Have you ever sat down with a cup of coffee, staring at a pile of tax forms, wondering how the latest policy changes might hit your wallet? For many small business owners, that’s the reality right now, especially with the buzz around the House GOP’s latest tax proposal. Dubbed the “One Big Beautiful Bill Act,” this legislation is stirring up conversations, particularly about the state and local tax (SALT) deduction and its popular workaround for pass-through businesses. I’ve always found tax policy to be a bit like a chess game—complex, strategic, and sometimes frustratingly opaque. Let’s break it down and explore what this bill could mean for business owners like you.
The SALT Deduction: A Quick Refresher
Before we dive into the nitty-gritty, let’s get on the same page about what the SALT deduction is. Essentially, it allows taxpayers who itemize their deductions to subtract certain state and local taxes—like property, income, and sales taxes—from their federal taxable income. Sounds simple enough, right? But here’s the catch: since the Tax Cuts and Jobs Act (TCJA) of 2017, there’s been a $10,000 cap on this deduction, which has been a sore spot for folks in high-tax states like California or New York. For business owners, this cap can feel like a punch to the gut, especially when state taxes eat up a big chunk of profits.
Why does this matter? Well, if you’re running a small business, every dollar counts. The SALT cap limits how much you can shield from federal taxes, which can sting when you’re already juggling payroll, inventory, and those unexpected expenses that always seem to pop up. Enter the workaround—a clever strategy that’s been a lifeline for many.
The Pass-Through Entity (PTE) Workaround Explained
Here’s where things get interesting. To dodge the $10,000 SALT cap, many pass-through businesses—like partnerships, S corporations, or LLCs—have turned to a state-level workaround called the pass-through entity (PTE) tax. This strategy lets business owners pay state taxes through their business rather than as individuals, sidestepping the federal cap. The result? Owners can deduct their share of state and local taxes paid by the business, effectively bypassing that pesky $10,000 limit.
The PTE workaround has been a game-changer for small businesses in high-tax states, offering a legal way to maximize deductions.
– Tax policy analyst
Picture this: you’re a doctor running a private practice in New Jersey. Your state taxes are sky-high, and the $10,000 SALT cap barely covers a fraction of what you owe. By using the PTE workaround, you funnel those taxes through your practice, deducting the full amount on your federal return. It’s like finding an extra $20,000 in your budget—money you can reinvest in your business or, let’s be honest, maybe take a well-deserved vacation.
As of early 2025, over 30 states and even New York City have rolled out versions of this workaround. Each state has its own rules, but the core idea is the same: shift the tax burden to the business level to unlock bigger deductions. It’s been a lifeline for professionals like lawyers, accountants, and consultants—folks who often fall into the category of specified service trade or business (SSTB). But here’s where the new tax bill throws a wrench into the plan.
What’s Changing with Trump’s Tax Bill?
The House-approved “One Big Beautiful Bill Act” is making waves, and not just for its catchy name. This legislation proposes some big shifts, including raising the SALT deduction cap to $40,000 for those earning up to $500,000. Sounds generous, right? But there’s a twist: the bill could pull the plug on the PTE workaround for certain businesses, particularly those classified as SSTBs. If you’re a lawyer, doctor, or financial advisor, this could hit you hard.
- Increased SALT Cap: The bill bumps the federal SALT deduction limit to $40,000, phasing out for incomes above $500,000.
- QBI Deduction Boost: The qualified business income (QBI) deduction for pass-through businesses would rise to 23%.
- SSTB Restrictions: Specified service businesses would lose access to the PTE workaround, limiting their SALT deductions.
Why target SSTBs? It’s a question I’ve been mulling over, and frankly, it feels a bit unfair. These professionals—think doctors saving lives or accountants keeping your books in order—often face high state taxes due to their income levels. Blocking them from the workaround while letting other businesses keep it seems like a double standard. Some experts argue it’s about closing what they see as a “loophole,” but others, including myself, wonder if it’s just penalizing certain professions.
Eliminating the SALT workaround for SSTBs could unfairly disadvantage professionals who are already navigating complex tax landscapes.
