I am considering converting my sole proprietorship to an S-Corporation. I want to better understand the tax implication, including my state (Georgia) pass-through entity tax (PTET) deduction.
Let's say I am the sole business owner of an S-Corp. I elect Georgia's PTET (5.49% for 2024). My business has an annual revenue of $120,000 with $20,000 in business expenses. I pay myself $50,000 as its employee plus $3,825 in employer FICA and $42 FUTA payroll taxes. I also provide an employer match to my Solo 401k of $12,500. This leaves me with a business profit of $33,633 ($120k-$20k-$50k-$12.5k-$3,867).
Is the state tax credit determined by the PTET based on the business profit (in this example $33,633, so after W-2 and payroll taxes)?
So I would pay income tax on my individual return for the $50,000 W-2 earnings but the state taxes on the business profit (paid in the year they were received through quarterly estimated payments) would be paid at the entity level, correct? This entity payment would then be credited against my personal state income tax. Am I interpreting this correctly?
Lastly, would the state standard deduction also apply to the PTET elected (entity paid) state taxes?
