AICPA Flags Unfair SALT Deduction Limits for Service Firms

You know the drill—new tax legislation drops, and the scramble begins. Who's high-fiving their finance team? Who's calling their lobbyist in a panic? The scoreboard is lighting up with the House Ways and Means Committee rolling out its latest tax reform package. Tax winners, meet your moment: Main Street businesses scored a bigger standard deduction. R&D-heavy companies? You’re back in business with Section 174A expenses. And for anyone stressed over the $600 Form 1099-K threshold, good news, the old $20K and 200 transactions rule is back in action. CPAs also land a win with the expansion of 529 account usage for credential expenses, making continuing education a more tax-efficient move. And then there’s the Section 199A Qualified Business Income (QBI) deduction boost—we're talking a raise from 20% to 23%. That means more savings for qualifying pass-throughs across the board. But, just when service-based pass-throughs thought they could breathe easy, the rug gets pulled.

License to Skill

While the tax bill makes waves, the AICPA and NASBA have been quietly cooking up something big. They've greenlit a fresh path to CPA licensure, ditching the rigid 150-hour rule for a more flexible, experience-focused route. Under the new model legislation, aspiring CPAs can qualify with a bachelor's degree, two years of relevant experience, and a passed CPA exam. This isn't just about cutting red tape, it's about meeting the moment. With firms struggling to hire and retain talent in audit and tax, the move is meant to modernize the profession and pull in the next generation of number-crunching, strategy-savvy professionals. But here’s the kicker: while we’re modernizing the pipeline for future CPAs, federal tax reform could simultaneously kneecap the very firms that train and employ them. Yep, we’re talking about the SALT deduction mess.

The SSTB Carve-Out Controversy

Let’s break it down: the proposed legislation drops a bombshell for specified service trade or businesses (SSTBs). If you’re a CPA firm, law office, medical practice, or any other service-based pass-through, you may lose the ability to deduct state and local taxes (SALT) at the entity level under the PTET (Pass-Through Entity Tax) workaround. This workaround has been a saving grace since the TCJA slapped a $10,000 cap on individual SALT deductions. By paying those taxes at the entity level, pass-throughs got a full federal deduction. It was elegant. It worked. Now? The new bill says, "Nah, not for SSTBs." So, while your buddy running a manufacturing S corp keeps deducting SALT like a boss, your CPA shop? Sorry, Charlie.

The AICPA’s Clapback

The AICPA isn’t letting this one slide. Sure, they gave props to the bill for bumping the QBI deduction to 23%, reviving R&D expensing, preserving the cash method of accounting, and making the standard deduction fatter. But on the SSTB carve-out? They threw the penalty flag. “The proposed changes to the PTET deduction are unfair to businesses that are the backbone of the American economy… the majority of which are structured as pass-throughs.” Mark Koziel, AICPA President & CEO

Their argument hits home: why penalize service-based businesses for being, well, service-based? Especially when these are the very firms advising others on how to navigate tax changes. “Treating any service business more harshly does not seem to follow the principles of good tax policy, such as neutrality, simplicity, fairness, certainty, and transparency.”

What Happens If This Passes?

If the bill becomes law in its current form, here’s the spicy reality:

• SSTBs lose the ability to deduct entity-level SALT.
• Their federal tax bills go up, possibly by a lot in high-tax states.
• Meanwhile, C corps and non-SSTB pass-throughs keep their deductions.

That’s not neutral. That’s tax-code favoritism. And it could spark a wave of unnecessary C-corp conversions, driven by bad tax policy instead of sound business logic.

Eyes Wide Open

The reconciliation bill is still being fine-tuned, and there's room for negotiation. Blue-state Republicans are pushing back on the SALT cap language. The AICPA is ramping up lobbying efforts. And tax professionals? They're watching this like it's the last season of "Succession." This tax bill has plenty of headline-worthy wins, from expanding the child tax credit to protecting tip income from taxation. But the SSTB carve-out is a sleeper issue that could blindside a huge segment of the business economy. So, if you’re running a service-based pass-through and counting on that PTET deduction to keep things kosher with Uncle Sam, this isn’t the time to zone out.

Final Word

There’s a bigger question looming here: can we craft tax policy that lifts businesses without stepping on the professionals who help them grow? This isn’t just about CPAs. It’s about solo practitioners, consultants, small-town docs, and everyone else who keeps Main Street humming. The AICPA fired the warning shot. The next move is on Congress. Tax policy may be spicy, but fairness shouldn’t be negotiable. Want smarter takes on tax and policy? Sign up for MYCPE ONE Insights today.