Beat the SALT Cap: How Business Owners Can Dodge the $40K Deduction Wall

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Mark J. Kohler September 11, 2025 • 4 min

Mark J. Kohler, CPA and attorney, has helped millions of Americans improve their finances through practical, trustworthy tax and wealth strategies. Mark's mission is simple: deliver credible, actionable financial advice and guidance you can always rely on.

Business Building

If you’re writing massive checks to your state and still getting hammered on your federal return, you’re not crazy, the system is screwing you. Even though the SALT (State and Local Taxes) cap jumped from $10K to $40K in the One Big Beautiful Bill, that limit gets chewed up by property tax and other local fees. But thanks to a loophole—sorry, workaround—business owners in certain states can legally deduct tens of thousands more in state income tax.

Here’s how to know if you qualify and how to pull it off before the clock runs out.

Do You Even Qualify? 3 Questions to Ask

1. Are You Bumping Up Against the $40K Cap?
If your state and local tax bill is close to or over $40,000, including income tax and property tax, you’re probably leaving money on the table. Even with the raised cap, high-income earners in high-tax states hit the ceiling fast. And if you’re over $500K AGI? The deduction starts to phase out back toward $10K. Ouch.

2. Do You Own an S Corporation or Partnership LLC?
This workaround only works if your business is paying you through an S corp or if you have a multi-member LLC taxed as a partnership. If you’re still a sole proprietor, or your LLC is a disregarded entity, you’re out of luck. W-2 earners won’t be able to use it either. But if you’re a legit business owner with the right structure, this is one of the biggest tax breaks still standing.

3. Does Your State Play Ball?
Only 36 states allow this workaround. If your state doesn’t support it, tough luck, the strategy’s out of bounds. But if you’re in one of the 36, your S corp can pay your state tax bill for you, and you get the write-off at the federal level. If you don’t know your state’s rules or deadlines, you could blow this without realizing it.

How to Nail the SALT Workaround: 3 Things You Must Do

1. Pay From the Right Account—Before Year-End
Your S corp, not you personally, needs to make the payment. Most states have a portal for this. Log in, send the money from the business account, and don’t make estimated payments from your personal account like you’re used to. It’s the same tax amount, you’re just shifting who pays it.

2. Hit the Right Deadlines with the Right Form
Each state has its own rules. Some (like California) want a partial payment by June 1. Others (like New York) want everything by September 15. If you miss it, you’re beat. Knowing when and how to file the right election is just as important as sending the money. Mess this up, and you could trigger an audit or lose the credit altogether.

3. Report It Right on the Return
You made the payment. Great. Now make sure it actually shows up on your federal and state returns the right way. Many CPAs still botch this. One wrong box or missing credit and you’re stuck amending—or worse, flagged for review. Don’t assume your accountant “knows this.” Bring it up. Get confirmation.

Why It’s Worth the Work

This isn’t some fringe hack, it’s a legitimate workaround that can save business owners tens of thousands in federal tax. If you’re making over $500K a year, this could be the difference between being stuck with the standard deduction and getting to stack your charitable giving, mortgage interest, and state taxes. And, even better, executing this right can lower your AGI, helping you preserve the SALT deduction instead of phasing it out.

The Bottom Line

This strategy lives and dies in the tax year. If you wait until April, you’ve already missed your chance. It’s like checking your oil after the engine’s already blown. Don’t let it happen. Book a tax strategy session at kkoslawyers.com today, talk to a real tax attorney, and see if the SALT workaround can cut your bill. You did the hard work to earn the money, make sure you keep more of it.

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Mark J. Kohler

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The Bottom Line