Attention clients who are members of a specified service trade or business (SSTB) entity that currently have the tax advantage of Pass-Through Entity Taxes (PTET) as a workaround for the State and Local Tax (SALT) Deduction limitation. Examples of SSTBs include but are not limited to healthcare, law, accounting, athletics, performing arts, brokerage, and financial services companies. The proposed legislation seeks to eliminate the PTET deduction for SSTBs. This critical tax policy development could significantly impact your business, so we’ve included a recommended action plan you can follow immediately.
Last week, the House Ways and Means Committee introduced tax legislation that would eliminate certain pass-through organizations’ ability to claim the SALT deduction. Under the proposed policy, SSTBs such as doctors, lawyers, dentists, and veterinarians are subject to the federal individual cap on SALT deductions, regardless of the partners’ or owners’ income level or the state in which they reside.
Please note that the bill is quickly moving through Congress, which aims to vote on and pass it before Memorial Day. Therefore, we recommend acting by May 21, 2025.
The sole distinction between the TCJA and the proposed legislation in SALT treatment for pass-through entities lies in its specific application to service providers, who were already restricted under the qualified business income (QBI) deduction for SSTBs.
What you can do
By eliminating the PTET SALT deduction, this bill significantly increases the tax burden on service-based pass-through businesses, including accountants, dentists, doctors, and pharmacists. This widens the disparity between pass-through entities and C corporations. If you oppose this provision, contact your Member of Congress and urge them to reject the targeting of pass-throughs by Wednesday, May 21. Use this link to find and contact your Members of Congress: congress.gov/members.
Sample email blurb to send to your Member of Congress:
I urge you to oppose provisions included in the House Ways and Means Committee’s tax reform legislation that unfairly limits the ability of service-based pass-through businesses to deduct state and local taxes from their federal tax liability. These restrictions are not applied to other business types, creating a clear imbalance in tax treatment. The proposed legislation places an unequal burden on pass-through businesses by indirectly raising their taxes. These provisions significantly widen the disparity between pass-through businesses and other types of businesses, and I strongly urge you to oppose these policies.
We can help
If you have any questions regarding these tax proposals and how it could affect you or your business, feel free to contact your DDK partner.
