Trump-Backed Tax Bill Could End Salt Deduction Workaround for Some Business Owners

A House-approved Republican tax bill could eliminate a widely used state tax workaround for certain pass-through businesses, drawing concern from industry groups and tax policy experts.

The proposed legislation, titled the “One Big Beautiful Bill Act,” would raise the federal deduction cap for state and local taxes (SALT) to $40,000, phasing out entirely for incomes above $500,000. However, it would also end the ability of specified service trade or businesses (SSTBs)—such as doctors, lawyers, and financial advisors—to use the popular SALT deduction workaround at the state level.

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Currently, many pass-through entities bypass the $10,000 federal SALT deduction cap, imposed under the 2017 Tax Cuts and Jobs Act (TCJA), by using a pass-through entity (PTE) tax. As of May 9, 36 states and New York City have enacted such workarounds, according to the American Institute of Certified Public Accountants (AICPA). The method allows business owners to pay SALT through their entity and deduct the full amount federally.

The House bill would prohibit SSTBs from accessing this strategy, while non-SSTBs would continue to benefit. These businesses could receive both the expanded 23% qualified business income (QBI) deduction and the unlimited SALT deduction via the PTE method, pending income thresholds.

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“This loophole is likely expensive, and lawmakers and the public should demand a clear accounting of the fiscal cost to bless workarounds for this favored group,” said Mike Kaercher, deputy director of the NYU Tax Law Center.

In a May 29 letter, AICPA urged the Senate to preserve the workaround for SSTBs, arguing that these businesses would be “unfairly economically disadvantaged” and lack alternatives such as converting to a C corporation.

The bill remains subject to revision during ongoing Senate negotiations.