If you lead a nonprofit organization, sit on its board, or serve as a major donor — and you also own an interest in a pass-through business — the SALT deduction changes enacted by the One Big Beautiful Bill Act (OBBBA) affect you on two separate tracks simultaneously. One track is personal. The other runs through your business. Neither one is simple, and conflating them is a reliable way to leave money on the table.
This article addresses both.
Key Takeaways
- The OBBBA increased the individual SALT deduction cap from $10,000 to $40,000 beginning in 2025, with modest annual inflation adjustments through 2029. However, for most households with modified adjusted gross income above $500,000, the cap phases down, reverting to the prior $10,000 cap for most households earning above $600,000.
- The $40,000 cap is $20,000 for married individuals filing separately.
- Owners of pass-through entities (PTEs) — including partnerships, S corporations, and certain LLCs — in states that have enacted entity-level PTE tax legislation may deduct state and local taxes paid at the entity level, effectively bypassing the individual SALT cap. The OBBBA does not restrict this workaround.
- The PTE workaround is expressly authorized by the IRS pursuant to Notice 2020-8. It is available for Specified Income Tax Payments made on or after November 9, 2020, the date of that notice.
- Pure investment partnerships and family offices organized as PTEs face greater uncertainty about eligibility for the workaround. Current IRS guidance does not clearly distinguish between PTE taxes paid on trade or business income and those paid on investment income.
- Bottom Line: High-income nonprofit leaders in high-tax states who also own operating pass-through businesses should evaluate both the individual SALT cap and PTE election strategies before their next estimated payment deadline.
The Individual SALT Cap: Where Most Nonprofit Leaders Start — and Stop Too Soon
Under the 2017 Tax Cuts and Jobs Act, the aggregate deduction for state and local taxes — including state income taxes, local income taxes, and real property taxes (or state and local general sales taxes elected in lieu of income taxes) — was capped at $10,000 per year for individuals, regardless of actual taxes paid. That cap applied to married couples filing jointly and to single filers alike, and to married individuals filing separately, at $5,000.
The OBBBA increased that cap to $40,000 for tax years 2025 through 2029. For most households with modified adjusted gross income above $500,000, however, the cap phases down. Households earning above $600,000, in most cases, revert to the prior $10,000 cap. The $40,000 cap is $20,000 for married individuals filing separately.
This means that for a nonprofit executive director, hospital CEO, or university president earning a substantial salary in New Jersey, New York, California, or another high-tax state, the increased cap may still not cover their actual state and local tax liability. An individual with $300,000 in New Jersey income pays well over $40,000 in combined state income and property taxes. The cap limits the deduction — not the tax owed.
For high-earning nonprofit leaders, the individual SALT cap increase is welcome but insufficient. The more meaningful planning opportunity lies elsewhere.
The PTE Workaround: How It Works and Why It Matters to Business-Owning Nonprofit Leaders
The SALT deduction cap applies to individuals. It does not apply to entities. This distinction is the foundation of the PTE workaround.
As of the date of this article, a majority of states have enacted laws permitting pass-through entities to elect to pay state income tax at the entity level rather than passing that liability through to individual owners. When a PTE makes this election, it pays state income tax directly. The individual owners — who would otherwise include their share of PTE income on their personal returns and pay state income tax at the individual level, subject to the SALT cap — instead see a reduction in their allocable share of PTE income, because the entity-level tax reduces the income reported on their K-1.
Tax economics differ from an itemized deduction. The individual owner benefits not from a deduction on Schedule A (which would be subject to the cap), but from reduced gross income flowing through from the PTE. This is the mechanism the IRS expressly authorized in Notice 2020-75, issued November 9, 2020. The OBBBA did not restrict or eliminate this approach despite earlier legislative proposals that would have done so.
For a nonprofit board chair who also holds a 40% interest in an S corporation operating in New Jersey, a PTE election by that S corporation means the entity pays New Jersey’s PTE tax on its income, and the individual’s K-1 income is reduced accordingly. That reduction is not subject to the SALT cap at the individual level. Depending on the individual’s overall tax position, the after-tax benefit may exceed what a full itemized SALT deduction would have provided, particularly because itemized deductions can also be partially offset by the alternative minimum tax and the net investment income tax in certain circumstances.
Important Limitations: What the Workaround Cannot Do
Precision matters here because the planning opportunity is real but bounded.
State conformity is not uniform. Each state that has enacted PTE legislation has its own effective dates, election mechanics, consent requirements, and deadlines. Some states require affirmative annual elections by a filing deadline. Others require owner consent or a notice period. PTEs with owners in multiple states must evaluate whether owners in non-conforming home states will receive a resident-state credit for the PTE tax paid to another state — if not, the result may be double taxation, eliminating the benefit and creating a net harm for affected owners.
Investment partnerships face additional scrutiny. The IRS has not issued guidance that clearly distinguishes PTE taxes paid on trade or business income from those paid on investment income. A family office organized as a partnership, or a nonprofit leader whose primary PTE interest is a pure investment vehicle rather than an operating business, faces greater legal uncertainty about whether the workaround applies. Proceeding without specific advice in this scenario creates audit exposure that may not justify the planning benefit.
The election affects all owners, not just high earners. A PTE with multiple owners — some of whom may be in lower tax brackets, or in states with no income tax — must model the impact on every owner before electing. The election that benefits a high-income New York resident may produce no benefit, or an actual cost, for a co-owner who is a Texas resident. PTEs with owners in meaningfully different tax situations should evaluate whether separate feeder structures are warranted to isolate the election’s impact.
The Intersection With Nonprofit Involvement
Nonprofit leaders who serve as executives or board members of a 501(c)(3) organization and simultaneously hold ownership interests in operating pass-through businesses occupy a specific tax planning position. The compensation, investment income, and business income they receive personally is subject to all individual tax rules — including the SALT cap. Their nonprofit role does not reduce, exempt, or otherwise modify those personal tax obligations.
What the nonprofit context does affect is the overall planning picture. A nonprofit executive who also makes significant charitable contributions may benefit from coordinating charitable giving strategy, SALT deduction planning, and PTE tax elections together — because itemized deductions compete with each other for the same overall deduction benefit, and the interaction between charitable deductions, the SALT cap, and alternative minimum tax exposure requires integrated modeling, not sequential analysis.
What to Do Before the Next Estimated Payment Deadline
For nonprofit leaders who own interests in operating pass-through entities, the PTE election decision is time-sensitive. Most states require the election to be made by a specific deadline — often tied to estimated payment schedules — and late elections are generally not permitted retroactively for the current tax year.
The practical steps are these: confirm whether the PTE operates in a state that has enacted qualifying PTE legislation; verify that the state’s law remains in effect for the current tax year (some PTE laws were scheduled to expire and require reconfirmation); model the impact on all PTE owners, not just the highest earners; and determine whether a resident-state credit is available to owners in other states.
Wiss’s tax advisory team advises nonprofit leaders, board members, and major donors on the full scope of their personal and business tax planning — including PTE elections, SALT strategies, and the coordination of charitable giving with income tax planning. If the OBBBA’s SALT changes raise questions about your personal tax position or the tax strategy of a pass-through business you own, contact our team to schedule a planning conversation.
This article reflects provisions of the OBBBA as enacted and IRS Notice 2020-8. State PTE laws are subject to change, and IRS guidance in this area continues to develop. This article is general in nature and does not constitute tax advice for any specific situation. Consult your Wiss advisor regarding your particular circumstances.
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