Statutory Frame
- Law: Cal. Rev. & Tax. Code §§ 19900–19906 (AB 150, as amended by SB 113).
- Rate: Flat 9.3 % on each consenting owner’s California-source income.
- Election Window: Tax years 2021-2025; sunsets before 1-1-2026.
- Owner Limits: Credit flows only to individuals, trusts, estates, and SMLLCs owned by them. Funds taxed as partnerships cannot claim the credit
Five Cash-Flow Plays Founders Can Still Use in 2025
| Hack | Mechanics | Why It Works |
|---|---|---|
| 1. Pre-Fund 100 % by 12-31-2025 | Pay both PTET installments with Voucher 3893 by Dec 31 (even though the second 50 % isn’t due until Mar 15 2026). | Payment locks in a 2025 federal deduction (cash-basis entities) and slashes Q4 estimates for founders |
| 2. Elect on an “Owner-Only” Slice | Exclude the 25 % VC fund share; tax only the founders’ 75 %. | Lowers cash outlay while still giving founders the full 9.3 % credit. |
| 3. Push Income to Non-CA States | Shift Go-To-Market staff outside CA to lower the CA sales factor. | Lowers PTET base and LLC fee tier. |
| 4. Time Distributions vs. PTET Credit | Delay member draws until after credit reduces their CA tax bill. | Avoids founders fronting personal cash for April 15 CA estimates. |
| 5. Use §179 Acceleration | Bonus-depreciate GPU clusters to shrink entity income before PTET is computed. | Cuts the 9.3 % bite without hurting R&D credit potential. |
Step-by-Step Walk-Through (Form 3893)
- Project CA-Source Income (include only consenting owners).
- Compute Payment 1 → Greater of $1,000 or 50 % of prior-year PTET.
- Decide on Early Payment 2 for full deduction in 2025.
- Web Pay or Mail Voucher 3893—select “Pass-Through Entity Elective Tax.”
- Book Entry: Debit “State Taxes” expense; credit “Cash.”
- File Form 3804 & K-1s by Mar 15 2026; show credit codes 112/113.
Worked Example – AmpliVision AI LLC
| Owner | Share | CA Income Share | Consents? |
|---|---|---|---|
| Founder A (CA) | 60 % | $1,200,000 | ✔ |
| Founder B (TX) | 15 % | $300,000 | ✔ |
| VC Fund LP (Partnership) | 25 % | $500,000 | ✘ (ineligible) |
- PTET Base: $1,500,000
- Tax: 9.3 % → $139,500
- Payment Plan:
- June 15 2025: $69,750 (Voucher 3893)
- Dec 15 2025: $69,750 (early Pay 2)
- Impact: Entity deduction cuts K-1 ordinary income to $1,360,500. Founders each receive a refundable* PTET credit on Form 540 that offsets their CA liability dollar-for-dollar (*credit is non-refundable but carries forward five years).
Conclusion
With outside investors often barred from the PTET credit, founders must sculpt the election for their benefit while dodging cash-flow shocks. Early funding, selective consent, and smart apportionment keep money in the bank and the 9.3 % working for you.
Call to Action
Need a payment calendar or owner-by-owner benefit test? Book a strategy call with Anshul Goyal, CPA EA FCA and lock in your 2025 PTET game-plan. Schedule now
Disclaimer
Anshul Goyal, CPA EA FCA, is licensed in the United States and admitted to practice before the IRS as an Enrolled Agent. He represents clients in tax litigation and advises American businesses and Indians in the U.S. on cross-border compliance. This content is for education; obtain professional advice for your facts.
Top 5 FAQs
| Question | Quick Answer |
|---|---|
| 1. Can a venture fund claim the PTET credit? | No—partnerships and C-corps cannot receive the credit. |
| 2. Does paying the full PTET in December change the deduction year? | Yes, for cash-basis entities it accelerates the federal deduction to 2025. |
| 3. What if only some founders consent? | Only their income is taxed; credit is allocated to them alone. |
| 4. Can non-CA founders benefit? | Yes, credit offsets California tax on their CA income. |
| 5. Is the election revocable? | No—once made on a timely return, it is irrevocable for that year. |
About Our CPA
Anshul Goyal, CPA EA FCA has guided 2,000+ pass-throughs through PTET decisions, multi-state apportionment, and investor K-1 planning—saving over $200 million for innovators in AI and tech.