What is the SALT deduction cap and does it affect self-employed individuals?

SALT stands for State and Local Taxes. The SALT deduction allows taxpayers who itemize their deductions to deduct certain state and local taxes paid during the year — but it is capped. **SALT deduction cap history:** - Before 2018: Unlimited SALT deduction - 2018–2025 (TCJA): SALT capped at $10,000 ($5,000 if married filing separately) - 2025 (OBBBA): Cap increased to $40,000 for taxpayers with AGI ≤ $500,000 **What counts as SALT:** - State income taxes (including state estimated tax payments) - Local income taxes - Property taxes on personal residence(s) - Sales taxes in lieu of state income taxes **Business taxes are NOT subject to SALT cap:** State income tax on your self-employment income, when paid as an estimated tax payment, is a deductible personal expense subject to the SALT cap — unless your state has a Pass-Through Entity (PTE) tax workaround. **PTE tax workarounds:** Many states now offer a workaround where your business pays the state income tax at the entity level (deductible as a business expense, not subject to the SALT cap). Available in over 30 states for partnerships, S Corps, and some LLCs. **For most self-employed sole proprietors:** You pay state income tax personally, subject to the SALT cap on your Schedule A. If you are in a high-tax state (CA, NY, NJ, IL) and itemize, the SALT cap significantly limits your state tax deduction.

• SALT cap 2025: $40,000 for AGI ≤ $500,000 (increased from $10,000 under OBBBA)
• Covers state income tax, local income tax, and property taxes on personal residence
• Business taxes paid at entity level (PTE tax workaround) are fully deductible
• Most sole proprietors' state income tax is subject to the SALT cap
• Only matters if you itemize — if you take the Standard Deduction, SALT cap is irrelevant