Maximize Year-End Tax Savings with New York’s Pass-Through Entity Tax (PTET)

As the year comes to a close, New York business owners — especially S corporations and partnerships — have a powerful opportunity to reduce federal taxes before December 31. One of the most effective year-end tax planning strategies for 2025 is making an early payment of the Pass-Through Entity Tax (PTET).

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

The Pass-Through Entity Tax (PTET) is a New York State tax election available to eligible S corporations and partnerships. It allows the entity, rather than the individual owner, to pay state income taxes on business income. In return, the owners receive a credit on their New York personal income tax return for the PTET amount paid.

The major advantage? PTET payments are deductible on your federal income tax return in the year they are made — effectively bypassing the $10,000 SALT (State and Local Tax) deduction cap imposed on individuals.

Why Paying PTET by December 31 Matters

PTET deductions follow a cash basis rule for federal tax purposes:

• If you pay PTET before year-end, the deduction counts toward this year’s federal tax return.
• If you wait until the due date in March, the deduction applies to next year’s federal return.

For high-income earners, this timing can make a significant difference in tax savings.

💡 Example:
If your business pays $100,000 in PTET in December, and you’re in the top federal tax bracket (37%), you could save $37,000 in federal income taxes this year.

When you later file your New York personal return, you’ll receive a PTET credit to offset your state tax liability — making this a win-win strategy for both state and federal tax planning.

Who Should Consider PTET Year-End Payments?

This strategy works best for:

• S corporation owners in New York
• Partnership owners with high taxable income
• Business owners facing a large federal tax bill who want to accelerate deductions
• Taxpayers who already max out the $10,000 SALT deduction cap

Key Deadlines & Steps

1. Elect PTET on the New York State Department of Taxation website before the annual election deadline.
2. Calculate your estimated PTET payment based on projected taxable income.
3. Make your payment no later than December 31 to lock in this year’s federal deduction.

Bottom Line

The New York Pass-Through Entity Tax is one of the most underused yet powerful tax-saving tools for small business owners, S corporations, and partnerships. By paying your PTET before December 31, you can potentially reduce your federal taxable income and keep thousands of dollars in your pocket. If your accountant isn’t proactively discussing PTET timing and other year-end strategies with you, it may be time to work with a tax professional who is experienced in New York business tax planning.