AICPA Rallies to Protect SALT Deduction for Pass-Through Entities

The debate over the state and local tax (SALT) deduction has resurfaced — and this time, it could hit pass-through entities (PTEs) hard.

In a move that’s catching the attention of tax professionals nationwide, the American Institute of CPAs (AICPA) has launched a renewed advocacy push to protect the PTE-level SALT workaround, which has become a vital strategy for high-income small business owners navigating the $10,000 federal SALT deduction cap.

What’s at Stake?

Under the Tax Cuts and Jobs Act (TCJA) of 2017, the individual SALT deduction was limited to $10,000 — a cap that disproportionately impacted high-tax states and pass-through businesses filing on individual returns. In response, many states implemented PTE tax elections, allowing owners of S corps, partnerships, and LLCs to deduct state taxes at the entity level — bypassing the SALT cap on personal returns.

But now, with budget negotiations and broader tax reform efforts heating up in Congress, the future of this workaround is in question.

Some lawmakers are considering removing or restricting the PTE deduction in an effort to raise revenue or align policy across states. That’s prompted a rapid response from the AICPA, which this week issued updated guidance, advocacy letters, and technical FAQs to help tax practitioners defend this deduction.

Why It Matters

According to the AICPA, eliminating the PTE-level SALT deduction would have sweeping consequences for:

• Small and mid-sized business owners, especially in states like California, New York, New Jersey, and Illinois

• Tax equity, as PTE owners would lose a deduction that many C corps still enjoy

• State revenue systems, which have already adapted to the current PTE tax framework

The AICPA’s stance is clear: repealing or weakening this provision would create unnecessary complexity, double taxation in some cases, and financial strain on entrepreneurs.

What Tax Professionals Should Do Now

If you advise clients with pass-through entities, this is the time to:

• Review existing PTE elections for 2024 and 2025 filings

• Stay informed on pending legislation that may alter deduction eligibility

• Prepare clients for potential changes to state tax treatments

• Consider building flexibility into 2025 tax strategies to pivot if needed

  
  

Legislative Outlook

While no official repeal bill has been introduced yet, proposals are surfacing in committee-level negotiations. With many TCJA provisions expiring after 2025, Congress is actively reassessing deductions, credits, and revenue raisers to shape the next generation of tax law.

The PTE SALT deduction — while technical — is squarely on that radar.

How Bizora AI Helps You Stay Ahead

Bizora AI monitors legislative developments across federal and state tax systems and delivers structured, plain-English summaries with actionable insights.

With Bizora, you can:

• Search each state’s SALT workaround rules instantly

• Generate custom client memos explaining potential changes

• Stay current on AICPA alerts, IRS guidance, and state tax updates — all in one place

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Want to know if your clients will lose the PTE deduction?→ Ask Bizora AI and get a real-time answer backed by sources.