A Freelancer’s Information to Smarter Tax Technique

In the event you’re a freelancer incomes earnings via a enterprise entity and dwelling in a high-tax state like New York, understanding the Move-By means of Entity Tax (PTET) and its function in offsetting federal tax limitations may immediately affect your backside line. That is very true with the current passage of Trump’s One Massive Stunning Invoice (OBBB) which supplies sweeping tax reform and expanded tax benefits at each the state and federal ranges. Now could be the time for freelancers to discover the advantages of strategic entity structuring and SALT workarounds.

What Is PTET?

The PTET is a state-level workaround created in response to the State and Native Tax (SALT) deduction cap applied within the 2017 Tax Cuts and Jobs Act. That cap—initially $10,000—restricted the quantity of state earnings and property taxes that people may deduct on their federal returns, disproportionately affecting freelancers and professionals in high-tax states.

PTET permits eligible pass-through entities, together with partnerships and S firms, to pay state earnings tax on the enterprise stage. These entity-level taxes are absolutely deductible on the entity’s federal return. In flip, enterprise house owners obtain a credit score on their private state earnings tax return—neutralizing the double-tax impact and serving to reclaim deductions misplaced beneath the SALT cap.

Who Qualifies?

To profit from PTET, freelancers should function via a qualifying entity:

• Eligible: Multi-member LLCs, partnerships, and S firms
• Ineligible: Sole proprietors and single-member LLCs (until they elect S corp taxation)

For freelancers nonetheless submitting Schedule C returns, shifting to an S corp or partnership may unlock entry to those highly effective tax-saving provisions.

PTET in New York State: What Freelancers Ought to Know

New York’s PTET regime is likely one of the most complete and favorable for freelancers. Designed to assist particular person enterprise house owners in service professions,, specifically, it supplies the pliability and construction wanted to maximise federal deductibility and protect state-level tax credit.

Key Particulars for New York Freelancers

The next are a few of the essential factors to remember:

• Election deadline: March 15 of the tax 12 months. The election is made via the Enterprise On-line Providers portal and is irrevocable as soon as the primary cost is made.
• Estimated funds: Should be made quarterly—March 15, June 15, September 15, and December 15. Failure to pay on time could end in penalties.
• PTET annual returns: The PTET annual return or extension deadline is March 15 of the next 12 months that the PTET is elected.
• Credit score and refund guidelines: The PTET credit score is reported on the person proprietor’s New York tax return. Extra PTET can’t be distributed to house owners and should be refunded to the entity.
• New York Metropolis (NYC) PTET: In case your freelance work entails NYC-based earnings and you use via a qualifying entity, the separate New York Metropolis PTET could apply, providing further benefitsThe NYC PTET is an elective tax that metropolis partnerships or metropolis resident New York S firms could yearly elect to pay on sure earnings for tax years starting on or after January 1, 2022.
• If an eligible metropolis partnership or eligible metropolis resident S company (electing entity) elects to pay the NYC PTET, its companions, members, or shareholders could also be eligible for an NYC PTET credit score on their New York State earnings tax returns.

Entities should decide whether or not they’re electing as a regular S corp or a “resident S company,” which impacts how earnings is sourced and taxed.

2025 SALT Reform: Expanded Alternative, however with Limits

With the passage of the OBBB in July 2025, the SALT deduction cap was elevated to $40,000 for the 2025 tax 12 months, with a 1% annual enhance via 2029. The cap will revert to $10,000 in 2030 until prolonged. This enlargement supplies vital reduction—nevertheless it comes with essential caveats for freelancers detailed under.

Key factors to contemplate when electing the PTET to your freelance enterprise:

• You have to elect the PTET yearly to your freelance enterprise.

• In case your freelance enterprise entails New York Metropolis earnings and you use via a qualifying entity, your NYC-based entity can apply for added PTET advantages.

• The PTET election, particularly for entities probably eligible that conduct enterprise in New Yor Metropolis (NYC)  needs to be weighed in consideration of the New York Metropolis Normal Company Tax and Unincorporated Enterprise Tax. This can be a posh resolution and is finest made with the assistance of an skilled freelance tax skilled.

• In contrast to itemized deductions for state and native taxes beneath the One Massive Stunning Invoice Act, there isn’t any phaseout for the PTET deduction.

Why PTET Nonetheless Issues for Freelancers Put up-Tax Reform

Regardless of the expanded SALT cap, PTET stays a vital technique for freelancers with structured entities. It’s because:

• PTET funds are absolutely deductible on federal returns whatever the SALT cap phaseout.
• Freelancers with greater AGI who see diminished SALT advantages can nonetheless declare the complete PTET deduction via their enterprise entity.
• The ultimate 2025 tax invoice preserved PTET eligibility for service-based companies, together with design, legislation, technique, and accounting—overturning earlier drafts that will have restricted it.

Freelancer-Particular Planning Suggestions

1. Consider your entity construction: Sole proprietorships are excluded from PTET. Take into account forming an S corp or partnership to realize eligibility.
2. Mannequin your tax affect: Evaluate PTET financial savings in opposition to normal itemized deductions, QBI advantages, and anticipated SALT deductions.
3. coordinate funds together with your CPA: PTET impacts quarterly estimates and year-end submitting. Planning is vital to avoiding penalties and optimizing money move.
4. Be state-specific: In the event you earn earnings throughout a number of states, perceive how PTET interacts with allocation and apportionment guidelines.
5. Don’t miss the election deadline: PTET is elective and should be chosen yearly—lacking the window means forfeiting the profit for that 12 months.

PTET

For freelancers striving to maintain extra of what they earn, PTET is a instrument that blends good technique with state-specific leverage. In New York, it’s notably useful for self-employed professionals who’ve taken the time to formalize their enterprise and plan proactively. With the brand new SALT cap enlargement in place and PTET absolutely preserved, the panorama has shifted—however the want for intentional tax technique is bigger than ever.

Whether or not you’re restructuring your enterprise or refining your tax planning for 2025, PTET could also be your key to reclaiming deductions, decreasing legal responsibility, and elevating your freelance funds. For essentially the most dependable steerage on OBBB tax methods together with the PTET and SALT caps, seek the advice of with a tax skilled.