Pass-Through Entity Tax (PTET) deductibility under threat

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A provision in the tax legislation released by the House Ways and Means Committee threatens to eliminate the tax deduction for pass-through entities (PTE), including accounting firms. If passed, this provision would raise taxes on partners/owners of millions of service-based small and midsize businesses, including CPA firms, to pay for corporate tax cuts.

What’s at stake?

The bill eliminates the PTET deduction for Specified Service Trades or Businesses (SSTBs) — including accountants, doctors, lawyers, and more. It disallows the entity-level deduction of state and local taxes for these businesses, subjecting partners/owners to the individual state and local taxation (SALT) cap, even though corporations face no such limit. This raises taxes on CPA firms and other SSTBs, making them worse off than they were under the Tax Cuts and Jobs Act (TCJA). The bill favors C corporations, which still enjoy unlimited deductions for state and local taxes as well as a 21% tax rate, at the expense of other businesses.

Why this matters for CPAs and their clients!

Pass-through entities represent the majority of American businesses. PTET deductions help mitigate the unfair $10,000 SALT cap placed on individuals through the TCJA by shifting the tax burden to the entity level. This proposal discriminates against service businesses that are the backbone of local economies — including accounting firms.

Act now!

Contact your members of Congress by Wednesday, May 21 through the VSCPA's easy-to-use VoterVoice system. The message is pre-written (or you can write your own). Just hit send!

Questions? Concerns?

Contact Emily Walker, VSCPA vice president, advocacy and pipeline.