SALT Deduction Planning
Navigate the $40,000 state and local tax deduction cap through strategic entity structuring — particularly the Pass-Through Entity Tax (PTET) election available in most states, which allows the deduction to flow through business entities and bypass the individual cap entirely.
The Tax Cuts and Jobs Act capped the federal deduction for state and local taxes (SALT) — property taxes, state income taxes, or sales taxes — at $10,000 per year for individuals filing jointly. The One Big Beautiful Bill Act raised this to $40,000 for 2025–2029 for households earning under $500,000. Above $500,000, the cap phases back toward $10,000. For high-income earners in high-tax states like California, New York, New Jersey, and Georgia, this still represents a significant lost deduction compared to the pre-2018 unlimited deduction.
Most states have enacted Pass-Through Entity Tax (PTET) elections in response to the SALT cap. The PTET allows S corporations and partnerships to elect to pay state income tax at the entity level — rather than having the income flow to individual owners who then pay state tax personally subject to the $40,000 cap. The entity-level tax is fully deductible as a business expense for federal purposes, effectively bypassing the individual SALT cap entirely for business income.
Georgia, for example, has enacted a PTET election that allows S corporation and partnership owners to have their Georgia income tax paid at the entity level — making it a fully deductible federal business expense rather than a capped individual itemized deduction. For a Georgia S corporation owner paying $80,000 in Georgia income tax on $800,000 of S corporation income, the PTET election converts a capped individual deduction into a fully deductible entity expense — recovering $29,600 in federal taxes (37% of $80,000).
- PTET converts capped individual SALT deductions into fully deductible entity-level business expenses — restoring the pre-2018 unlimited SALT deduction for business income flowing through pass-through entities.
- Available for most S corporations and partnerships — the election is made at the entity level and applies to all qualifying income of the entity.
- Owners receive a state tax credit or deduction equal to their share of the PTET paid — preventing double-taxation at the individual state level.
- The federal benefit is immediate and certain — the entity deduction reduces federal taxable income dollar for dollar.
- PTET rules vary significantly by state — not all states have enacted PTET elections, and those that have implemented them differently. Georgia, California, New York, and most other major states have PTETs, but the mechanics differ.
- The election must be made at the entity level — all owners are affected by the election, and it requires coordination among all partners or shareholders.
- Cash flow implications — the entity must pay the state tax (rather than individual owners making estimated payments), which affects entity-level cash management.
- Does not help with property taxes above the individual SALT cap — PTET only addresses state income taxes paid on pass-through business income.
Confirm PTET availability and mechanics in each relevant state
For every S corporation and partnership entity a client owns, we confirm whether the state of doing business has an enacted PTET, what the election mechanics are, and whether electing is beneficial given the client's complete tax picture. Some states require annual election; others are permanent once made.
Shurek — annual review for every pass-through entity clientMake the election at the entity level
The PTET election is made on the entity's state tax return or through a separate election form, depending on the state. For Georgia entities, we include the election on the Georgia pass-through entity return. All owners must be informed of the election since it affects their individual state returns.
Shurek — filed with entity's state returnCoordinate individual state return with PTET credit
Each owner claims a credit on their individual state return for their share of the PTET paid by the entity. This prevents double-taxation — the state taxes the income once at the entity level and gives the individual a credit so it is not taxed again personally. We prepare both the entity state return and the individual state returns in coordination.
Shurek — coordinated between entity and individual returns| Form | Name | When Due | What It Does and Why It Matters |
|---|---|---|---|
| 1040 | Individual Income Tax Return | April 15 (extension to October 15) | The PTET election's federal benefit flows to the personal 1040 indirectly — the entity deducts the state tax as a business expense, which reduces the K-1 income flowing to the individual's return. The individual no longer claims a SALT itemized deduction for that income (because the entity already deducted it). The net effect: lower K-1 income on the 1040 equal to the amount the entity paid in PTET — a clean, certain deduction restoration. |
| State Entity Return | Georgia Form 600S or equivalent in other states | Per state deadline — typically March 15 or April 15 | The PTET election is made on this return and the entity-level state tax is paid and reported here. The federal deduction flows from the entity return to the federal entity return (Form 1120-S or 1065) as a business expense, reducing the K-1 income reported to each owner. Getting this return right is essential — the federal benefit depends entirely on the proper entity-level state filing. |
| State Individual Return | Georgia Form 500 or equivalent | Per state deadline | Each owner claims the PTET credit on their individual state return, offsetting their individual state tax liability for their share of the income that was already taxed at the entity level. Without this credit, owners would be double-taxed — paying state tax at the entity level and again personally. We prepare individual state returns in coordination with entity returns to ensure the credit is properly claimed. |
Annual PTET election confirmation and state-law monitoring for changes. Entity-level state return preparation with PTET election. Individual state return preparation with PTET credit coordination. Federal entity return reflecting PTET as a business expense deduction. Cash flow advising for entity-level state tax payments. Multi-state analysis for entities operating in multiple states with different PTET rules.
The PTET election must be made and paid before key deadlines. Unlike individual SALT deductions which are claimed after the fact, the entity-level PTET requires proactive payment and election.
PTET Election Confirmation and Cash Flow Planning
Confirm the PTET election is in place for all qualifying entities. Estimate the year's state tax and advise the entity on cash needed for year-end PTET payment.
Entity PTET Estimated Payments Due
Some states require quarterly or annual PTET estimated payments. Missing these triggers entity-level underpayment penalties. We calendar state-specific payment deadlines for every PTET client.
Entity Return Filed — PTET Election and Payment Reported
State entity return confirms the PTET election and reports the tax paid. K-1s issued to owners reflecting PTET-reduced income. Federal entity return deducts PTET as a business expense.
Individual State Returns — PTET Credit Claimed
Owners claim their PTET credit on individual state returns. Federal 1040 reflects lower K-1 income. The full circle of the PTET benefit is realized here.
State Law Monitoring
PTET rules evolve as states refine their elections. We monitor changes to Georgia law and any other state where clients have qualifying entities.