Re-Election FTE Reminder or FTE First-Time Election

If the first year that your business elected the Michigan Flow-Through Entity (FTE) Tax was 2021, and your business would like to remain in the Michigan FTE program, then you will want to read this article. If you have not elected the Michigan Flow-Through Entity Tax in the past, then you may want to consider making this election for 2024. Making this election will increase your Federal income tax deductions and overall net savings, however it comes with additional costs to monitor the filing.

If you have a business that elected the FTE tax beginning in 2021, the prior year, 2023 will be the last year in which the initial election is valid, and therefore will be required to make a new FTE tax election for 2024, if your business chooses to remain in the Michigan FTE program.

As you may remember this elective tax was a workaround for the $10,000 state and local tax deduction limitation on a personal Federal income tax return, where prior to 2018 there was no state and local tax deduction limitation. Once this election is made for your business, the business is in the FTE program for a mandatory of three (3) tax years, or until Michigan Treasury ceases the program, which will occur if the $10,000 Federal state and local tax deduction limitation is eliminated or expires as it is scheduled to expire automatically on January 1, 2026. The FTE program’s expiration date is subject to changes in the law, so the future of this program has a likely chance that it may change.

If you would like your business to remain in the Michigan FTE program or if you would like to elect into the Michigan FTE program, you must make a Michigan FTE election/re-election on or by March 15, 2024. To make this (re)election your business will need to make a FTE payment (any small dollar amount will work as this election FTE payment, such as $10) on the Michigan Treasury Online (MTO) system, available through the following link:  mto.treasury.michigan.gov. This elective FTE payment should be scheduled on or by March 13^th for the FTE payment to be credited properly by March 15^th. This payment is the FTE election, there is not a separate election or re-election form.

1. To simplify this payment, the amount paid for the 2024 to 2026 tax year FTE election can be your 1^st Quarter 2024 FTE tax estimate, or

2. Your business can pay a small dollar amount, such as $10, by March 15^th. (This payment adds to your 1^st Quarter tax estimate, so you will still receive credit for this payment.) Then you would make the businesses1^st quarter 2024 FTE tax estimate payment by April 15^th.

Either method above is available, and the decision for the timing of the first quarter tax part of this payment depends on if by March 15^th you do not know what your business income will be for the first quarter, or you want to hold onto those funds for another month. Then you can wait to make the 1^st Quarter payment until on or before April 15^th. Your other choice is to make the 1^st Quarter payment as the FTE election, so that you do not forget to make the 1^st Quarter payment.

Just as a reminder, the Michigan Flow-Through Entity (FTE) Tax is an elective business tax, where the owner of a flow-through business (an entity such as an LLC or Corporation that is taxed as a Partnership or S-Corporation) receives a Federal income tax deduction, and also receives a Michigan tax credit that is equal to the proportion of the owner’s ownership percent of the business to the amount of Michigan FTE tax liability paid in the year. So, for now, unless the Federal law is changed, three years of Michigan FTE tax must be-paid by the business and three years of annual tax returns must be filed through the MTO system. Also, every three (3) years you must re-elect to be part of this elective FTE tax. Although the FTE program maybe available for only 2 years (years 2024 and 2025) with the current Federal law expiring on January 1, 2026.

Unfortunately, the Michigan FTE election is not available to LLCs or Corporations that are taxes as either C-Corporations or as a disregarded entity, such as a business reported directly on your personal income tax return (on Form 1040 Schedule C or Schedule E).

Contact Polk & Associates for more information if you need to re-elect the Michigan FTE for 2024, or if you would like more information on electing the Michigan FTE for the first time.

Happy New Year!

Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.