The One Big Beautiful Bill Act of 2025 (OBBBA) has created an important tax planning opportunity for small business owners: the federal cap on state and local tax (SALT) deductions has increased from $10,000 to $40,000 for the 2025 tax year. This significant change could reduce taxable income for many owners of pass-through businesses, including S corporations, partnerships, and sole proprietorships.
At Alloy Silverstein, we advise our clients to review their 2024 tax returns and forecast 2025 results now to determine whether itemizing deductions makes more sense than taking the standard deduction. Strategic planning around charitable contributions, capital expenditures, and the pass-through entity tax (PTET) can help business owners maximize these benefits and minimize their tax liability.
Here’s what you need to know, and what you should do now to prepare.
If you own a business structured as a pass-through entity (like an S corporation, partnership, or sole proprietorship), your business income is taxed on your individual return. With the expanded SALT deduction limit, you may now benefit more from itemizing instead of taking the standard deduction.
In 2024, many small business owners were stuck with using the standard deduction because they couldn’t break past the $10,000 SALT cap. But an extra $30,000 in potential deductions changes the math. Now’s the time to run a 2025 tax forecast using your 2024 return numbers – just plug in the higher deduction cap and see where you land.
If it looks like you’ll be itemizing in 2025, plan accordingly.
With this new opportunity, you should re-evaluate certain financial decisions for your business and personal finances:
Another angle to either consider OR review is the pass-through entity tax (PTET), an option now available in over 34 states. It allows your business to pay your tax on a state business tax return versus your personal tax return. Why does this matter? Because business-paid taxes are fully deductible at the federal level, bypassing the SALT deduction limit altogether.
This strategy can work alongside the new $40,000 SALT cap, potentially saving you thousands more. But if you’re already using the PTET, it may now be a lot less favorable to you and your business.
But PTET isn’t automatic. You need to make a formal election to use it, and each state has its own deadline and requirements. Miss the deadline and you can’t use the PTET for that year and many states don’t let you change your mind. So planning is now key!
Also consider if you need to plan and potentially adjust how you pay your quarterly estimated taxes. If you usually pay estimated state taxes personally, you may need to change this approach. Once you elect PTET, your business pays the estimated state tax. That means deciding early in the tax year is important to determine how you’ll handle those payments.
The expanded SALT deduction under the OBBBA provides a rare opportunity for small business owners to lower their tax liability—but only if you plan proactively. Review your 2024 numbers, evaluate charitable contributions, time capital purchases strategically, and assess whether the PTET election benefits your business.
Alloy Silverstein’s team of CPAs and tax advisors in South Jersey is here to guide you through these decisions and ensure you take full advantage of the new law. Visit our Tax Reform Resource Center or contact us today to start planning your 2025 tax strategy.
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