In the 1065, there should be an expense labeled tax or state tax. Just enter the amount paid there and it will reduce the taxable federal income, which was the idea of the PTE Tax. Then you would enter it as a credit on the California individual tax return.
You must include form 3804 and voucher 3893. California requires you to pay in 9.3% of partnership allocated income for each partner. Each partner must accept/reject election to SALT.
Have you read directions for form 3804? See below for instructions:
BobNogg CPA
Thank you! EDIT: Turbotax 2021 actually supports form 3804 (in Forms mode).
Are you sure -- it doesn't seem like it. When I type 3804 in the search bar, nothing comes up
To easily generate Form 3804, go to Forms mode (icon in TurboTax header).
For TurboTax Online there is no "Forms Mode." So, how do I add Form 3804 if I am using TurbTax online?
@dcowan Most of this thread relates to creating Form 3804 in a California Business return, not for a personal return using TurboTax Online.
If you entered a K1 in your federal return in TurboTax Online, there will be questions that will generate when you begin your California state Return. As you navigate through your state return:
Thanks for your clarification, Patricia. Can you point me to a thread or a solution to create Form 3804 for an S Corp which is also a Pass Through Entity and also required to claim back the appropriate tax credit? I'm sure Intuit would not create a solution for Partnerships and LLCs but not not for S Corps.
In the same manner that you would enter Partnership K-1 Adjustments you would see the 1120S K-1 adjustments. Just follow the same preliminary steps to get to that point.
Just got my K1, there is PTE on there (13d), at ~9.3% of CA ordinary income. However, when I put all the info on the K1 into turbo tax, the CA tax due on the CA ordinary income is still calculated at 13.5% (So seems I still need to pay the full 13.5% CA tax on the K1 income). Also the federal tax due does not change (thought hte PTE elective tax should be federal tax deductible).
Could anyone kindly let me know how I can adjust this?
Thanks a lot!
BTW I am working on my personal tax with Turbotax premier. The accountant generated the K-1.
I was unaware of PTE when filing my returns for 2021. TT Premium/Business does not seem to have it. For 2022, I will try again. My business income is reported on Sch. C. The business is a single member LLC. So as I understand it, on my federal return I report an expense for the 9.3% tax paid on my CA return using the new CA forms. On the same CA return I claim a credit for the 9.3% paid. Now for the next question: Since this 9.3% CA tax is deducted on my Fed Sch. C, must I pay it before my 2022 tax year ends. Or can I pay it any time up to the April 15 2023 tax deadline.
Do you happen to know: Do you submit only the portion of (estimated) PTE paid *during that year* e.g. for tax year 2022 only the part of PTE paid within 2022, or may you deduct *all* of your PTE paid for tax year 2022, some of which is paid in 2023? Turbo Tax asks us to include taxes "incurred or anticipated" (I forget the exact language used but they explicitly separate tax payments already made and added another word suggesting taxes "to be paid" for that tax year).
Yes, you can include payments made for PTE in 2023 for 2022 Tax year as long as they are paid before the due date of your tax return.
Do I leave the California estimated tax payments blank on the federal return if I made the ab150 pte election? I do see my federal taxable income reduced because of the credit on my K1. I have filed form 3804-CR. Thanks.
I am not sure how you reported this but this amount should have reduced your California Tax but not your federal. Here is how it should have been correctly reported. if you reported this in the estimated tax section in your federal return, this is incorrect. Here is how it should have been reported. You would not enter this as an estimated tax paid in your state return either.
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:
When I do this, I have a problem because I have an entry in my federal K-1 in box 13, code W which is state tax withheld - this then causes the program to double count this money since on the CA K-1 Adjustment page I enter the value as instructed in box 15f. This generates form 3804-CR, which correctly calculates the credit which zeros my tax, but later in form 540 the program is still taking the value I input in my federal K-1 for box 13, leaving me with a state refund the size of my entire payments to them in 2022! Clearly this is wrong.
Not sure if I should paper file the state or if I should wait for a fix?
You may wish to consider requesting an extension of time to file. We are unable to confirm that this experience will be addressed by our technical support team before the filing deadline.
That worked! I have a question about the PTE I paid for 2021. At the time, the Federal Tax Code wasn’t updated with the new law past in CA. How do I recoup the Federal Tax benefit from 2021? Do I need to Amend last year’s tax return now, or is it taken into account somewhere for 2022? Thanks.
See Dave(tax expert) below, but here is the summary;
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:
Hi Patricia,
That helped bring my CA tax amount inline, but was the Federal Tax benefit already included? It didn’t seem to change. Thanks.
The PTE paid by the partnership was for State income tax on the partnership income - this deduction is based on State tax rules. The credit doesn't affect your federal tax liability at all.
If you think about it, the partnership doesn't know your marginal tax rate at the federal level, so there isn't a way to prepay your federal income tax. On the other hand, State tax on partnership income is set by the State, so the amount can be estimated and paid by the partnership on your behalf.