Why the SALT Workaround Matters in 2025

Paul Belshaw
Aug 18
2 min read

What Is the SALT Deduction?

The SALT deduction (State and Local Tax deduction) allows taxpayers to deduct certain state and local taxes from their federal taxable income.

Under the updated law, the deduction cap has been raised from $10,000 to $40,000. While that sounds like a big improvement, it’s still not enough for many high-income business owners.

Here’s why: the $40,000 cap includes state income tax, property tax, vehicle registration taxes, and more. For business owners in high-tax states, this cap can be used up quickly—leaving you paying federal taxes on income you already sent to the state.

That’s where the SALT workaround comes in.

How the SALT Workaround Works

Instead of paying your state income tax personally, you can elect to have your S corporation pay it at the entity level.

The tax is shifted to your business return.
Your S corp deducts the full amount at the federal level.
You receive a credit on your state return.
The payment does not count toward the $40,000 SALT cap.

The result? A larger federal deduction and lower taxable income.

3 Steps to See If You Qualify

Check if you’re hitting the $40,000 capAdd up your state income tax, property taxes, and other local taxes. If they exceed $40,000, the workaround may benefit you.
Confirm you have an S corporationThe workaround is designed for S corporations (or LLCs taxed as S corps). W-2 employees without a qualifying business entity can’t use this strategy.
Verify your state allows itCurrently, 36 states allow the SALT workaround. Each state has its own rules, deadlines, and forms.

3 Steps to Implement the SALT Workaround

Make the payment from your S corporationState tax payments must come directly from the business bank account.
Follow your state’s rules and deadlinesDeadlines vary. For example, California requires an election and minimum payment by June 1, while New York’s cutoff is September 15.
Report it correctly on your tax returnsIt must be reported properly on both federal and state returns. A small reporting mistake can cause you to lose the deduction—or trigger IRS scrutiny.

Why You Need to Act in 2025

Tax planning happens during the year, not after it’s over. To use the SALT workaround, the payments and elections must be made before year-end.

That’s why it’s smart to review your situation by Q3 or Q4 of 2025, so you know the amounts, deadlines, and reporting requirements ahead of time.

The Bottom Line

The SALT workaround isn’t for everyone—but if you:

Own an S corporation
Live in a high-tax state
Pay more than $40,000 in combined state and local taxes

…it could save you tens of thousands of dollars each year.

Done correctly, this strategy is 100% legal, 100% IRS-approved, and one of the most valuable tools in the 2025 tax playbook.

At Belshaw Accounting, our goal is to make sure business owners understand these opportunities and feel confident in their tax planning decisions. If you think the SALT workaround may apply to you, don’t wait until filing season—plan ahead and make sure you’re maximizing your deductions.