The tax landscape for high-income earners and business owners has shifted meaningfully heading into 2026. With the passage of the One Big Beautiful Bill Act (OBBBA), the long-anticipated expiration of the original $10,000 SALT cap did not result in full relief. Instead, it introduced a higher, but still limited and more complex system, placing greater importance on proactive tax strategy.
In this environment, tax efficiency is no longer about simply claiming deductions. It is about structuring how those deductions are created in the first place.
One of the most effective tools available under the current framework is the Pass-Through Entity Tax (PTET) election.
PTET allows S-Corporations and partnerships to pay state income taxes at the entity level rather than the individual level. This distinction is critical. When taxes are paid at the entity level, they are treated as a fully deductible business expense on the federal return. This reduces the income reported on the owner’s Schedule K-1.
In practical terms, this creates a powerful outcome:
business owners can effectively bypass the SALT deduction cap for business-related state taxes.
As of early 2026, more than 30 states—including high-tax jurisdictions such as California and New York—have enacted PTET legislation. For business owners operating in these states, this is no longer a niche strategy. It is a core component of tax planning.
While the increased SALT cap provides some relief, it comes with an important limitation.
Once Modified Adjusted Gross Income (MAGI) exceeds $505,000, the allowable SALT deduction begins to phase down. For every additional dollar earned, the deduction is reduced by 30 cents. This creates what is often referred to as the “SALT torpedo”—a gradual erosion of the benefit as income rises.
For high-income earners, this means the headline cap may not reflect the actual deduction available. Without planning, a significant portion of the SALT benefit can be lost.
To maintain access to SALT deductions, managing MAGI becomes a strategic priority.
One of the most effective tools in 2026 is the restoration of 100% bonus depreciation. Accelerating equipment or vehicle purchases can reduce taxable income in the current year, helping bring MAGI below critical thresholds.
The objective is not simply to reduce income—it is to position income within ranges that preserve deductions and minimize phaseouts.
Because the SALT cap is both indexed for inflation and subject to income limitations, the timing of tax payments can influence how much of the deduction is actually captured.
One effective approach is known as “bunching.” For taxpayers near the standard deduction threshold—$32,200 for joint filers in 2026—consolidating property tax payments into a single year may allow them to exceed the standard deduction and fully utilize the SALT cap.
Additionally, ensuring that state estimated tax payments are made before year-end is critical. Payments made by December 31, 2026, may be deductible in the current tax year, provided they fall within allowable limits.
These are not aggressive strategies—they are timing decisions. But when applied correctly, they can meaningfully improve after-tax outcomes.
PTET is not a standalone solution. Its effectiveness depends on how it is integrated into a broader tax plan.
Each of these elements influences the others. When aligned, they create a system that reduces tax exposure while maintaining flexibility.
When disconnected, opportunities are often missed.
Start by determining whether your state offers a PTET election and whether your current entity structure allows you to take advantage of it.
If you operate an S-Corporation or partnership, review how state taxes are currently being paid. Are they flowing through to you individually, or could they be shifted to the entity level?
Next, look at your projected income for the year. Are you approaching thresholds where deductions begin to phase out? If so, consider whether there are opportunities to adjust timing—through purchases, contributions, or income recognition.
Finally, review the timing of your state tax payments. Ensuring payments are made within the correct tax year can be the difference between capturing or losing a deduction.
The changes introduced under OBBBA reinforce a broader trend: tax strategy is becoming more structural and less transactional.
For high-income earners and business owners, the opportunity is not simply to comply with the rules.
It is to use them intentionally.
