Since the federal SALT deduction cap took effect, most states have introduced a pass-through entity tax (PTET) election that allows partnerships and S-corps — including most law and CPA firm structures — to work around the individual-level cap. Many eligible firms still haven't made the election, simply because it requires an annual, affirmative choice rather than happening automatically.
Under a PTET election, the entity itself pays state income tax at the entity level, which is then deductible as a business expense on the federal return — sidestepping the individual SALT deduction cap that would otherwise limit each partner's ability to deduct their share of state taxes. For a multi-partner firm in a high-tax state, this can translate into a meaningful federal tax reduction across the partnership.
Because each state administers its own version of the PTET election with its own deadline, calculation method, and payment schedule, a firm operating in multiple states needs to track each jurisdiction's rules separately. Missing an election deadline in even one state means forfeiting that state's benefit for the entire year, with no way to make it up retroactively.
Once a firm elects into PTET treatment, the entity — not the individual partners — is typically responsible for making the associated estimated tax payments on the state-level liability. Firms that don't build this into their regular estimated tax planning risk underpayment penalties at the entity level, even while individual partners' own estimated payments are on track.
PTET elections are one of the highest-value, most commonly missed tax planning opportunities for partnership and S-corp law and CPA firms in high-tax states — and they require an active annual decision, not a passive one. See Tax Preparation & Compliance.
Because the election must be made fresh each year and the rules shift periodically at the state level, this is worth revisiting annually rather than assuming last year's decision still applies.
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