Spoiler: It depends—and the QBI deduction might be the tie-breaker.
A Quick Recap for the Non-Accountants in the Back
In the old days (read: last year), you could only deduct up to $10,000 of state and local taxes (SALT) on your federal return. Enter the PTET—the Pass-Through Entity Tax election. It was a clever workaround: instead of paying state income tax personally and getting capped, your S-Corp paid it on your behalf. Since that payment hit as a business expense, it lowered your federal taxable income. Pretty slick.
But now? Congress just jacked the SALT deduction cap to $40,000 under the “One Big Beautiful Bill Act” (OBBBA). That changes the math for a lot of CRNAs who file as S-Corp owners.
Example Time: Let’s Talk Real Numbers
Let’s say you’re a single-member S-Corp CRNA in Michigan:
- $150,000 W-2 salary from your S-Corp
- $200,000 S-Corp distribution
- $20,000 in Michigan state income tax
Before, you were capped at a $10K deduction. Now? You can deduct all $20K personally if you itemize—no PTET necessary.
So what’s the benefit of PTET now?
PTET Still Lowers Your Income, But…
If your S-Corp pays that $20K state tax, it reduces your S-Corp’s net income by $20K.
Cool, right? Until you realize that also reduces your Qualified Business Income (QBI)—the part that qualifies for that juicy 20% deduction under Section 199A.
So instead of getting 20% of $400K = $80K QBI deduction, you now get 20% of $380K = $76K.
You lose $4,000 of QBI. At a 35% federal bracket, that’s about $1,400 in lost tax savings. Ouch.
Here’s Where It Gets Interesting
Let’s stack the two options:
| Scenario | State Deduction | Federal Income Lowered? | QBI Impact | Net Tax Benefit |
|---|---|---|---|---|
| PTET | $20K via S-Corp | Yes | QBI goes down | ~$5,600 saved |
| Itemize | $20K on Sch. A | Yes (same deduction) | QBI untouched | ~$7,000 saved |
So unless your total SALT bill exceeds $40K—which most CRNAs won’t hit unless they’re stacking big property taxes on top of state income tax—PTET actually results in a smaller total benefit.
Bottom Line: Don’t Auto-Elect PTET Anymore
If your state tax is under $40K and you’re itemizing deductions, PTET might hurt more than help.
You’re better off:
- Paying your state tax personally
- Taking the full Schedule A deduction
- Preserving your QBI in full
Only when your combined SALT exceeds $40K does PTET reclaim its tax-slaying glory.
What Should You Do?
- ✅ Run the math. Or better yet, let us run it for you.
- ✅ Consider the QBI impact—especially if you’re in the phaseout zone.
- ✅ Stop defaulting to PTET just because it’s available.
It’s a great tool—but only when used surgically.
Need help modeling it for your situation? Schedule a tax strategy session, and we’ll walk through it—whiteboard and all.