Episode 53: PTE Tax Strategy Changes in 2026

The PTE tax strategy is changing in 2026 but it is NOT going away. If your accountant told you to stop using the pass through entity tax strategy because the SALT cap increased to $40,000, they are wrong. In this podcast, I break down exactly what changed with the PTE tax strategy, why the $40,000 SALT deduction limit is misleading for profitable business owners, and why the PTE pass through entity tax election is more important now than ever.

In 2017, the Tax Cuts and Jobs Act put a $10,000 cap on state and local tax deductions, also known as the SALT cap. That meant business owners who were paying $30,000, $40,000, or even $200,000 in state income taxes could only deduct $10,000 on their personal tax return. States fought back and created the PTE pass through entity tax, which lets S corporation and LLC owners convert personal state income taxes into a business tax deduction. This strategy has saved our clients tens of thousands of dollars every year.

Now in 2026, the One Big Beautiful Act raised the SALT cap from $10,000 to $40,000. A lot of accountants are telling their clients the PTE strategy is no longer needed. Here is what they are missing: there is a modified adjusted gross income phase out. If your total income is $500,000 or more, the $40,000 SALT cap starts dropping. If your income is $600,000 or more, your SALT cap goes right back down to $10,000. That means the PTE tax strategy is still critical for every profitable S corporation and LLC owner.

I also walk you through exactly how to make a PTE election, when the deadlines are by state, why you should pay your PTE taxes quarterly, and how to claim the PTE tax credit on your personal return. If you are not using the pass through entity tax strategy with your tax advisor, you are overpaying in taxes.

🆓  Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know:   https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

Transcript

PTET Is Still A 2026 Winner

SPEAKER_00 0:00

If you are a business owner, you still need to use the PTET tax strategy in 2026 and going forward, even though the one big beautiful act made some changes to PTET. A lot of business owners were advised by their accountant not to use the strategy anymore because the salt cap went up from$10,000 to$40,000. And that is actually a big myth. Because in some cases, for you, a profitable business owner, IRS says no, it may still be$10,000. And PTET could not be even more powerful than it is right now. So do not let your accountant stop making you use this tax strategy, and your tax advisor can probably advise you better. But I'm going to show you how the PTET tax strategy will continue working for you in 2026 and why it's actually even better and more important using it this year. Ready? Let's dive in.

SPEAKER_01 0:58

Welcome to the Tax Reduction Podcast for Moneymaking Entrepreneurs with Boris Musheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. And this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy-to-understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

