New York Business Owners: Demystifying the PTET and Your SALT Deduction

New York Business Owners: Demystifying the PTET and Your SALT Deduction

As a New York business owner, you’re likely aware of the Pass-Through Entity Tax (PTET) election and its potential benefits. It’s a powerful tool for managing your tax liability. But a question I’ve heard frequently, and one a client recently posed to me, is: “If I take the PTET election, can I still claim the State and Local Tax (SALT) deduction on my personal return?”

It’s a great question, and one that gets to the heart of maximizing your tax efficiency. The good news? My answer is a resounding yes, you can!

Let’s break down why this is the case and how it can potentially benefit you even further.

Understanding the Synergy: PTET and SALT

The key to understanding this lies in how the PTET is structured and where its deduction occurs:

• PTET is Deducted at the Entity Level: When your business makes the PTET election, the tax is paid and deducted at the business entity level, not on your personal income tax return. This is crucial because it directly reduces your federal taxable income before any personal deductions come into play.
• Enhanced Benefit with a Potential SALT Cap Increase: There’s ongoing discussion and potential for the federal SALT deduction cap to be increased. If this happens, it won’t diminish the value of your PTET deduction. In fact, it will do quite the opposite – it will enhance your overall tax benefit. You’ll already have the advantage of the PTET reducing your business’s federal taxable income, and a higher SALT cap would then allow you to deduct even more state and local taxes on your personal return.
• Double the Advantage: This means you stand to benefit from both sides: the significant tax savings generated by the PTET deduction at the entity level, and potentially a larger SALT deduction on your personal return if the cap is raised. It’s a powerful one-two punch for tax optimization.

Beyond the Refund: The Bigger Picture of PTET Savings

It’s also important to consider that your tax refund isn’t the sole indicator of your tax savings. The PTET election may be saving you a substantial amount in taxes, even if you don’t see a significantly larger refund.

Why? Because the PTET reduces your federal taxable income directly. If your withholdings or estimated payments weren’t perfectly aligned with this reduction, your refund might not reflect the full extent of the tax savings. The savings are happening “behind the scenes” by lowering your overall taxable base.

Stay Informed, Stay Ahead

Tax policy is dynamic, and changes can roll out quickly. Staying on top of these developments, especially concerning the SALT cap and its interplay with the PTET, is essential for New York business owners. Proactive planning and understanding how these regulations impact your specific situation can lead to significant savings.

Want to Learn More?

Navigating the complexities of business tax can be challenging, but you don’t have to do it alone. If you’re a New York business owner and want to delve deeper into how the PTET election can specifically benefit your situation, or if you have other tax-related questions, I’m here to help.

Book a call with me today, and let’s talk: https://calendly.com/mariyaluqmanicpapc/15

Let’s work together to ensure you’re maximizing your tax advantages and building a more financially resilient business.

PTET vs SALT Cap Deduction Comparison

Assumptions:

– Filing Status: Married Filing Jointly

– State/local income taxes paid (business): $85,000

– State/local income/property taxes paid (personal): $55,000

– Current SALT cap: $10,000 (in effect as of 2025)

– Proposed SALT cap under new legislation: $40,000

Scenario 1: PTET Election Made

Scenario 2: No PTET Election

Summary