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Are you a small business owner sweating the $10,000 SALT cap—or eyeing a lifeline as it nears its 2025 sunset? The Tax Cuts and Jobs Act (TCJA) capped state and local tax (SALT) deductions in 2017, raking in over $100 billion yearly—20–30% from pass-throughs like S corps—yet left C corporations unscathed, per IRS data. Now, the Bipartisan Policy Center (BPC) suggests rolling back “SALT Parity” laws in 36 states that let PTEs dodge the cap, sparking debate. “It’s a Main Street lifeline,” argues the S-Corp coalition, while BPC warns of TCJA’s spirit. With parity’s fate unclear, are you poised to lose big—or cash in on a workaround?
The 2025 SALT Cap Landscape
SALT Cap Origins and Impact
Born in the 2017 TCJA, the $10,000 SALT cap limits deductions for state income, property, and sales taxes, hitting high-tax state residents hardest, per IRS guidelines. Set to expire post-2025, it’s a $100 billion revenue juggernaut—half offsetting the 199A deduction’s relief, per BPC estimates. Pass-throughs—S corps, partnerships, LLCs—bear 20–30% of this burden, losing deductions C corps keep, per Treasury analysis. “It’s an imbalance baked into TCJA,” S-Corp notes, with California S corps facing 5-point marginal rate hikes, per their 2017 Senate critique.
The Parity Workaround
Enter the SALT Parity workaround: 36 of 41 income-tax states let PTEs pay SALT at the entity level, deducting it as a business expense—mirroring C corps—per CCH State Tax SmartCharts. IRS Revenue Ruling 2020-75 greenlit this in 2020, affirming, “Entity-level taxes reduce owners’ income shares as under prior law.” Owners sidestep the $10,000 cap, slashing tax bills, per Treasury reports. “It’s not a loophole—it’s equity,” S-Corp insists, countering BPC’s rollback call.
BPC’s Pushback and Proposals
BPC’s February 2025 report challenges parity, claiming, “It violates TCJA’s intent—35 states let pass-throughs bypass the cap.” They propose closing this “workaround” and capping C corp SALT deductions too, per their analysis. “Why cap the hardware store but not Home Depot?” S-Corp retorts, noting parity’s reliance on C corp deductions. Without parity, pass-throughs could face doubled rates—40% vs. 20%—per TCJA data.
Key Features at Stake
- SALT Cap: $10,000 limit for individuals—PTEs dodge via entity taxes.
- Parity Laws: 36 states restore deductions—BPC seeks reversal.
- C Corp Edge: Full SALT deductions persist—parity levels the field.
- 199A Balance: $100 billion cap revenue offsets half its benefit.
Economic and Business Impacts
The SALT cap’s $100 billion haul reshapes Main Street—pass-throughs in high-tax states like New York lose deductions, hiking rates 2–3 points on average, per BPC stats. Parity laws ease this pain, saving owners thousands, per IRS filings—pleasure for small firms, pain for BPC’s revenue goals. “It’s a C corp loophole, not ours,” S-Corp argues, noting TCJA’s 20% corporate rate versus 40% pass-through rates post-199A.
If parity ends, small businesses face a tax wall—California S corps could see 5% rate jumps, per S-Corp estimates, while C corps glide free. Congress faces two paths: keep parity for all businesses or cap everyone, raising billions to lock in 199A, per BPC projections. “Either way, Main Street’s at stake,” an IRS official hinted, reflecting Treasury’s 2020 stance. Will your bottom line buckle or bloom?
What This Means for You
Don’t let the SALT cap showdown catch you flat-footed—here’s your playbook:
- Check Eligibility: Own an S corp or LLC? 36 states offer parity—review CCH SmartCharts at irs.gov.
- Elect Entity Taxes: File PTE elections by state deadlines—secure deductions now, per IRS 2020-75.
- Weigh Risks: BPC’s rollback looms—use [SALT Parity Calculator] to gauge impacts, per state tax sites.
- Plan Ahead: Cap sunsets post-2025—consult advisors for 2026 shifts, per Treasury guidance.
Act fast—parity’s lifeline could snap.
Conclusion: Steer Your 2025 SALT Strategy
The 2025 SALT cap debate pits parity’s $100 billion relief against BPC’s rollback call—small businesses hang in the balance. With 36 states backing pass-throughs and C corps untaxed, fairness teeters. “Parity aligns with TCJA’s letter,” S-Corp told Reuters, countering BPC’s stance. Dodge the tax hike or lock in savings—steer your 2025 strategy now, per IRS clarity.
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