New York Elder Law Attorney
Attorneys and business owners across New York are sounding the alarm over a little-discussed provision buried in the latest Republican-backed tax proposal, sometimes dubbed the Big Beautiful Tax Law. While much of the bill serves as a continuation or expansion of the 2017 Tax Cuts and Jobs Act (TCJA), an important provision threatens to reverse a critical tax relief mechanism for high-income earners and pass-through businesses: the elimination of the Pass-Through Entity Tax (PTET).
If passed, this change could dramatically increase tax liabilities for partnerships, LLCs, S-corporations, and sole proprietors across the state—and push some of them out of New York altogether.
What Is the PTET and Why Does It Matter?
The Pass-Through Entity Tax (PTET) is a state-level workaround to the TCJA’s $10,000 cap on the federal deduction for state and local taxes (SALT). For high-income individuals and business owners in high-tax states like New York, this cap caused significantly higher federal tax bills.
States, including New York, adopted the PTET to mitigate the financial blow. Instead of taxing income at the individual level—where the SALT deduction cap applies—pass-through businesses elect to pay the state income tax at the entity level. Because federal law allows for full deduction of state taxes paid by a business entity, the PTET lets business owners bypass the SALT cap entirely.
For many, this tax structure has meant tens or even hundreds of thousands of dollars in savings each year.
Who Uses the PTET?
The PTET primarily benefits “pass-through entities”—business structures where profits and losses are passed directly to the owners’ tax returns rather than being subject to corporate taxation. The entities include:
- Sole Proprietorships
- Partnerships
- S-Corporations
- Limited Liability Companies (LLCs)
In particular, professional services firms, investment management partnerships, and other high-income, partnership-based businesses have leaned heavily on the PTET in the wake of the SALT cap. The structure has become vital for New York City-based law firms, accounting practices, medical partnerships, and financial advisory groups—many of which already pay New York City a 4% unincorporated business tax (UBT).
The Proposal: Ending the PTET
The new tax proposal’s quiet but seismic move to eliminate the PTET concerns many in the business and legal communities. While expanding TCJA provisions might be a political victory in Washington, eliminating the PTET threatens to devastate businesses in high-tax states.
Repealing the PTET could increase federal tax liabilities for New York State pass-through entities by as much as $5 to $6 billion yearly. Much of this burden would fall on service-oriented partnerships and high-income professionals already under pressure from inflation, rising rents, and local tax obligations.
A One-Two Punch for NYC Businesses
The blow could be even more acute for businesses operating in New York City. The proposed changes also seem to eliminate the ability to deduct New York City’s Unincorporated Business Tax (UBT), a 4% tax imposed on income from trades or businesses carried on by individuals, partnerships, or unincorporated entities.
This double hit—removal of the PTET and loss of deductibility for the UBT—could result in a staggering 50% increase in effective federal tax liability for some NYC-based businesses.
Will Businesses Leave New York?
In short, many may have no choice.
New York already ranks among the highest-taxed states in the country. Without the PTET to soften the blow of the federal SALT cap, many business owners will consider relocating to lower-tax jurisdictions such as Florida, Texas, or Tennessee.
For mid-sized firms and partnerships, the costs could outweigh the benefits of staying. And while moving an entire business operation isn’t a light decision, virtual work environments and remote client servicing have made relocation far more feasible than in earlier decades.
Estate Planning Implications
From an elder law and estate planning perspective, this change has significant downstream effects. Many business owners structure their estate plans with pass-through entities, family limited partnerships, and LLCs that rely on favorable tax treatments like the PTET. The sudden loss of that tax benefit could:
- Reduce the net income available to fund trusts.
- Decrease the long-term value of family-owned businesses.
- Complicate succession planning
- Force the sale or restructuring of assets.
For high-net-worth individuals preparing for retirement, long-term care, or generational wealth transfer, these are not minor issues. Planning strategies that were sound just a year ago may no longer be viable under the new tax regime.
A Call to Action: Watch Albany and Washington Closely
New York’s political leadership has already expressed serious concerns about the bill’s SALT-related provisions. Lawmakers know that repealing the PTET is not a partisan issue—it’s an existential one for the state’s economy. The stakes are high not just for Wall Street but for thousands of small and mid-sized businesses that drive the regional economy.
What Can You Do Now?
If you own a pass-through business in New York—or if you represent one—it’s time to act:
Review Your Business Tax Structure
Consider how the loss of the PTET would impact your entity’s tax obligations. Would restructuring as a C-corporation offer better protection? Would relocation reduce your overall liability?
Evaluate Estate Planning Strategies
For business owners using LLCs or partnerships in their estate plans, revisit those documents with a qualified estate planning attorney.
Plan for Multiple Scenarios
Work with estate planning counsel to model different outcomes and prepare for what may come.
Whether you’re a business owner, a professional partner in a law or medical practice, or someone thinking about retirement and asset protection, the time to prepare is now. We’re closely tracking this evolving situation and are here to help clients navigate the potential fallout.
Have questions about how these changes might impact your business or estate plan? Contact our office today for a consultation.