Pass-Through Entity Tax Example

Based on information from Al's Toy Barn's federal Form 1065, Line 1 on Schedule PTE is $80,000. Line 4 is $8,000 based on amounts reported on Woody and Buzz's Schedules KPI. 

Al’s Toy Barn’s Minnesota apportionment percentage is 85% and entered on line 6.

Line 8 is determined at the entity level without regard to the partner’s state of residency.

Line 15 is the sum of the partners’ distributive share percentage for those partners not satisfying their Minnesota income tax obligation with PTE. Buzz’s Minnesota filing requirement is being fulfilled by the entity’s filing Schedule PTE.

Lines 19 and 20 allow subtractions for a portion of Section 179 and federal bonus depreciation that was added back in a year these specific partners or shareholders elected to be included in this entity’s composite return. These lines only apply to partners and shareholders that:

• Have the current year Schedule PTE fulfill their filing obligation
• Have elected composite tax in a prior year in which an addition for Sect. 179 or federal bonus depreciation was required.

The Schedule PTE is fulfilling Buzz’s filing requirement and he elected composite in a year during which a $50,000 Section 179 addition attributable to him was required.

The total PTE tax amount is reported on line 25. This is the sum of the PTE tax attributable to owners for whom Schedule PTE does not fulfill their filing requirement (Line 17), and the PTE tax attributable to owners for whom Schedule PTE does fulfill their filing requirement (Line 24). This amount flows to the M3 or M8 and is paid by the entity.

This portion of the schedule is completed with Woody and Buzz’s personal information. This information should match Schedules KPI for all partners.

Woody’s share of tax is from Line 17 of page one of Schedule PTE. 

Buzz’s share of tax is from Line 24 of page one of Schedule PTE.

Woody’s credit amount from the credit distribution on Schedule PTE flows to Schedule KPI, Line 30. The box on line 30 is not checked on his Schedule KPI. Woody is not eligible to have Schedule PTE fulfill his filing requirement because he is a full year resident of Minnesota.

Buzz’s credit amount from the credit distribution on Schedule PTE flows to Schedule KPI, Line 30. The box on line 30 is checked on his Schedule KPI, because he is a non-resident and is having Schedule PTE fulfill his filing requirement.

Woody’s credit is a refundable tax credit that he will report on Schedule M1REF.