in TurboTax Business. You can obtain a copy here: Pass-Through Entity Elective Tax Credit 2021 3804-CR

[roboyang]

California pass-through entity elective tax credit and TMT: Urgent fix needed by turbotax!

The current version of Turbotax incorrectly classifies the California pass-through entity elective tax credit as credits that reduce excess tax on  Schedule P of the California tax return, section A. Senate bill 113 signed on Feb 9, 2022 allows for the PTE credit to reduce taxes below the TMT. 

https://www.ftb.ca.gov/file/business/credits/pass-through-entity-elective-tax/help.html

https://www.pwc.com/us/en/services/tax/library/califo[product key removed]es-to-pte-tax-and-2022-nol...

Thus, the credit should show up on section B under "Credits that may reduce tax under TMT". 

This is an urgent fix that needs to be fixed by Turbotax before 4/15. 

[TaxCat1]

I agree with @roboyang that this is an urgent matter that should be addressed as soon as possible.

@PatriciaV , you have given helpful answers in the past.  Any solutions for this one?

@roboyang , let me know if you find a work-around meanwhile.

[md_dm]

I noticed this same issue this morning.  Yes, it's a major problem for affected taxpayers that TurboTax needs to address.

For me, the credit (as inappropriately limited by TurboTax) appears on line 43 of my Form 540.  It seems to me that a simple workaround would be to override the line 43 amount generated by TurboTax and replace it with the proper credit amount.

Of course, it would be better not to have to override anything, but this is a potential solution if TurboTax hasn't fixed the problem by the time of filing.

[md_dm]

@TaxCat1 @roboyang 

Further to the above, I just got off a 52 minute call with TurboTax's customer support line [phone number removed]) about this.

The person I spoke to was a front line customer support line guy, but he seemed to understand the issue and checked up the food chain to investigate the issue.  He said that as best they can tell this is a new issue and there is not currently an update in progress that addresses it -- given that, I am not holding out hope for an update before April 15.

The suggestion that was offered was to file the return as TurboTax prepares it and to amend the return after an update is generated to address the issue.  That's obviously less than ideal -- who knows when the update will be generated, it's a pain to amend a return, and California holds onto the amount of the credit that was limited until an amended return is filed.  Based on this, overriding the line 43 amount on Form 540 seems the best option assuming a file date of no later than April 15.

The representative I spoke with gave me a different number for a help line [phone number removed]) where TurboTax users can submit complaints about the way TurboTax handles certain issues.  I will submit a complaint and suggest that other affected TurboTax users do too -- the more complaints they receive the more likely they will be to have their software development team generate an update to address this issue (which may not get attention in the normal course since it is a California-specific issue that, while significant to those affected, only affects a small slice of California taxpayers).