If you're an S-Corp or Partnership you may be eligible for a tax saving strategy that allows you to deduct the taxes you pay as a business expense.
You will hear about it as a "work-around of the $10,000 federal cap on deducting state and local taxes" but that can be confusing especially if you have no idea if you "itemize" or take the "standard deduction" on your personal tax return.
Regardless of whether you itemize or not, if you're a sole-owner pass -through entity (an S-Corp -or a Partnership) and you are in a state that allows you to "elect" the "Pass-Through Entity Tax" (PTE Tax) then it is a no brainer to move forward with it. This is a tax paid at the state level so if you are on a state without income tax or if your state does not allow this PTE Tax then this does not apply to you.
By choosing to pay this sometimes-higher-tax-rate, you will now be able to deduct those taxes paid as they are business taxes, not personal taxes. That means that it will ultimately reduce your profit for federal purposes and therefore reduce your overall federal tax liability.
As with any taxable deduction (like purchasing office supplies, paying rent, etc) this tax will have to be paid prior to year end if you want to have it be a business expense for that year. So if you're in Connecticut (a state where the PTE is actually mandatory and not an "election"), you will need to pay 6.99% of your estimated profit in taxes to the state by December 31st so that you can take those taxes paid as an expense on your federal tax return.
Every year since 2020, more and more states are allowing this PTE Tax election and the way to make the election depends on the state. States like New Jersey need you to make the election by January 31st of the following year to be able to take advantage of it. States like New York need you to make the election by March 15th of the same year to be able to take advantage of it (so if you're reading this in December, it's too late to make it for this year). While other states like Colorado, Minnesota, Georgia, etc, simply allow you to make the election upon filing the return that same year.
Whether you are looking for ways to save money or pay your taxes ahead of time, this credit allows you to do both!