– Accounting industry spokesperson
Meanwhile, non-SSTB businesses could come out ahead. Not only would they benefit from the higher QBI deduction, but they’d also keep access to the PTE workaround, potentially deducting unlimited SALT amounts. It’s like giving one team a head start in a race while tying the other’s shoelaces together.
Who’s Affected and How?
Let’s get specific about who’s in the crosshairs. If you run an SSTB—think white-collar professions like medicine, law, or consulting—you could lose the ability to use the PTE workaround. This means you’d be stuck with the $40,000 SALT cap (or less if your income is over $500,000), while other business owners might still deduct their full state and local taxes through their businesses. Here’s a quick breakdown:
| Business Type | SALT Deduction Access | QBI Deduction |
| SSTB (e.g., Doctors, Lawyers) | Limited to $40,000 cap | Limited by income |
| Non-SSTB (e.g., Retail, Manufacturing) | Unlimited via PTE | Up to 23% |
For SSTB owners, this could mean thousands of dollars in lost deductions. Imagine you’re a dentist in California with $50,000 in state taxes. Under the current system, you might deduct the full amount via the PTE workaround. If the bill passes as is, you’re capped at $40,000—or less if your income is high enough to trigger the phase-out. That’s real money you could’ve used to upgrade equipment or hire staff.
On the flip side, if you own a non-SSTB business, like a retail store or a construction company, you’re in a sweeter spot. You’d keep the workaround and get a juicier QBI deduction. It’s not hard to see why some are calling this bill a mixed bag—great for some, not so much for others.
Why the Pushback?
Not everyone’s thrilled about these changes. Industry groups, particularly those representing accountants and other professionals, are raising red flags. They argue that targeting SSTBs creates an uneven playing field, especially since these businesses can’t easily reorganize as C corporations to dodge the restrictions. It’s like being stuck in a tax trap with no way out.
The proposed changes could put SSTBs at a significant economic disadvantage, limiting their ability to compete.
– Tax policy advocate
There’s also the question of cost. Some analysts suggest the PTE workaround is a pricey loophole, potentially costing states and the federal government billions. But without clear data, it’s hard to say whether closing it for SSTBs is a smart fiscal move or just a way to target certain professions. Personally, I think lawmakers owe us a clearer picture of the numbers before making such a big change.
What’s Next for the Bill?
Here’s the deal: the bill isn’t law yet. It’s passed the House, but the Senate is where things get tricky. Negotiations could tweak the SALT provisions, potentially softening the blow for SSTBs or even scrapping the workaround restrictions altogether. Tax policy is like a tug-of-war—everyone’s pulling for their own interests, and the final outcome is anyone’s guess.
- Monitor Senate Talks: Keep an eye on updates as senators debate the bill’s details.
- Consult Your Tax Pro: If you’re an SSTB owner, talk to your accountant about how to prepare.
- Plan for 2026: The SALT cap is set to expire after 2025, so long-term strategies are key.
In my experience, tax changes always spark a flurry of planning. If you’re a business owner, now’s the time to get ahead of the curve. Maybe it’s restructuring your deductions or exploring other tax-saving strategies. The key is staying informed and proactive.
Navigating the Tax Maze
Let’s be real: taxes are never fun. But understanding how policies like the SALT deduction and PTE workaround affect your business can make a huge difference. The proposed changes in the “One Big Beautiful Bill Act” could reshape the tax landscape for pass-through businesses, with some coming out as winners and others facing new hurdles. For SSTB owners, the loss of the workaround stings, but there’s still time to adapt.
Perhaps the most interesting aspect is how this bill highlights the complexity of tax policy. It’s not just about numbers—it’s about fairness, competition, and the real-world impact on small businesses. As the Senate debates the details, I’ll be watching closely, and I suggest you do too. After all, in the game of taxes, knowledge is your best defense.
Tax Planning Checklist: - Review your business structure - Assess state tax liabilities - Explore alternative deductions - Stay updated on Senate changes
So, what’s your next move? Whether you’re an SSTB owner bracing for change or a non-SSTB business eyeing new opportunities, the tax world is shifting. Grab another coffee, pull out your calculator, and let’s navigate this together.
