Accountants and lawyers in the U.S. are actively lobbying against proposed tax increases aimed at professional service firms embedded in Donald Trump’s hefty legislative package.
If their efforts don’t sway Republican senators, negotiations on this major tax and spending bill are ongoing.
This week, the American Bar Association sent a letter to a senator, calling the proposed changes “fundamentally unfair” for targeting a range of professional service providers, including doctors, lawyers, and accountants.
The American Association of Certified Public Accountants expressed strong disapproval of the measure, stating it’s “ugh” and urging senators to collaborate with local accounting associations across 53 states for its removal.
These changes could jeopardize U.S. businesses introduced during Trump’s first term, which allowed individuals to deduct state and local tax payments before calculating federal tax obligations.
The so-called salt cap, enacted through the 2017 Tax Cuts and Jobs Act, limited state and local tax deductions to $10,000, a move that sparked significant debate.
Benefits for partnerships are taxed as personal income, placing a heavier burden on those in affluent regions like New York and California, resulting in higher state income tax bills compared to traditional employees.
A workaround available in 36 states permits state income taxes to be paid at the corporate level, but House Republicans are proposing to ban this option for professional services.
The salt deduction has resurfaced as a critical issue in negotiations around the expansive bill, which recently passed in the House. Their version proposes increasing the salt cap to $40,000 but also includes restrictions on travel-related costs, such as prohibiting certain workarounds for specific professional partnerships.
Partnerships in other industries can still utilize these methods.
Melanie Lauridsen, Vice President of Tax Policy and Advocacy at AICPA, criticized the measure, stating, “It’s targeted and it’s ugly,” and added that the implications were not fully transparent.
While Senate Republicans appear intent on lowering the salt caps, House lawmakers advocate for their increase.
According to the Tax Foundation’s analysis, eliminating workarounds for professional service firms could generate $730 billion over ten years, partially countering the costs of raising the salt cap.
ABA President Bilbay emphasized in a letter that this change is “fundamentally unfair” and widens the tax disparity between professional service firms and other types of businesses.
He pointed out that the majority of American law firms are small pass-through entities, with over 75% of practicing lawyers working in solo or small firms.
