A number of comments on this:
- This is an area that has evolved quickly and is not consistent among the various states that have enacted legislation in this area.
- California, as with many areas, has its own set of rules. See the attached link for some guidance:
- You don't mention what year you are dealing with. If it is 2021, this is most likely a moot point as any state that requires an election most likely requires that the election be timely made.
- You also note that "you are considering an S election for the SMLLC". If that is the case, the PTE tax option is moot for this entity as it is not an S corporation at this time.
- The IRS issued Notice 2020-75. The notice clarifies that any PTE tax (the notice refers to this as a Specified Income Tax Payment) is not taken into account as a separately stated item. This means that the tax is deducted in arriving at ordinary income on page 1 of the 1065 or 1120-S.
- Your facts are very minimal and this is an area that varies by state; eligibility, election method, tax base and rates, filing forms, interaction with other state tax rules, etc.
- As a result, I strongly suggest you meet with a tax professional to discuss this. If this is something you are considering, since I assume that the state tax exceeds $10,000, then don't be penny wise and pound foolish in this area. A fee to get tax advice in this area will definitely be worth it.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
