How does the Calif PTET credit get reflected back onto the Fed Schedule K-1?

[RobbP]

I've setup my S-Corp client so the S-Corp pays the PTET.  Everything looks good on the California side.  How does that tax payment get correctly entered back on the Federal S-Corp Schedule K-1 so the tax payer gets a benefit at the Federal level.  My understanding is that the S-Corp can write the tax payment off as an expense at the Federal level, so the taxpayer's distribution would be reduced by the amount of the tax payment.  I've seen some reference to manually making an entry under "Credits", but isn't that for tax credits at the federal level?  How does that reduce the amount of the distribution?

Thanks in advance.

[Ephesians3-14 · Accepted solution]

When you prepare the 2022 P&L, you will have a line item for Advertising, Telephone, Printing, Supplies, PTE tax, etc. Just another good ole deductible expense. And that's how it works!

There's no credit involved at the Federal level.

[RobbP]

Thank you.  That was the detail I wasn't understanding, that the benefit, expense deduction for state income taxes paid, at the Federal level will occur in 2022, not 2021.