Quick Answer
The SALT workaround allows business owners to pay state taxes at the entity level and deduct them as business expenses, bypassing the $10,000 personal SALT cap. Over 30 states now offer this option, potentially saving business owners $2,000-$10,000+ annually in federal taxes.
Best Answer
Robert Kim, Tax Return Analyst
Business owners and pass-through entity owners looking to maximize their SALT deductions
How the SALT workaround works
The SALT workaround allows pass-through entities (S-corps, partnerships, LLCs) to pay state income taxes at the business level instead of the owner level. This transforms what would be a personal SALT deduction (capped at $10,000) into an unlimited business expense deduction.
According to IRS Notice 2020-75, the IRS will not challenge these state-level workarounds, making them a legitimate tax strategy for eligible businesses.
Example: New York S-corp owner saves $3,360
Consider an S-corp owner in New York with $200,000 in business income:
Without workaround:
With workaround:
State-by-state SALT workaround availability
Key requirements and limitations
Advanced strategies for maximum benefit
1. Multi-state coordination
If you operate in multiple states with PTET elections, coordinate to maximize benefits across all jurisdictions.
2. Timing income recognition
Shift income between tax years to optimize PTET benefits when crossing state thresholds.
3. Entity structure optimization
Consider converting sole proprietorships to LLCs or forming additional entities to access PTET benefits.
Potential savings calculation
Annual federal tax savings = (State tax above $10,000) × (Federal marginal tax rate)
For a business owner paying $25,000 in state taxes in the 32% federal bracket:
What you should do
1. Check your state's program: Verify if your state offers a PTET election and what entities qualify
2. Calculate potential savings: Estimate your state tax burden and federal tax bracket
3. Review entity structure: Consider if entity changes would unlock PTET benefits
4. Plan election timing: Most elections must be made by March 15th for the current tax year
5. Consult your tax advisor: PTET elections have complex implications for multi-state businesses
Use our refund estimator to calculate potential savings from implementing a SALT workaround strategy.
Key takeaway: The SALT workaround can save business owners $2,000-$10,000+ annually by converting capped personal deductions into unlimited business expenses, but requires proper entity structure and timely elections.
*Sources: [IRS Notice 2020-75](https://www.irs.gov/pub/irs-drop/n-20-75.pdf), [IRS Publication 535](https://www.irs.gov/pub/irs-pdf/p535.pdf)*
Key Takeaway: The SALT workaround converts personal tax deductions into unlimited business expenses, potentially saving $2,000-$10,000+ annually for eligible business owners.
SALT workaround savings by income level and state
| Business Income | State | State Tax | Without Workaround | With Workaround | Annual Savings |
|---|---|---|---|---|---|
| $100,000 | California | $8,500 | $1,700 federal tax | $0 federal tax | $1,700 |
| $200,000 | New York | $15,000 | $3,200 federal tax | $0 federal tax | $3,200 |
| $300,000 | New Jersey | $22,500 | $4,000 federal tax | $0 federal tax | $4,000 |
| $150,000 | Connecticut | $10,500 | $336 federal tax | $0 federal tax | $336 |
More Perspectives
Robert Kim, Tax Return Analyst
Retired business owners or seniors with consulting income who might benefit from SALT workarounds
SALT workarounds for retired business owners
Many retirees continue to have business income through consulting, rental properties, or retained ownership in family businesses. The SALT workaround can be particularly valuable for retirees in high-tax states who maintain business activities.
Example: Retired consultant in California
A retired executive earning $80,000 annually from consulting through an LLC:
Special considerations for retirees
Rental property partnerships
If you own rental properties through partnerships or LLCs, these may qualify for PTET elections in many states, converting rental income taxes into business deductions.
Family business transitions
Retirees transferring businesses to children can structure the transition to maintain PTET benefits while reducing overall family tax burden.
Simplified entity management
Retirees with lower income may find the administrative burden of PTET elections less worthwhile than high-earning business owners.
Warning signs to avoid
Key takeaway: Retired business owners can benefit from SALT workarounds, but should weigh administrative complexity against tax savings based on their specific income levels and business activities.
*Always consult with a tax professional before making PTET elections, especially when considering multi-state implications.*
Key Takeaway: Retired business owners can benefit from SALT workarounds on consulting and rental income, but should weigh complexity against savings.
Sources
- IRS Notice 2020-75 — Guidance on State and Local Tax Deductions for Pass-Through Entity Taxes
- IRS Publication 535 — Business Expenses
Related Questions
Reviewed by Robert Kim, Tax Return Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.