For several weeks, the American Institute of CPAs (AICPA), along with various other stakeholders, have raised concerns over proposals to eliminate the pass-through entity tax (PTET) state and local tax (SALT) deduction for specified service trades or businesses (SSTBs). Following the release of the reconciliation bill by the Senate, the AICPA has identified several provisions it supports. The Senate bill includes the following provisions that the AICPA has endorsed in the past:
- An increase in the standard deduction for years 2025-2028.
- Inclusion of legislation to expand the use of section 529 accounts for costs associated with obtaining a post-secondary credential, which grants financial flexibility to those pursuing or advancing in the accounting profession. This is a longstanding priority for the AICPA and the accounting profession.
- Repeal of the American Rescue Plan Act’s lowered threshold for Form 1099-K to $600 for an unlimited number of transactions; the reconciliation legislation will return the requirement to a $20,000 threshold and over 200 transactions.
- Increase in the filing threshold for Forms 1099-NEC and Forms 1099-MISC from $600 to $2,000, adjusted for inflation.
- Provision regarding section 174 research and experimental (R&E) expenditures, which may now be expensed for domestic research or experimental expenditures under new section 174A and provision of transition rules for remaining domestic R&E expenditures.
- Provision regarding the extension and enhancement of Paid Family and Medical Leave Tax Credit, which would provide certainty to businesses by making a temporary paid family leave tax credit permanent.
- Continues permanency of the qualified business income (QBI) deduction provision but expands the QBI deduction limitation phase-in range for SSTBs to $150,000 for married filing jointly and $75,000 for others. This is an increase from $100,000 and $50,000.
- Retention of the TCJA higher exemption amounts for the individual alternative minimum tax (AMT), which simplifies filing for many taxpayers.
- Provision regarding section 163(j), which reinstates the earnings before interest, taxes, depreciation and amortization (EBITDA) limitation.
- Permanent extension of section 954(c)(6) of look-thru rule for controlled foreign corporations.
- Restoration of the limitation of “downward attribution” of stock ownership under section 958(b).
- Removed from Senate Bill: Restriction on regulation of contingency fees with respect to tax returns.
The AICPA also notes that the individual rates and individual standard deductions remain the same as proposed in the One Big Beautiful Bill Act. The Child Tax Credit is also included and reflects a permanent increase to $2,200. The alternative minimum tax is consistent with the House bill, with a small change to the inflation adjustment. The bill also includes the no tax on tips proposal, along with the car interest loan deduction.
The Senate bill also includes its SALT tax proposal, which is notably different from its House counterpart. The House legislation provides a $40,000 cap per individual. The Senate proposes maintaining the current $10,000 cap for individuals as a placeholder. For passthrough entities, the Senate eliminates the SSTB limitation; additionally, owners can deduct PTET SALT taxes not exceeding the greater of $40,000 ($20,000 for married filing single), or 50 percent of PTET SALT paid.
The AICPA is seeking further clarification regarding the tax liability by the pass-through entity not exceeding the 102 percent individual liability limit, the types of taxes subject to the substitute payment provision, and the allowance of mandatory state and local taxes, such as franchise taxes and unincorporated business taxes, to be deducted at the pass-through entity level.
The Senate bill is a step in the right direction as it no longer discriminates against SSTBs; however, it does not create parity between pass-throughs and corporations. Pass-through entities include many businesses and professions such as accountants, lawyers and pharmacists, but also include Main Street shops like your local restaurants and family-owned businesses.
“Overall, the AICPA appreciates the Senate Finance Committee’s efforts to improve and correct the targeting of SSTBs in the House bill, which lacked a foundation in sound tax policy. However, we remain concerned regarding the inequitable treatment of pass-through entities compared to corporations,” said AICPA President & CEO, Mark Koziel, CPA, CGMA. “While the Senate bill is less punitive to SSTBs than the House version, it would still result in a tax increase for all pass-through businesses, such as CPA firms. As we continue to analyze the bill’s language and its impact on the business community and taxpayers, we look forward to working with Congress to recommend improvements.”
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Tags: AICPA, Income Taxes, Taxes
