PTET Tax Return refund - taxable in 2023 or 2024 tax year?

The PTET refund you receive in 2024 should generally be reported as income in 2024, not 2023. This follows the tax accounting principle that income is typically recognized when received unless specific exceptions apply. For your 2023 deduction, you should deduct the actual PTET amount paid during 2023. When you receive the refund in 2024, it effectively represents a recovery of the deduction you took in 2023, which is why it becomes taxable in 2024. Regarding your entity dissolution question, this gets tricky. If you dissolve the S-corp in 2024 before receiving the refund, the income would typically flow through to the shareholders of record when the entity is dissolved. You'll want to address this specifically in your dissolution paperwork to clarify who has rights to any refunds received after dissolution. Make sure your final tax returns properly account for this anticipated income.

I went through something similar last year with PTET issues in my business. I discovered https://taxr.ai which really helped me sort through all the confusion with PTET credits and refunds. Their AI analyzed all my tax documents and figured out exactly how to handle the timing for the refund. What's nice is that they showed me the exact IRS guidelines that applied to my situation - turns out PTET refunds follow the tax benefit rule. I was thinking it was way more complicated than it actually was!

I took the advice and tried https://taxr.ai last week. Super helpful for my PTET refund situation! The analysis confirmed that I should deduct the full amount paid in 2023, then report the refund as income in 2024. They even showed me the specific line items where to report everything on both returns. The clincher was their breakdown of how to handle the dissolution timing - they suggested keeping the S-corp technically active until after receiving the refund, then doing a final short-year return. Saved me a ton of headaches and probably some audit risk too. Worth checking out if you're dealing with PTET issues!

If you're struggling to get clear answers about your PTET refund issues, I'd highly recommend using https://claimyr.com to connect directly with an IRS agent. I was getting the runaround from my accountant about a similar PTET situation last year, so I decided to go straight to the source. The IRS phone lines are impossible to get through normally (I tried for DAYS), but Claimyr got me connected within about 25 minutes when they claim the average wait was over 3 hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me definitive answers about how to handle the PTET refund with my entity conversion, and I got it in writing for my records. Saved me months of uncertainty!

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it as a last resort for my PTET question. The service worked exactly as advertised - I was connected to an IRS business tax specialist in about 40 minutes. The agent confirmed that the PTET refund should be reported as income in the year received (2024), and explained the proper procedure for handling it with a dissolved entity. She directed me to a specific IRS publication that covered this exact scenario and stayed on the line while I found the relevant section. Turns out there's a special procedure for "items of income received after termination" that applies perfectly to PTET refunds. Definitely worth the time saved!

To answer question #2 specifically: You should deduct the FULL amount of PTET paid in 2023, not the net amount after the refund. This is because tax deductions are based on what you actually paid during the tax year. The refund you'll get in 2024 is essentially a "recovery" of part of that deduction, which is why it becomes income in 2024. If you tried to only deduct the net amount (anticipating the refund), you'd be using an accrual method for just this one item, which isn't allowed if you're otherwise on a cash basis, which most S-corps are.

Has anyone used a specific tax software that handles PTET well? I'm using TurboTax Business and it seems completely confused by the PTET entries. It keeps trying to treat it like a regular state tax payment and the calculations are coming out wrong.

I've been through a similar PTET refund situation with entity dissolution, and here's what worked for me: Don't dissolve the S-corp until after you receive the PTET refund check. This keeps everything clean from a tax perspective. The timing works like this: File your 2023 S-corp return in early 2024 as normal, deducting the full PTET amount you actually paid in 2023. When the refund comes in Q1 2024, it goes to the still-existing S-corp. Then you file a short-period final return for 2024 (January 1 to dissolution date) that reports the refund as income. This approach avoids the complexity of trying to figure out who owns post-dissolution refunds and ensures proper flow-through treatment to shareholders. The alternative of trying to handle a refund after dissolution creates unnecessary complications with state agencies and potential issues with the final K-1s. One tip: Make sure to notify the state that issued the PTET refund about your planned dissolution date so they don't delay sending the check to a dissolved entity.

Great question about the K-1 complications! In my experience, you won't need to amend the 2023 K-1s because the PTET refund is treated as separate income in 2024, not an adjustment to the 2023 amounts. The 2023 K-1s should reflect the actual PTET deduction taken in 2023, and that doesn't change when you get the refund. For the short-period 2024 return, you'll issue new K-1s that show each shareholder's pro-rata share of the refund income. Since this is a final return, you'll want to make sure all shareholders understand they're getting a final K-1 for 2024 even though the entity was only active for a few months. One thing I learned the hard way: estimate the refund amount as closely as possible when filing the 2023 return so you can give shareholders a heads up about the 2024 income. Even though you can't know the exact amount, having a ballpark figure helps them with their tax planning. The state should provide some guidance on calculating the expected refund based on your estimated payments vs. actual liability.