Will Washington Businesses Lose a Key Tax Break? Understanding B-SALT and What Congress Might Change

​Will Washington Businesses Lose a Key Tax Break? Understanding B-SALT and What Congress Might Change

If you own a business in Washington State, there’s a good chance you’ve felt the sting of the Business & Occupation (B&O) tax. It’s a tax on your business’s gross receipts—not your profit—and it can really add up. But there’s been one big silver lining: you can usually deduct that tax on your federal return through something called B-SALT.

Now, federal lawmakers are thinking about taking that benefit away—or at least cutting it back. Here’s what you need to know about B-SALT, why it matters, and what changes are on the table in Washington, D.C.

What Is B-SALT?

B-SALT stands for Business State And Local Tax deductions. It's a federal rule that lets businesses deduct the state and local taxes they pay—like income taxes, gross receipts taxes (like Washington’s B&O tax), and property taxes—from their federal taxable income.

This deduction helps lower the amount of federal taxes businesses owe. Right now, there is no limit on how much businesses can deduct. This is different from the SALT cap for individuals, who can only deduct up to $10,000 in state and local taxes on their federal tax return.

For Washington businesses, B-SALT is especially helpful. Since Washington doesn’t have a personal or corporate income tax, businesses rely on the ability to deduct the B&O tax at the federal level to save money.

What’s Happening in Congress?

In 2025, Congress is looking closely at federal tax laws as part of a broader push for tax reform. And one target is the B-SALT deduction.

Lawmakers are considering a few major changes:
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   • Eliminating B-SALT deductions completely. Some proposals suggest that businesses should no longer be able to deduct state and local taxes at all. This would especially hurt businesses in states like Washington that rely on B&O and other local taxes.
   • Limiting deductions for certain types of businesses. Congress might let C-corporations keep the deduction but take it away—or limit it—for pass-through businesses like LLCs, S corporations, and partnerships. These are the types of businesses most small companies use.
   • Closing state workaround programs. Many states have created "Pass-Through Entity" tax programs to help small businesses get around the $10,000 SALT cap. Federal lawmakers are now thinking about shutting those programs down, which could indirectly reduce or eliminate B-SALT benefits for small business owners.

All of this is still being debated, but the direction is clear: federal tax writers are looking for ways to raise revenue, and the B-SALT deduction is a tempting place to start.

What This Means for Washington Businesses

If any of these federal changes pass, it could mean higher federal taxes for thousands of Washington businesses. Because the B&O tax hits nearly every business, losing the federal deduction would be a serious financial blow. For many small businesses that already operate on thin margins, this could mean less cash flow, reduced hiring, or even tough decisions about whether to expand—or shrink.

Even if you're not directly involved in policy or politics, these changes could affect your business in real dollars.

What Can Business Owners Do?

First, it’s important to stay informed. Congress is expected to keep debating these issues throughout the year, and the final outcome could look very different from today’s proposals.

Second, talk to your tax advisor. Understanding how these changes might affect your specific business structure—whether you’re an LLC, S corp, or C corp—is key to making smart financial plans.

Finally, if you want to have a voice in this process, consider contacting your congressional representatives or joining local business advocacy groups. Business owners across the country are already speaking up, and your story could help lawmakers understand what’s at stake.

The B-SALT deduction has quietly helped many Washington businesses lower their federal tax bills. But that might be about to change. With new proposals in Congress aiming to limit or eliminate this benefit, now is the time to get informed, talk to your tax advisor, and be ready for what’s next.

Photo by bruce mars on Unsplash