For small business owners and professionals in Arlington, VA, 2025 brings a major change in federal tax law: the increase in the State and Local Tax (SALT) deduction under the One Big Beautiful Bill Act (OBBBA). If your business or personal tax situation includes paying significant state and local taxes, this update could lead to substantial tax savings—if you plan carefully.
In this guide, we’ll explain what the SALT deduction is, the new 2025 limits, income-based reductions, and strategies Arlington business owners can use to maximize the deduction and reduce their federal tax liability.
What Is the SALT Deduction?
The SALT deduction allows taxpayers to deduct certain state and local taxes from their federal taxable income. This includes:
- Property taxes (for homes, business property, vehicles, and boats)
- State income taxes (or, alternatively, state sales tax—but not both)
- Local income taxes
For Arlington residents, this typically includes Virginia state income tax and Arlington County property taxes. Business owners may also have state and local taxes tied to their businesses, depending on entity type and operations.
Historically, before 2018, these taxes were fully deductible if you itemized deductions. However, the Tax Cuts and Jobs Act (TCJA) capped the SALT deduction at $10,000 ($5,000 for married filing separately), limiting the benefit for taxpayers in higher-tax states like Virginia.
The 2025 SALT Deduction Increase
The OBBBA temporarily increases the SALT deduction cap beginning in 2025:
- Taxpayers can deduct up to $40,000 in state and local taxes ($20,000 for married filing separately).
- After 2025, the limit increases by 1% each subsequent year, until 2030.
- In 2030, the SALT cap reverts to $10,000.
This increase could lead to major federal tax savings. For example, a single taxpayer in the 35% tax bracket paying $40,000 in SALT expenses could save an additional $10,500 compared with the old $10,000 cap ([35% × ($40,000 − $10,000)]).
Income-Based Reduction
There is an important caveat: the increased SALT deduction is subject to an income-based phaseout.
- For 2025, the deduction starts to reduce for taxpayers with modified adjusted gross income (MAGI) above $500,000 ($250,000 for married filing separately).
- The deduction drops 30% of the amount by which MAGI exceeds the threshold.
- When MAGI reaches $600,000 ($300,000 for separate filers), the previous $10,000 cap applies.
Example:
If an Arlington business owner has $550,000 in MAGI, that’s $50,000 over the 2025 threshold. The SALT deduction is reduced by 30% × $50,000 = $15,000, leaving a maximum deduction of $25,000 ($40,000 − $15,000). Even with the reduction, that’s more than double the $10,000 cap under the TCJA rules, potentially saving an additional $5,250 in federal taxes at a 35% tax rate.
Itemizing vs. the Standard Deduction
The SALT deduction is only available if you itemize deductions. Since the TCJA nearly doubled the standard deduction, many taxpayers previously chose the standard deduction instead.
For 2025, standard deductions are:
- $15,750 – single and separate filers
- $23,625 – head of household
- $31,500 – married filing jointly
The increased SALT cap could make it worthwhile for some Arlington business owners, especially those paying high Virginia state taxes or property taxes, to switch back to itemizing deductions. This is particularly true if combined itemized deductions (mortgage interest, charitable contributions, medical expenses, and SALT) exceed the standard deduction.
Strategies to Maximize the 2025 SALT Deduction
Here are actionable strategies for Arlington business owners:
1. Review Property Tax Payments
Property taxes are a significant component of the SALT deduction. For business or home office property:
- Prepay 2026 property taxes if your MAGI is below the phaseout threshold. The prepayment must be assessed and owed, not just estimated.
- Accurately allocate property taxes for business use in a home office. Only the portion used for business is deductible on business returns.
2. Coordinate State Income Tax Payments
Quarterly estimated payments for Virginia state income tax, or withholding for S corporation shareholders, contribute to your SALT deduction.
- Ensure payments are made before year-end to maximize 2025 deductions.
- Consider strategies to reduce MAGI if approaching the deduction phaseout (e.g., contributing to pre-tax retirement accounts or Health Savings Accounts).
3. Evaluate Itemization
If you normally take the standard deduction, recalculate whether itemizing in 2025 is more beneficial. Include:
- Property taxes
- State and local income taxes
- Mortgage interest
- Charitable contributions
- Other eligible expenses
Even with an increased standard deduction, higher SALT payments could make itemizing worthwhile for Arlington taxpayers.
4. Monitor MAGI
The SALT deduction is reduced for high-income taxpayers. Steps to manage MAGI include:
- Contributing to pre-tax retirement accounts (401(k), SEP IRA, or traditional IRA)
- Maximizing Health Savings Account contributions
- Avoiding nonessential income events (e.g., Roth conversions or asset sales with large capital gains) near year-end
Proper planning can help keep more of your SALT deduction intact.
5. Keep Clear Records
The IRS requires detailed documentation for all deductions:
- Property tax bills and receipts
- State and local tax payments
- Prepayments for property or other taxes
Accurate records make claiming the higher SALT deduction easier and protect against audits.
6. Integrate Business Tax Planning
Arlington business owners should coordinate SALT planning with other tax strategies:
- For S corporations and partnerships, state taxes flow through to personal returns.
- For LLCs taxed as sole proprietorships, state and local taxes paid at the individual level may contribute to SALT.
- Consider timing of business-related property taxes and other deductible expenses to maximize benefit.
Example: Arlington Business Owner
- Business: Arlington-based consulting firm operating as an S corporation
- 2025 Property Taxes: $12,000
- State Income Tax Paid: $15,000
- Local Business Taxes (BPOL): $2,000
- MAGI: $550,000 (over the $500,000 threshold)
SALT calculation:
- Maximum cap: $40,000
- Phaseout: $15,000 reduction (30% × $50,000 over threshold)
- Deductible SALT: $25,000
At a 35% federal tax rate, this represents $5,250 in additional tax savings compared to the $10,000 cap under prior law.
Key Takeaways
- The OBBBA temporarily raises the SALT deduction to $40,000 for 2025, with annual increases until 2030.
- Income-based reductions apply for taxpayers with MAGI over $500,000 (or $250,000 for separate filers).
- Only taxpayers who itemize deductions can benefit from SALT.
- Year-end planning—prepaying property taxes and managing MAGI—can maximize deductions.
- Arlington business owners should coordinate SALT planning with S corporation or LLC tax strategies.
Final Thoughts
The 2025 increase in the SALT deduction is a significant opportunity for Arlington, VA business owners and residents who pay high state and local taxes. Careful planning, documentation, and professional guidance are essential to fully capture these savings.
Consult a local CPA to review your SALT-eligible taxes, evaluate whether itemizing is advantageous, and implement strategies to maximize deductions while staying compliant with IRS and Virginia regulations.
Take Action: Don’t wait until April to figure this out. Contact Akumen Accounting Group today. Let’s review your MAGI projections, look at your itemized deductions, and build a strategy to ensure you aren’t paying a penny more to the IRS than necessary.