How SALT Cap Sparked PTET

Walkthrough: Numbers Behind The Savings

The $40K SALT Cap Myth

How To Elect And Execute PTET

SPEAKER_00 1:32

All right, let's kind of talk a little bit about the historical data or historical, where has the PTET been and how's it involved to 2026 and what are the changes? So let's start with the Tax Cuts and Jobs Act, which was passed in 2017. Before 2017, or I should say before 2018 tax year, whatever state income taxes that you paid on your business profit, your W-2s, and your property taxes, you could deduct it on your personal taxes, okay, which was great, right? You let's say you pay$200,000 in state income taxes. In most cases, you could have deducted the entire amount, asset deduction. When they passed 2017 Tax Cuts and Jobs Act, they said, no, we're not gonna let you do that anymore. You're only gonna deduct$10,000. And that was effective 2018 tax year. So it has affected a lot of small business owners, it has a lot affected a lot of taxpayers, and a lot of states were not happy about it. Like, what do you mean? Our constituents used to be able to deduct the taxes that they paid to us. So it was a big outrage. A lot of states, what they have adapted is PTET, which is pass-through entity taxation. They said, you know what? If you have a business, what we're gonna make you do instead, instead of paying personal income taxes, we're gonna make you pay a business income tax. And we're gonna give you a credit for it on a personal taxes, but now you get a deduction, which is the best of both worlds. Now you basically get to deduct again this taxes that you paid to your state, but it requires a strategy and you need to elect to do this, which I'm gonna talk to you about what you need to do. But I do want to quickly walk you through a very quick example, how it has affected the$10,000 cap. Okay, so I think it's better if I move to this side of the screen. All right, so let's quickly take a look at the example. Okay, you've got, let's assume you have a business income uh which you have$500,000 after all expenses. You've got a W2 income between you and a spouse, whatever doesn't matter,$150,000. The total income is$650,000. Let's assume, let's use the average, I should say, state income tax rate, which is about 5%. So 5% and$650,000, that's$32,500. So in this example, a business owner has a$650,000 in taxable income. And the state tax on this is$32,500. Additionally, this individual pays a property tax of about$10,500. Okay, so the total tax is$43,000. That's the state income tax. Again, before tax year 2018, you could deduct the$43,000. After a Tax Cuts and Jobs Act was passed, you can only deduct the$10,000 salt cap. The other$33,000, it's gone. It does not exist anymore. Okay. So the states came out, like I said, and they created what's called a PTET, pass-through entity tax. They said, you know what? If you're operating a business in our state, what we're gonna do is that we're gonna skip your personal income tax on a$500,000, and instead you're gonna pay to us what's called a pass-through entity tax. We're basically changing how you pay your taxes. That's why I wrote over here tax conversion, right? We're converting your tax from the personal tax to a business tax. Now, here's what it does. Look at this. We're gonna take the$500,000 business tax, and instead, you're gonna pay$5, excuse me,$500,000 business income. I apologize. And we're gonna take 5% and apply it as a business tax. And now that creates$25,000 in business taxes. Remember, you're not gonna pay this personally anymore, you're gonna pay it as a business. And that becomes an extra$25,000 deduction for you that you had not taken. You're still gonna take the$10,000 limit on your personal taxes, okay? And now you're gonna have a$25,000 additional business tax, and it goes on your business tax return. So we have been using this tax strategy for all of our clients, and they saved tens of thousands of dollars on taxes. And I'm surprised till until today, a lot of accountants are not using PTET for them. And you may be wondering why? Are they like not knowledgeable enough? By this point, I would argue most accountants know what PTET is, they were just lazy or still are lazy to actually go through the steps of implementing the strategy because it involves a couple of steps which are not complicated. Okay, an accountant should be able to do it. If your accountant is not doing it for you, get yourself a tax advisor. Now, we have been caught up, right, with the 2017 and the perfect example here. Now, what is happening in 2026? By the way, I've spoken to some accountants and you know exactly who I who you are. And some of you said to me, Boris, I will not be using PTET strategy for my clients anymore because there have been some changes in 2026. The cap is now$40,000. It does not make sense for them. You are absolutely wrong. I am and I'm going to show you how, and to you, the business owner, I will show you why you should continue using this tax strategy. So in 2025, we had what's called one big beautiful uh act, which was passed into a law with a lot of tax changes. Some of the tax changes were effective in 2025, some will be effective in 2026. The PTET changes are effective in 2000 for 2025 tax year. What does that mean? So do you remember this$10,000 salt cap we talked about here? Well, now it is$40,000. So you're like, oh, that is great. If we go back to this example, in this example, a business owner paid$43,000 in state income taxes. That means out of$43,000, he can now deduct$40,000 without going through, you know, uh a PTET election and paying the PTET tax as a business tax and doing the strategy. Well, this is where you may be wrong, and you, my dear accountant, is wrong as well. And here's why: because there is actually something that's called a modified adjusted gross income limit. Maggie, it's another fancy word for saying how much money you make. Okay, if you make$500,000 or more, if your income is$500,000 or more, the this cap starts reducing. And if you're at$600,000 or more, well, guess what? You're back to the old rules of$10,000. So that means the PTET strategy will still work for you because you're back to$10,000. Don't be distracted by the fact that it's only$40,000 and tell your accountant, and if you don't have a tax advisor, then get yourself a tax advisor because only with a tax advisor you actually stay on top of this ever-changing loss. Okay, now if you're making less than$500,000, does that mean you still shouldn't do PTET? I would argue otherwise. You could still do PTET, it will not hurt you in any ways. If if anything, it will actually be uh beneficial, maybe not very beneficial, but still beneficial. Doesn't take much to do this, okay? So make sure you have your accountant that's doing it for you. And especially if your income is more than$600,000, your cap, your salt cap still drops to$10,000. I don't know if I said it earlier, explained it what salt stands for. It's uh state and local uh income tax or state and local taxes, excuse me. Okay, so this is the$600,000 threshold. Even though we had changes for PTET in 2025 or 2026, that are effective for 2025 tax year, excuse me. So, again, speak to your tax advisor and you must do PTET election. All right, I hope this was helpful. Now let's kind of move on to how to make this election and how to actually implement this tax strategy on your taxes.

SPEAKER_01 9:51

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner. Seven tax write-offs every S Corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Paying PTET On Time And Claiming Credit

SPEAKER_00 10:22

Alright, let's talk about how it works. First of all, for PTET, it's not as simple as saying, I'm gonna pay the PTET tax. You actually have to raise your hand and make an election. You have to volunteer. For example, in New York State, right? The deadline to make an election to volunteer is March 15th. I think Michigan is June 15th. No, uh, yes, I believe Michigan is uh June 15th, and uh New Jersey is, I think, is 315. I think California, no, Michigan, I think is 315. So many states, we have like a chart uh in our office for all of our tax advisory clients. Uh some states actually have with the December 31st, they said just pay this tax with filing your taxes. So every state is different. If you live in a no-income uh tax state, this doesn't apply to you, you don't have a state income tax, so there is no PTET for you. Okay, now I always tell my clients pay your PTET taxes quarterly. Sometimes my clients do not want to pay their quarterly uh tax. Like, you know what, I'd rather use this money to invest, or I don't have money, I need to buy an equipment, I need to, whatever that may be. I tell them when you get a PTET notification from us that you have to pay this tax and this is how much it is, please pay it because remember, everything that you pay into PTET is a business deduction, especially before December 31st. Because once you pay it in January, if you're a cash basis taxpayer, you cannot uh deduct it in before December 31st. So make sure you pay it before December 31st. But remember, you must make an election first. As a matter of fact, some states, like for example, state of New York, requires a separate tax return to file for PTET. Most states don't. It's part of your business and personal taxes, but some states actually require you to file a separate tax return. So speak to your tax advisor, make sure you're on top of that, and make sure you claim a credit because you it this tax is going to be calculated on your personal taxes. So if we go back to our example, right, the$25,000 portion will still be on your personal taxes, but then you're gonna get a credit for it. Because you're gonna get a credit for it, you don't have to pay it on a personal taxes because you paid it as a business. Now that you have claimed the credit and you have a deduction, guess what? You have used the PTET tax strategy. All right, thanks so much, and till the next time.

SPEAKER_01 12:42

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to www.taxplanningcall.com. That's www.taxplanningcall.com. And be sure to subscribe to our podcast to be notified when the next strategy is released.