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If you're a small business owner in a high-tax state like New York, California, or New Jersey, pay attention—your federal tax situation might be on the verge of change.
As part of former President Donald Trump’s proposed “One Big Beautiful Bill,” a provision to raise the State and Local Tax (SALT) deduction cap has already passed the House and is now under Senate consideration. While this isn’t a full repeal of the SALT cap, the proposed increase could mean meaningful tax relief—especially for high-income business owners who itemize deductions.
Here’s what’s happening, what it means for your bottom line, and how you can prepare.
What Is the SALT Cap—and Why Does It Matter?
The SALT deduction allows taxpayers to deduct what they pay in state and local income, property, and sales taxes from their federal taxable income. This deduction has existed since 1913 and was unlimited until the Tax Cuts and Jobs Act (TCJA) of 2017 capped it at $10,000 per return.
This cap has disproportionately affected residents—and business owners—in high-tax states. Now, the new proposal would raise the SALT cap to $40,000 for individuals earning under $500,000, starting in 2024.
Important: The Cap Isn’t Fully Repealed
This proposal includes a phaseout for higher earners. According to Garrett Watson, director of policy analysis at the Tax Foundation, the SALT cap:
- Begins to gradually phase down for taxpayers with incomes above $500,000.
- Fully reverts to the original $10,000 cap for those earning $600,000 or more.
- Includes a provision for the cap and income thresholds to rise by 1% per year from 2026 through 2033.
In other words, the full benefit is limited to upper-middle-income earners—not the ultra-wealthy.
Why Small Business Owners Should Care About SALT
If you operate your business as an S corp, partnership, or LLC, your income likely passes through to your personal return—where the SALT cap can significantly limit your deductions and increase your federal tax liability.
Here’s why this proposed change matters:
- High earners itemize: If you’re taking the standard deduction, the SALT cap isn’t relevant—but most higher-earning business owners itemize.
- High-tax states = less deductibility: Those in CA, NY, and NJ are hardest hit by the cap.
- Effective tax rates can exceed 50%: Between federal and state taxes, many small business owners are losing more than half their income to taxes.
Who Benefits Most From the Proposed SALT Cap Increase?
The benefits aren’t evenly distributed across all taxpayers. The major winners include:
- High-income earners under $500,000 in high-tax states
- Those who itemize deductions
- Homeowners with high property tax bills and business income taxed at the individual level
Meanwhile, those earning over $600,000 would see no change, remaining under the current $10,000 SALT deduction limit. The gradual phaseout means the savings will taper off between $500,000 and $600,000 of income, making strategic tax planning essential for those in that income window.
Where the SALT Cap Bill Stands Now
The proposal is now with the U.S. Senate, after clearing the House. As part of Trump’s broader tax policy platform, the bill aims to rework multiple pieces of the tax code in advance of the TCJA’s 2025 expiration.
While the SALT provision passed the House with bipartisan support, its path through the Senate remains uncertain. Lawmakers are balancing pressure from high-tax states with broader concerns about federal revenue and tax fairness.
What Should Small Business Owners Do Now?
Whether this measure becomes law or not, this is a critical time to review your tax planning strategy—especially if:
- You’re located in a high-tax state
- You itemize deductions on your return
- Your household income falls between $300,000–$600,000
- You expect elevated pass-through income from your business in 2025
With inflation adjustments and TCJA expirations looming in 2025, flexibility and proactive planning are key to managing your future tax burden.
Final Thoughts
Trump’s “One Big Beautiful Bill” includes a proposal that would raise the SALT cap for many high-income earners—but not all. If passed, it could deliver meaningful tax relief to small business owners earning under $500,000 in high-tax states. However, those earning above $600,000 would still be limited to the original $10,000 deduction cap.
As the bill works its way through the Senate, now is the time to talk with your tax advisor. Don’t wait until the end of the year to scramble—these proposed changes could impact how you plan and pay taxes starting this year.
