On June 9, 2025, ABA President William Bay sent a letter to Senate leaders expressing concerns regarding several key provisions in H.R. 1, the House-passed version of the One Big Beautiful Bill Act, that would prevent law firms and other professional service businesses from deducting their state and local taxes (SALT) at the entity level and that would continue to limit their owners’ ability to claim the full qualified business income (QBI) deduction while allowing other pass-through entities and their owners to fully claim both deductions.
Small pass-through businesses—which are organized as partnerships, limited liability companies, S corporations, and sole proprietorships—comprise 95 percent of all US businesses and employ well over half of the private sector workforce. Most law firms in the US are small pass-through businesses, with more than 75 percent of practicing lawyers in the nation working as solo practitioners or in small law firms.
Section 112018 the House-passed bill would eliminate the current ability of law firms, accounting firms, medical practices, and other specified service trades or businesses (SSTBs) to deduct their state and local taxes on their federal tax returns. Instead, the tax liability would be pushed to the individual partners or other owners of the professional businesses, therefore contributing towards their individual SALT deduction limitation.
According to separate analyses prepared by the Tax Foundation and the S Corp Association, eliminating the SALT deduction for SSTBs would raise taxes on those small business entities by between $73 billion and $80 billion over the next ten years.
In addition, Section 110005 of the House bill would increase the current QBI deduction for owners of pass-through businesses from 20 to 23 percent and make the deduction permanent, both of which the ABA supports. But while owners of most types of pass-through businesses would still be able to claim the full QBI deduction, it would continue to phase out for owners of law firms and other SSTBs whose taxable income exceeds certain thresholds ($197,300 for single taxpayers or $394,600 for married taxpayers filing jointly for 2025, indexed thereafter for inflation).
In his June 9 letter to Senate leaders, ABA President Bay urged them to ensure that the Senate bill preserves the current ability of SSTBs and all other pass-through businesses to deduct their state and local taxes at the entity level and applies the same QBI deduction to all pass-throughs—including law firms and all other SSTBs—on an equal, non-discriminatory basis with no income related phase-outs or other limitations.
“The ABA believes that all pass-through businesses should be treated equally, irrespective of their lines of business,” Bay explained. Therefore, he urged Senate leaders to include language in their bill that ensures that law firms and other SSTBs “have the same ability to deduct state and local taxes at the entity level—and enjoy the same QBI deduction free of income thresholds—as all other pass-through businesses.”
On June 16, the Senate Finance Committee released an alternative tax proposal that would substantially limit—but not eliminate—all pass-through entities’ ability to claim the SALT deduction. In addition, the Committee’s proposal would make the QBI deduction permanent, but unlike the House-passed bill, it would keep the deduction at its current 20 percent level.
The Senate is expected to complete its work on the legislation within the next several weeks, with the goal of sending the final measure to President Trump for his signature by July 4 or shortly thereafter.
Please join us in urging your Senators and Representatives to reject the unfair provisions in the tax reform package and to ensure that the final bill enacted by Congress preserves the existing SALT deduction and ensures tax parity for law firms and all other pass-through businesses here.