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.
CalCPA and the AICPA are encouraging members to contact their senators by Friday, June 13. To help with the efforts, the AICPA has provided a Pass-Through Entity Tax toolkit that includes:
A backgrounder summarizing the PTET issue
A “Fact or Fiction” resource that breaks down common misconceptions
A map showing states that have enacted or proposed a PTET
Charts highlighting deductions for various entities and states
The tax legislation—known as the "big, beautiful bill"—will unfairly increase taxes for many regional accountants, pharmacists, dentists, and others, but retain deductions for large corporations. The legislative package would eliminate state and local taxes (SALT) for many pass-through entities.
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.
How you can help
CalCPA and the AICPA believe that this bill further increases the lack of parity between pass-through entities and corporations; we strongly oppose the targeting of certain pass-throughs from deducting state and local entity taxes at the federal level. We urge you to contact your senators by Friday, June 13, to express your opposition to this unfair limitation of pass-through entities and ask them to support service trades and businesses.
A sample email could read:
I urge you to oppose provisions included in the House Ways and Means Committee’s tax reform legislation that unfairly target the ability of service businesses structured as pass-through entities to deduct their state and local taxes (SALT) from their federal tax liability while providing no such limit to other businesses. This legislation effectively discriminates against particular pass-through businesses by indirectly raising taxes on those entities that are considered the backbone of the American economy. These provisions greatly widen the disparity in treatment between pass-through entities and other kinds of businesses, and I strongly urge you to oppose these provisions of the bill.
CalCPA will continue to follow this issue and provide any further updates.
