Expert Discusses Tax Planning Amid Uncertainty

As the Republican tax and spending package makes its way through the Senate, one tax planner shared which provisions she’s watching most carefully and how she’s helping clients navigate uncertainty. Among those provisions — the state and local tax (SALT) deduction, the estate tax exemption, and pass-through entity treatment.

Senate bill update.

The Senate Finance Committee released its version of the One Big Beautiful Bill Act (OBBBA) tax provisions Monday evening, with the most chatter about changes to SALT and Medicaid provisions in the draft.

Washington Council Ernst & Young’s Adam Francis, speaking on a June 13 EY webinar, emphasized that even after Senate bill text is released, “it is still subject to change throughout the Senate process.” And the Senate will take different procedural steps than the House, he added.

For one thing, unlike Ways and Means, Senate Finance is not planning a formal markup session on their language, much to the dismay of Democrat members.

In addition, the Senate provisions must be vetted with the Senate parliamentarian to ensure they comply with the chamber’s Byrd Rule. That rule, broadly, prohibits reconciliation bill provisions that do not have a budgetary impact (or have a “merely incidental” impact), that increase the deficit outside of the budget window, or that impact Social Security.

OBBBA and tax planning.

With the uncertainty, CPA Kristin Carter, head of tax advisory at Compound Planning, shared with Checkpoint how she’s preparing for the range of tax possibilities.

Carter is focused primarily on OBBBA provisions that would impact individual taxpayers, who comprise the bulk of her clients. “We’re in this anxious period of watching and waiting and then just being ready to be nimble and make tax planning moves before the end of the year,” she said.

SALT deduction.

One of the most-watched provisions of OBBBA is the SALT deduction cap. The 2017 Tax Cuts and Jobs Act capped the SALT deduction at $10,000. The House-passed OBBBA would increase that cap to $40,000, but it’s unclear if there’s support in the Senate for that increase.

With news Monday that the Senate draft would maintain the $10,000 cap pending further discussions, House Republican proponents of the increased cap were already speaking out.

Representative Mike Lawler (R-NY) called the $10,000 cap “dead on arrival,” while Representative Nicole Malliotakis (R-NY) posted that the change was “insulting” and “a slap in the face” to Republican districts like hers.

Republican SALT Caucus co-chairs Representatives Andrew Garbarino (R-NY) and Young Kim (R-CA) stressed that the House-passed OBBBA’s SALT provision “has been praised by middle-class families, firefighters, law enforcement, small business owners, and hardworking Americans across the country.”

Carter agrees that the SALT cap issue impacts more than just “really wealthy” taxpayers. It also goes beyond “blue states” such as New York and California, she explained. “If you’re a middle-income taxpayer and you live in a high property tax state, like Texas or Florida, you’re also being limited potentially,” said Carter.

“That $10,000 cap has a larger impact than what we normally hear about,” Carter stressed. “Having some relief will be welcomed for all different kinds of taxpayers,” she added, but with a few caveats.

First, the impacts of the House-passed OBBBA SALT changes would be limited to those who itemize their deductions. In addition, said Carter, “if you’re a really high-income taxpayer, you’d be phased out,” under the House bill, which would institute an income limit for the SALT deduction.

Estate tax.

Carter suggests getting in touch with any tax-planning advisors that might be needed now, rather than waiting for a new tax law. For her clients, who include high-net-worth individuals, that likely includes an estate planning attorney.

Those clients “need to be having conversations with estate planning attorneys right now,” said Carter, “because as soon as something happens, everyone will be scrambling to get in front of their attorney.”

If OBBBA doesn’t pass, the estate tax exemption, currently set at $13.99 million for individuals, would drop to $7.14 million in 2026, per the Bipartisan Policy Center’s analysis. Meanwhile, OBBBA would increase the exemption to $15 million. The increase is a priority for many Republicans, some of whom have even pushed for repealing the estate tax entirely. But it does come at a high cost, says BPC, of $212 billion over 10 years.

Given the uncertainty, Carter is advising her clients to “have a plan in place for both scenarios — whether it passes or whether it doesn’t pass.” Structuring a trust and other moves “take time” and “a lot of careful analysis,” Carter explained.

This is the time to be “figuring out what a client’s goals are” and how those align with current and proposed law, said Carter. Among the questions to ask a client: “Are you charitably inclined? Are you wanting to plan for your grandchildren?” Having those conversations now will allow clients to “be ready to make a move” once there’s more tax law clarity.

Pass-through entities.

Though Carter largely works with individuals, many of those clients are owners of, or investors in, businesses. She’s monitoring for changes in treatment pass-through entities, which she says will affect many of her clients “on a personal level.”

The House-passed OBBBA would change the treatment of pass-through entities in some key ways. The TCJA provided a 20% qualified business income deduction for pass-through entities under Code Sec. 199A, Carter explained, to lessen the “disparity between a C corporation and a pass-through entity.”

While the House bill would extend that deduction past 2025 and even increase it to 23%, “there are some parameters around it that would limit that pass-through deduction for certain service industries,” said Carter. Among the service industries impacted are attorneys, accountants, and doctors.

And that’s on top of another provision in the House-passed OBBBA that would limit the use of the pass-through entity tax (PTET)/SALT deduction for specified service trades and businesses. “Most states have adopted some sort of PTET regime now, over the last couple of years especially,” said Carter. “It’s been a really popular tax planning tool to avoid that $10,000 state and local limit.”

For clients who may be impacted by changes to pass-through entity treatment, Carter suggests reviewing a client’s “current situation” and modeling the tax consequences of maintaining a pass-through or switching to a C corporation. The key is to determine “what planning opportunities would exist” and whether “it might be worth making that change.”

But, as with estate planning, Carter advises taking a “wait-and-see” approach while tax uncertainty lingers.