PTET for Solopreneurs: How S-Corp Owners Recover $20K+ in Lost Tax Deductions

Most solopreneurs know they pay a lot in taxes. Fewer know exactly how much they're giving up because of one structural mistake in how their state taxes get paid. If you run your business through an S-Corp, this is almost certainly costing you $15,000–$30,000 per year — and fixing it doesn't require changing your income, your entity, or what you owe in state taxes.

Who This Applies To

This strategy is specifically for solopreneurs and independent business owners who:

• Operate as an S-Corporation
• Have pass-through business income above $500,000
• Work in a state with meaningful income tax (California, New York, New Jersey, Illinois, Massachusetts, etc.)
• Are in the 32% or 37% federal bracket

If that's you, you are almost certainly overpaying federal taxes right now because of how your state taxes get routed. Let's fix that.

The Problem: Your State Taxes Are Going to the Wrong Place

When your S-Corp passes income through to your personal return, your state taxes on that income get paid on Schedule A — as a personal itemized deduction. That puts them directly under the federal SALT (State and Local Tax) deduction cap.

In 2026, that cap is $40,400. But here's the problem: if your adjusted gross income exceeds $500,500, that cap phases down. By roughly $602,000 of income, your SALT deduction is back to $10,000 — regardless of your actual state tax bill.

Over five years, that's over $100,000 in federal taxes paid that didn't have to be. Not because of bad investing or overspending. Because of how state taxes were being routed.

The Fix: The Pass-Through Entity Tax (PTET) Election

The Pass-Through Entity Tax (PTET) is a state-level election that lets your S-Corp pay state income taxes directly at the entity level — rather than passing that liability to your personal return.

When your S-Corp pays state taxes, that payment is a federal business expense — deductible on the corporate return, completely outside the SALT cap. Your pass-through income to your personal return is already reduced before it hits your 1040. You don't change your state tax bill. You change where it's paid, and that changes everything for your federal taxes.

The IRS confirmed this is valid in Notice 2020-75. Over 35 states have enacted PTET legislation specifically to give their residents this workaround to the federal SALT cap.

Why This Matters More for Solopreneurs Than Bigger Businesses

Larger companies have full finance and accounting teams who find strategies like this automatically. As a solopreneur, you're likely relying on a CPA who files your return — but who may not be proactively planning throughout the year.

That's the gap. The PTET election requires:

• Making the election by your state's deadline (sometimes before the tax year begins)
• Making estimated payments from your business bank account throughout the year
• Coordinating the entity deduction with the personal credit to avoid double taxation

None of this happens automatically. It requires someone to set it up and stay on top of it. Most solopreneurs don't have that person — which is exactly why this opportunity goes unused year after year.

The Numbers: With vs. Without PTET

Using a solopreneur earning $650,000 in California, in the 37% federal bracket:

What Proactive Financial Planning Looks Like Here

The PTET election is one of several strategies that look simple in isolation but require coordination across your entire financial picture to execute correctly. A few things that need to work together:

This is what separates a tax return preparer from a proactive financial planner. The return preparer files what happened. A planner shapes what happens before it does.

Working With a Flat Fee Financial Planner as a Solopreneur

Most financial advisors charge a percentage of assets under management (AUM) — typically 1%. On $1M, that's $10,000/year regardless of how much planning work is actually done or how much value is delivered.

For solopreneurs and independent business owners, the biggest financial leverage often isn't in investment selection — it's in tax strategy, entity structure, and cash flow planning. AUM-based advisors have limited incentive to focus there. A flat fee financial planner charges for the planning work itself, regardless of how much you have invested. That alignment matters when you're a business owner whose wealth is still largely tied up in your business.

The PTET election is a good example: identifying it, setting it up correctly, and maintaining it year over year is planning work. It doesn't require managing any assets. An AUM advisor doesn't get paid more for finding it. A flat fee planner does.

Bottom Line

If you're a solopreneur running an S-Corp in a high-tax state and your income is above $500K, the PTET election is likely the highest-leverage tax move available to you right now. It doesn't require changing your income, your lifestyle, or your business structure. It just requires someone to set it up.

If you want a deeper look at how this applies to your specific situation, you can read the full PTET overview here — or book a free assessment below.

This article is provided for general educational and informational purposes only and does not constitute tax, legal, or investment advice. Every individual's tax situation is different. Consult with your own qualified tax advisor, CPA, or attorney before making any tax elections or financial decisions. Lindy Wealth is a registered investment adviser. Registration does not imply a certain level of skill or training.

Frequently Asked Questions