Pass-through Entity Tax
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).
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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.
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