How the One Big Beautiful Bill Affects Law Firm Partners — Especially Equity Partners

The One Big Beautiful Bill (OB3) made headlines with changes that affect individuals, families, and businesses at a range of income levels. For law firm partners—especially those in multi-member firms—one piece of the bill could offer significant tax planning opportunities. 

Let’s take a look at what’s changing, and how you can plan ahead. 

PTET Workaround Extension 

One key component of the bill was the extension of the Pass-Through Entity Tax (PTET) workaround. 

After the pasage of TCJA  individuals couldn’t deduct more than $10,000 in state and local taxes (SALT) from their federal taxable income. This cap was especially limiting for high earners in states like Massachusetts, New York, and California—many of whom pay far more than that in state income taxes. 

The PTET workaround provides an alternative. If your law firm elects to pay the state income tax at the entity level, the business itself deducts the taxes paid (e.g., $30K) on its federal return. The partner then receives a credit for some or all of those taxes on their personal state return. 

For law firm partners, this can be a significant opportunity to reduce federal taxable income and better manage overall tax liability. 

Massachusetts Law Firm Partner Example

Suppose you’re a partner at a multi-member firm in Massachusetts (or a firm that needs to pay taxes in MA) and your share of income is $500,000. Your state tax burden might be around $25,000. Without PTET, you could only deduct $10,000 at the federal level. But if your firm elects the PTET, you receive a state tax credit for  $22,500  and your  federal taxable income is reduced by $25,000. 

This is a planning strategy worth discussing with your firm’s accountant and your financial planner. Not every firm elects PTET, and not every state offers it. But where it’s available, the extension offers more flexibility for long-term tax strategy. 

What You Can Do 

• Talk to your firm’s leadership or CPA to confirm whether the firm is electing PTET. 

• Review your estimated taxes and withholding to reflect the new setup. 

• Coordinate with your financial planner to make sure your broader tax and cash flow strategies are aligned. 

The OB3 brought a variety of changes—but for law firm partners, the extension of PTET may offer a practical opportunity to improve your federal tax position. Whether you're in Massachusetts or another high-tax state, a proactive review of your tax plan could yield meaningful savings.