Saving More On Taxes: The Virginia PTET Regulation

As a financial planner specializing in self-employment and real estate professionals, I am excited about a new Virginia state regulation that can significantly improve tax savings for S-corp filers. This new law, went into effect on January 1, 2023, and allows owners of S-Corporations to make Pass-Through Entity Tax (PTET) payments, which can be deducted in full on federal income tax returns, bypassing the $10,000 cap on state and local tax (SALT) deductions. This change can lead to substantial tax reductions for Realtors who qualify.

What is PTET?

The Pass-Through Entity Tax is a method introduced to mitigate the effect of the SALT (state and local tax) deduction limit imposed by the Tax Cuts and Jobs Act of 2017. PTET allows S-Corporations, among other pass-through entities, to pay state income tax at the entity level rather than on the personal income tax returns of the owners. This strategy effectively shifts the deduction from the individual to the business entity, sidestepping the $10,000 SALT cap and allowing business owners to claim a federal tax deduction for the full amount of the state tax paid by the entity.

How PTET Benefits Realtors

For Virginia-based Realtors operating as S-Corp owners, the financial benefits of opting into PTET are clear:

● Maximize Deductions: By paying state income tax through their business, Realtors can deduct these taxes as a business expense, thus reducing their overall taxable income on federal returns.

● Avoid the SALT Cap: Since PTET payments are deducted on the entity’s return, they are not subject to the $10,000 SALT deduction limit. This is particularly beneficial for Realtors in higher tax brackets or those owning more profitable agencies.

● Improved Cash Flow: Lower federal taxes mean improved cash flow, which can be reinvested into the business or used to strengthen personal financial security.

Implementing PTET in Your Business

To leverage this tax strategy, there are several steps Realtors should take:

● Entity Review: Confirm that your business qualifies as an S-Corporation under Virginia law. If you are currently operating as a sole proprietorship or partnership, consider whether restructuring into an S-Corp makes sense for your business.

● Consult a Tax Professional: Engage with a CPA, EA, or a tax advisor who understands the intricacies of PTET and can guide you through the process of making elections and calculating the optimal tax payment.

● Annual Planning: Regularly review your tax strategy to adapt to changes in income, tax laws, and business operations to ensure you are maximizing your benefits under PTET.

Conclusion

The introduction of PTET payments for S-Corp owners is a game-changer for Realtors in Virginia, offering a new avenue to reduce taxable income and save significantly on federal taxes. By understanding and utilizing this regulation, Realtors can ensure they are not only compliant with tax laws but are also optimizing their financial strategies for maximum benefit. Realtors, I encourage you to not overlook this opportunity. By aligning your business with the right financial professionals who are well-versed in the specific needs of the real estate industry, you can navigate these changes effectively and continue to thrive in a competitive market.