After sending my post, I thought about the accrual basis issue.   Was going to follow up after dinner.

I haven't worked on the accrual basis client with FTE Tax (have only two, info hasn't come it....).  Didn't research too deep the deductibility on 2021 federal return for accrual basis taxpayers. 

If you conclude it's deductible for 2021 for accrual clients, select Option 1.  I hope you share your conclusion on whether accrual clients can deduct the tax (to be paid in 2022) on 2021 Form 1120 .

Anyway, if you want to deduct it on federal for 2021, pick option 1.   

CA M-1 starts with Line 1 of 100S, therefore it starts with the net income AFTER the state tax deduction.  I imagine, on M-2, you would see the tax added back once and deducted once, because the state tax is non-deductible for CA but the non-deductible expense would still lower the basis.  I haven't tried it on Lacerte.  (This would be the same under Option 2 - if a state tax is manually entered the amount should be added back once and subtracted once.) 

Have to get back to my Bourbon...