Date of Project
4-7-2025
Document Type
Honors Thesis
School Name
W. Fielding Rubel School of Business
Department
Finance
Major Advisor
Alisha Harper
Second Advisor
Andrew Hamilton
Third Advisor
Lance Williams
Abstract
The State and Local Tax (SALT) deduction has historically allowed taxpayers to deduct the full amount of state and local income, property, or general sales tax paid as an itemized deduction on their federal tax return. However, with the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, this deduction was capped at $10,000, creating disparity for taxpayers in high tax states and causing those high tax states to look for workarounds. In response, many states have introduced the Pass-Through Entity (PTE) tax as a workaround to the SALT cap. Pass-through entities are typically defined by the flow through of income and deductions directly to their owners, who then pay any resulting tax at the owner level. The new PTE tax allows the entity to pay the tax at the state level, creating a credit or deduction that flows through to the owner.
This revolutionary change presents opportunities and challenges for taxpayers, offering benefits, but also creating uncertainty. This research examines these issues, using a state-by-state analysis of the PTE election. The benefits and uncertainties surrounding the PTE election will be further highlighted by a visualization of multiple tax returns, comparing high-income tax, low-income tax, and no income tax states pre-TCJA and post-TCJA. The findings offer a practical guide for taxpayers and practitioners navigating the PTE tax landscape, helping them make informed decisions in light of these changes.
Recommended Citation
Sizemore, Caitlin, "A Practical Guide for Navigating the PTE Tax Landscape" (2025). Undergraduate Theses. 169.
https://scholarworks.bellarmine.edu/ugrad_theses/169