CalCPA is working with the AICPA and other state CPA societies to encourage action opposing the targeting of pass-throughs, such as those of accountants, dentists, doctors, lawyers and pharmacists, through the elimination of the Pass-through Entity Tax (PTET) SALT deduction. This would increase taxes on the partners/owners of many service-based businesses, such as accounting firms, discourage the creation and growth of such businesses, and further expand the disparity between C corporations and pass-through entities.

The AICPA is encouraging members to contact their Congressional representatives to express their opposition to this limitation of pass-through entities and ask them to support service trades and businesses. Please call or email your Senators or Representatives by Wednesday, May 21.

The House Ways & Means Committee recently released its tax legislation, which included language that would eliminate the ability of certain pass-through entities, including accounting firms, to take advantage of the state and local tax deduction for pass-throughs. This legislation would have an impact on the accounting profession and on many of their clients.

Under this legislation, accounting firms will be worse off than they were after the application of the SALT cap under the Tax Cuts and Jobs Act (TCJA) and before the IRS-approved deductions were authorized. Specifically, the proposal newly subjects local entity level taxes to the individual SALT cap.

The proposed tax legislation unfairly subjects specified service trades or businesses (SSTBs), such as accountants, doctors, lawyers, dentists, veterinarians, etc., to the individual cap on state and local income tax deductions at the federal level, regardless of partners’/owners’ income level or the state in which they live.

When comparing the tax treatment of state and local taxes for pass-through entities between the TCJA and this proposed bill, the sole change is the targeting of pass-through service providers, who were already substantially limited under the qualified business income (QBI) deduction for SSTBs.

CalCPA will continue to follow this issue and provide any further updates.