The SALT deduction cap has been one of those tax rules that clients would rather not talk about. The Tax Cuts and Jobs Act, for years, limited the federal deduction for certain state and local taxes to $10,000. This left many business owners with a common question: What can we really do about this?
The Pass-Through Entity Tax (PTET) gives eligible partnerships and S corporations a method of paying certain state income taxes at the entity level. This helps prevent the compulsion of paying them personally. This federal treatment allows the entity-level tax payment to be deducted in determining pass-through income, while the owner may receive a corresponding state tax credit, depending on the state’s rules. The IRS confirmed this treatment in Notice 2020-75.
Although the SALT deduction cap has changed significantly, PTET continues to be relevant. With the One Big Beautiful Bill Act, the individual SALT deduction limit was increased to $40,000 in 2025, with adjustments in later years, but the deduction remains subject to income-based limitations.
For CPA firms, that changes the conversation.
PTET isn’t simply another provision to remember during tax season. For the right client, it can become part of a broader tax-planning discussion: Does this client qualify? What could the numbers look like? What does the state require? And what could go wrong if the election, payment, or credit isn’t handled correctly?
That’s where the real work begins.
What is important to The benefit can be meaningful, but PTET isn’t a universal election. Entity structure, state rules, ownership, residency, election deadlines, payment requirements, and credit treatment can all affect the outcome. Multi-state businesses can add another layer of complexity.
So rather than treating PTET as a tax-code curiosity, this guide approaches it as a practical decision-making exercise.
Inside, you’ll find a simple PTET framework to help your team:
- Identify clients who may warrant a closer look
- Compare a PTET scenario with the traditional approach
- Estimate the potential federal benefit
- Check the key state-level considerations
- Stress-test the cash-flow and compliance implications
- Avoid common implementation mistakes
Because the best tax strategies aren’t the ones that sound clever.
They’re the ones you can explain clearly, model confidently, and execute correctly.