Expanded SALT Deduction for Businesses: A 2025 Tax Planning Opportunity
State and local taxes (SALT) have been a sticking point for high-income business owners since the Tax Cuts and Jobs Act (TCJA) capped deductions at $10,000 in 2018. That cap limited how much individuals and pass-through businesses could deduct on federal returns, leading to significantly higher tax bills in high-tax states.
But 2025 brings an opportunity. Expanded SALT deduction options—particularly through state-level pass-through entity (PTE) tax elections—are changing the game.
This is a moment business owners should not ignore. With the right strategy, you can legally lower your federal taxable income and potentially save thousands of dollars.
1. A Quick Refresher: What is the SALT Deduction?
The SALT deduction allows taxpayers to deduct certain state and local taxes (like income and property taxes) from their federal taxable income.
Before 2018, there was no hard cap. But the TCJA capped the deduction at $10,000 ($5,000 if married filing separately), which hit businesses and high earners in states with higher taxes the hardest.
Now, with updated IRS guidance and state-level workarounds, the deduction is seeing a revival.
2. How the Expanded Deduction Works for Businesses
Many states have enacted pass-through entity (PTE) tax elections, which allow partnerships and S corporations to pay state income taxes at the entity level instead of the individual owner level.
Why does this matter?
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Entity-level taxes are fully deductible on the business’s federal return.
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This bypasses the $10,000 SALT cap that applies at the individual level.
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Owners receive a credit or adjustment on their personal return for their share of the tax paid.
If you operate as an LLC, partnership, or S corporation, this could mean significant savings.
3. What This Means for 1099 Physicians
If you’re a 1099 physician, this tax planning opportunity is especially relevant.
Many independent physicians earn substantial income as sole proprietors. Without a formal business structure, they’re forced to report all income on Schedule C and are hit with the SALT cap as individuals.
By restructuring your practice income through an LLC or S corporation, you may be able to:
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Elect PTE-level taxation to bypass the $10,000 SALT cap
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Deduct your full state income tax at the business level
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Lower your federal taxable income significantly
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Combine the SALT deduction with other strategies like retirement plan contributions or business expense deductions
This makes entity structure more important than ever for 1099 physicians. Here’s a full 1099 contractor guide for doctors if you’re still unsure of your best option.
The bottom line: 1099 physicians should review their tax structure now. The expanded SALT deduction could be a game-changer if you operate in a high-tax state.
4. Which Businesses Should Be Paying Attention?
This strategy is especially valuable if you:
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Operate in a high-tax state
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Own a pass-through entity (LLC, S corp, partnership)
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Have income above the SALT cap thresholds
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Already pay substantial state income taxes
If you’re still a sole proprietor or don’t have a formal business structure, now might be the time to revisit your entity type. This guide breaks down how the right structure can improve your tax outcome.
5. Steps to Take Before Year-End
The window for making these elections is often limited. Here’s what you should do:
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Confirm your state’s rules. Not all states have adopted PTE elections. Some have deadlines for opting in.
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Review your 2025 income projections. The higher your income and state tax burden, the more this matters.
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Work with a tax advisor. They can calculate the potential savings and ensure the election is made correctly.
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Revisit your business structure. Entity choice matters more than ever when using these deductions.
6. SALT Deduction and Overall Tax Planning
Expanded SALT deductions aren’t the only way to reduce your tax burden. Consider combining them with other strategies:
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Retirement plans with high contribution limits
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Tax-advantaged insurance models like captive insurance or private insurance
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Market loss harvesting if investments underperform (see how)
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Tax-free travel reimbursements for S and C corporations (details here)
A well-rounded plan can multiply your savings.
7. What About Sole Proprietors or W-2 Employees?
Unfortunately, the PTE election does not apply to sole proprietors or W-2 employees.
However, you may still benefit by restructuring your business into an LLC or S corporation. This is where having a tax advisor matters. They can evaluate whether the potential SALT deduction and other tax benefits justify the change.
FAQ: Expanded SALT Deduction
Does every state offer the PTE election?
No. Each state has its own rules. Some have adopted the election permanently, others temporarily, and a few have not adopted it at all.
Can you make the election retroactively?
In some states, yes, but it depends on their rules. Many require the election to be made during the tax year.
Does this eliminate the $10,000 SALT cap?
No—the cap still applies to individuals. But by paying the taxes at the entity level, you legally bypass the cap.
Is this only for large businesses?
No. Even smaller pass-through businesses can benefit if their owners pay substantial state income tax.
Can a tax advisor help me evaluate this?
Yes. This strategy is complex and state-specific. The savings can be significant, but the election has to be made correctly.
The expanded SALT deduction and PTE elections represent one of the best tax planning opportunities of 2025 for business owners—and especially for 1099 physicians.
Don’t wait until it’s too late. Talk to your tax advisor now, review your state’s requirements, and decide whether restructuring or electing entity-level taxation can help you keep more of your hard-earned money.
Ready to talk strategy? Start here.
Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.
This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.