Your S-Corp income is going to pay state taxes. The question is whether your setup is giving you the highest deduction possible.
Today's strategy: The SALT Sidestep
If you're a successful business owner making $500K+ in a taxed state, you're likely overpaying on federal taxes every year.
Here's the problem
The federal government caps how much state and local tax you can deduct on your personal return. In 2026 it's set to $40,400 — but if your income is over $500,500 that cap phases down, and by ~$602K your cap is back to just $10K.
So if you owe $75K in state taxes, you're only deducting $10K of that on your federal return. You receive no deduction for the other $65K. At the 37% bracket, that's ~$24K in missed tax savings.
Here's the fix: The Pass-Through Entity Tax (PTET) Election
Instead of paying all state tax on your business income through your personal return, your S-Corp pays it directly on the pass-through profit.
That payment becomes a federal business deduction completely outside the SALT cap. You pay the same amount in state taxes, but now you get to reduce your business income before it hits your personal return.
How to set it up
- Confirm your entity qualifies
You need to be taxed as an S-Corp or partnership. - Find your state's PTET process and deadlines
Search "[your state] pass-through entity tax election." The process varies significantly so you'll need to find the exact forms, filing method, and deadline on your state's tax agency site. - Make estimated PTET payments during the year
Follow your state's rules to make estimated payments and remember to pay from your business account. - File the election
You'll need to opt in based on your state's specific rules. - Claim the credit
Your entity deducts the PTET payment on its federal return when it files. You then claim the PTET credit on your personal state return so you are not paying state tax twice on the same income.
You'll notice this is all highly dependent on your state, so working with a tax pro and visiting your state's tax site for specific information is crucial.
Bottom Line
This isn't a loophole. It's just what tax-smart business owners do. Same tax bill. Bigger deduction. That's the whole idea.
Until next time,
Ben Stauffer, CFP®
PS — If you want to learn how these strategies might apply to your situation, I give a free assessment for people interested in full-service planning. Here's the link if you want to get started.
This newsletter 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. You should 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. Nothing in this communication should be construed as a solicitation, offer, or recommendation to buy or sell any security or investment product.