Leveraging the Pass-Through Entity Tax (PTET) Workaround

As a physician entrepreneur in a high-tax state, the tax code can feel like a shifting target. But as of July 4, 2025, things have shifted in your favor—at least temporarily.

President Trump’s One Big Beautiful Bill (OBBBA) introduced a major change to the State and Local Tax (SALT) deduction cap. If you're structured as an S-Corp or partnership, this matters deeply for your bottom line. Here's how to leverage both the new SALT cap and the existing PTET (Pass-Through Entity Tax) workaround.

SALT Cap Changes for 2025–2029: A Temporary Win

Here's the latest update:

• The SALT deduction cap is now $40,000 for tax year 2025 (or $20,000 for married filing separately), up from $10,000.

• It will be indexed annually at ~1% through 2029, before reverting to $10,000 in 2030.

• The full benefit applies to filers with AGI under $500K (joint), with a full phase-out at $600K.

What This Means for You

• If you're in a high-tax state and itemize, you might now deduct up to $40K of SALT, significantly reducing earlier limitations.

• But it’s temporary relief—and not everyone qualifies, especially if your income exceeds the AGI thresholds.

PTET Still Stands: Your Strongest Play

The PTET workaround was preserved in the new law.

• S-Corps and partnerships can still pay state taxes at the entity level and receive a federal deduction via the K-1.

• Earlier House attempts to restrict PTET for service-based professions like medicine were removed—doctors remain eligible.

In Your Shoes as a Physician:

• High-tax states? Use the $40K SALT cap + PTET together for compounding tax savings.

• Own an S-Corp micro-business? PTET remains the most strategic tool to bypass SALT limits and reduce federal AGI.

• Earn more than $500K AGI? You may lose access to the SALT cap—but still benefit from PTET.

Evaluate Your Tax Strategy: PTET vs. SALT

Run the numbers:

1. Calculate your federal tax with:

   • SALT deduction alone

   • PTET deduction alone

   • Both combined

2. Consider your income phaseout:

   • AGI under $500K? The SALT cap increase may offer value.

   • AGI above $600K? PTET is likely your only route to reclaiming deduction power.

3. Plan for future years:

   • The $40K SALT cap is temporary.

   • PTET is permanent.

Case Study: Dr. Sapp Uses Both Tools

Dr. Sapp, a New York anesthesiologist with a $600K income, operates under an S-Corp. She normally owes $50K in state tax. Previously, only $10K was deductible.

In 2025:

• Her S-Corp pays $50K in state taxes at the entity level using PTET.

• She deducts that full amount from federal AGI.

• The new $40K SALT cap is phasing out for her AGI, but PTET preserves her savings.

• Result: She saves $18,500 in federal taxes by leveraging PTET.

Your Action Plan

1. Check Eligibility:

   • Must be an S-Corp, partnership, or LLC taxed as such.

2. Review State Rules:

   • More than 30 states offer PTET, including CA, NY, NJ, IL, CT, MA.

3. Elect PTET On Time:

   • Deadlines vary by state—work with your CPA early.

4. Pair PTET with Other Deductions:

   • Solo 401(k), DB Plans, QBI deduction, cost seg studies.

5. Coordinate SALT and PTET Strategically:

   • Bunch payments in 2025–2029.

   • Use PTET to avoid phaseouts if you're high-income.

Lessons from the Field

“One of my clients realized they were overpaying federal taxes by nearly $24,000 annually. Just by electing PTET and adjusting the timing of their quarterly payments, they recovered a massive deduction. These small strategic pivots pay off big.”

Tool of the Week: Physician Employment Contracts – What You Need to Know

Use this checklist to determine how your employment or contractor status affects PTET eligibility and deduction structure.

Scale with Coaching

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👋 Final Thoughts

Yes—the new tax bill changes the SALT cap, raising it temporarily to $40K—but PTET remains fully intact and is still your strongest play to maximize deductions and reduce federal taxable income, especially when practicing in high-tax states.

Now is the time to sit down with your tax advisor and chart a strategy that makes both tools work in your favor.

Stay smart. Stay independent. Stay profitable.