How Pass-Through Entity Tax (PTET) Works for Family-Owned Businesses and Joint Ventures

As tax codes continue to evolve, many family-owned businesses and joint ventures are exploring how new opportunities like the Pass-Through Entity Tax (PTET) can help them minimize federal tax burdens and retain more income. If you're managing a partnership, S-corporation, or multi-member LLC, understanding PTET could be a game-changer for your financial strategy. 

This guide walks you through how PTET works, its benefits for closely held entities, and how family-owned businesses and joint ventures can effectively use it to their advantage.

What is the Pass-Through Entity Tax (PTET)?

The Pass-Through Entity Tax (PTET) is a state-level tax election that allows eligible businesses (like partnerships, LLCs, and S-corporations) to pay state income taxes at the entity level rather than passing that income tax burden to individual owners.

Why is this helpful? Because it allows owners to bypass the federal $10,000 SALT (State and Local Tax) deduction cap imposed by the Tax Cuts and Jobs Act of 2017. By shifting the tax burden from the individual to the business, owners can effectively write off the full amount of their state taxes on their federal return — reducing their taxable income.

Many small businesses taking advantage of this tax strategy work closely with firms that offer accounting and tax services in Fairfax to ensure they’re eligible and compliant with state-specific regulations. 

Why It Matters for Family-Owned Businesses

Many family-owned businesses operate as pass-through entities due to their tax flexibility and simple structure. These entities typically distribute income directly to owners (family members) based on their ownership percentages. However, those same owners often face significant state tax bills individually — which they can’t fully deduct due to the $10K cap.

With PTET, the entity itself pays the state taxes, which are fully deductible at the federal level, resulting in real savings for the family unit. 

Example:

Let’s say a family-run S-corp has $400,000 of taxable income distributed evenly between two siblings in a high-tax state like California (with a 10% state tax). That’s $40,000 in state taxes total — $20,000 per sibling. Under normal circumstances, each sibling could only deduct $10,000 on their federal return. 

But if the business elects PTET, the entire $40,000 becomes a business expense — lowering the S-corp’s net taxable income. The siblings effectively save federal tax on the $40,000 state payment, not just $20,000. 

PTET for Joint Ventures

Joint ventures — especially those formed between families or closely held investors — benefit from similar PTET advantages. Many joint ventures are set up as partnerships or LLCs, which qualify as pass-through entities. 

In these cases, PTET: 

• Allows state taxes to be paid at the business level 

• Reduces federal taxable income passed to the partners 

• Creates fairer and more efficient tax treatment across partners 

Example:

A joint venture between two partners — one based in Fairfax, Virginia, and the other in New Jersey — operates as an LLC and earns $500,000 annually. New Jersey offers PTET, but Virginia does not. By electing PTET in New Jersey, the entity pays state taxes on behalf of both partners. The New Jersey partner receives a state credit, and both partners benefit from a full federal deduction on the entity’s state tax payment. The Fairfax partner works with a local CPA to ensure proper allocation and compliance.

For joint ventures with high-income partners in different states, multi-state PTET planning may be necessary — and this is where CPA guidance becomes essential. Working with professionals who provide accounting and tax services in Fairfax can help structure the entity correctly and evaluate PTET benefits in each relevant state. 

Key Benefits for Family-Owned Businesses & Joint Ventures

Here’s how PTET makes a real difference: 

✅ 1. Federal Tax Savings 

The biggest benefit is the potential full federal deduction of state taxes paid by the entity — a clear workaround to the $10K SALT deduction cap.

✅ 2. Fairness Among Owners 

When taxes are paid by the entity, all owners benefit proportionally, regardless of their state of residence or individual tax situations. This avoids friction between family members or partners over state tax issues. 

✅ 3. Simplified Individual Tax Returns 

Family members or partners may receive PTET credits or exclusions when filing personal state returns, reducing duplicate payments and paperwork. 

✅ 4. Preservation of Wealth Across Generations 

Reducing tax liability means retaining more profit within the entity — allowing for reinvestment, growth, or estate planning. 

Common Questions from Clients

Here are a few FAQs we often receive from family businesses or joint venture clients: 

🔹 Is PTET available in all states? 

No. As of 2025, more than 30 states offer a PTET election, but each has different rules. Some states require annual elections, others have income thresholds or filing deadlines. A CPA can help determine your eligibility.

🔹 Will I still need to file personal state returns? 

Yes, but many states offer a credit for taxes paid at the entity level to avoid double taxation. This simplifies filings and ensures you're not taxed twice on the same income.

🔹 What if I have owners living in multiple states? 

This can complicate things. PTET benefits may not be equally distributed if some owners reside in states without PTET or with different credit rules. Customized tax planning is critical here.

🔹 Is PTET worth the effort for small family-run businesses? 

In most high-tax states, yes. The federal tax savings can far outweigh the complexity of filing an entity-level return. It’s especially worthwhile for businesses with high profits or many owners.

PTET Election Process: What Family-Owned Businesses Need to Know

To take advantage of PTET, you'll typically need to: 

1. Elect PTET through your state’s revenue department — often by a specific deadline (e.g., March 15). 

2. Make estimated tax payments at the entity level throughout the year. 

3. File an entity-level PTET return with your state. 

4. Distribute PTET reporting statements to all owners for their individual filings. 

   
   

Your CPA can handle this entire process — ensuring all requirements are met and deadlines are followed. Many firms offering accounting and tax services in Fairfax have streamlined tools and local expertise to assist clients efficiently with PTET elections. 

Conclusion

The Pass-Through Entity Tax (PTET) provides a powerful tool for family-owned businesses and joint ventures to reclaim lost federal deductions and reduce their overall tax burden. With proper planning and professional guidance, PTET can enhance fairness among owners, improve cash flow, and support long-term business growth.

If you’re wondering whether PTET is the right move for your business, now is the time to act. Elections and payments are time-sensitive — and your window to save may be closing. 

📞 Consult a Trusted Tax Advisor Near Fairfax 

Navigating PTET elections and filings requires expert insight tailored to your entity structure and goals. At Raj and Associates CPA PC, we specialize in helping family businesses and partnerships optimize their tax strategies, stay compliant, and unlock meaningful savings. As a leading Tax Advisor near Fairfax, our team is ready to guide you through every step of the PTET process with clarity and confidence. Let us help you make tax-saving decisions that support your family’s future.