If you’re a high-income earner in a state like New York, California, or New Jersey, the changes to the State and Local Tax (SALT) deduction in the new “One Big Beautiful Bill” are among the most important financial developments for you in years. While the headline news is the temporary increase of the individual SALT cap to $40,000, the real story lies in a loophole the law chose not to close.

The critical provision for high-income business owners is the preservation of the Pass-Through Entity Tax (PTET) workaround. In the 36+ states with PTET laws, this strategy allows your partnership or S-corporation to pay your state income tax for you at the entity level. The business then deducts the full amount as a business expense—completely bypassing the individual SALT cap.  

While the $40,000 individual cap is a welcome, albeit temporary, improvement, it pales in comparison to the benefit of the PTET. For a partner in a law firm or a consultant with significant income, the PTET can facilitate the deduction of hundreds of thousands of dollars in state taxes that would otherwise be capped. The final version of the OBBB considered limiting this powerful strategy but ultimately left it untouched.  

Your immediate action item is to consult with your tax advisor to ensure your business is structured to take full advantage of your state’s PTET program. This is the single most effective way to mitigate the impact of high state taxes under the new federal law.