Pass-through Entity Tax

Published: May 31, 2025

Proposed federal tax legislation could significantly raise taxes on millions of small and mid-sized businesses by eliminating the deductibility of Pass-through Entity Taxes (PTET).

U.S. Capitol in Washington D.C.

Contact Your U.S. Senators

Members are encouraged to contact Senators Ted Cruz and John Cornyn by Friday, June 13. Assets for members usage are available below.

May 16, 2025

The proposed tax legislation from the U.S. House Ways and Means Committee released this week includes significant repercussions for accounting firms and all Specified Service, trades or businesses (SSTBs).

As currently drafted, the legislation takes away the ability to use the pass-through entity tax (PTET) deduction and would disadvantage SSTBs - including accountants, lawyers, dentists, and doctors - by subjecting them to the individual cap on state and local income tax deductions at the federal level. This would apply regardless of the partners’ or owners’ income level or the state in which they reside. By eliminating PTET, the proposed legislation indirectly raises taxes on millions of businesses.

The House Ways and Means Committee’s proposed tax legislation makes the situation worse for pass-through entities, while leaving their competitor corporations’ ability to deduct state and local taxes untouched. Corporations may fully deduct state and local income taxes in determining their taxable income. The federal deduction for state and local income taxes for individuals is currently capped at $10,000. This has a disproportionate impact on business owners who operate as sole proprietorships, disregarded entities, and pass-through entities.

Protect Texas CPAs and Small Businesses: Take Action Today

Proposed changes to the federal tax code could unfairly penalize CPAs and other professionals by eliminating the State and Local Tax (SALT) deduction for Pass-through Entity Taxes (PTET). This would mean higher taxes for partners and owners of many service-based businesses — including accounting firms — and could discourage the formation and growth of these firms.

Help us protect Texas CPAs and the clients you serve

We urge you to contact your Members of Congress and share your concerns. Let them know that eliminating the PTET SALT deduction would deepen the inequity between pass-throughs and C corporations and place an undue burden on professionals who support local economies across Texas.

 

 

Topics:

You May be Interested in

  • TXCPA Urges Texas Delegation to Support Fiscal State of the Nation Act
    TXCPA is encouraging Texas lawmakers to support H.R. 7026, the Fiscal State of the Nation Act. This bill would give Congress clearer, more consistent financial insights and help strengthen long‑term fiscal decision‑making.
  • Navigating Last-Minute Filing Season Details
    The IRS and states are issuing last-minute rules that affect this tax season - mandatory electronic payments, new CP53E refund notices, expanding state e-payment requirements, and updated USPS postmark rules. Practitioners need to stay alert.
  • The IRS May Owe Your Clients Money from the COVID Period
    Recent court decisions have opened a largely overlooked opportunity for significant tax refunds based on mandatory disaster relief under IRC Section 7508A during the federally declared COVID-19 disaster period. As a result, interest and penalties assessed during this period may be invalid and refundable, and some taxpayers who received refunds may also be entitled to unpaid overpayment interest. While uncertainty remains and the IRS may resist such claims, timely protective refund filings are critical to preserve clients rights as the statute of limitations continues to run.
More News

Support the Next Generation

Donate to TXCPA scholarships and help aspiring accountants achieve their goals.

Scholarships