Video Posted: June 18, 2025
I want to jump in and hit something about this Big Beautiful Bill that’s out here. I want to hit something about SALT deduction. I want to hit something about your personal wallet and the taxes that we pay. In wealth management, everything that we do is basically reactionary, right? We react to tax laws. We react to market conditions. We react. But we don’t want to be reactive, we want to be proactive.
One of the things that I’m seeing right now is people are not really understanding the impact of the 2017 potential sunset. There’s this Big Beautiful Bill, although there are opportunities for it not to happen. There are conversations around SALT deduction. And I wanted to just frame this in a very quick manner because if we understand currently where we are and where we could potentially be if the sunset occurs. The Tax Cuts and Jobs Act of 2017 is automatically going to sunset at the end of the calendar year. What does that mean? It goes from the current tax bracket, which the top marginal bracket is 37%, and there’s qualified business income deduction 199A. There’s a whole series of deductions that are occurring that will sunset and go back to the 2016 tax law, which is a 39.6% bracket. Also, the SALT (state and local tax) deduction gets restored. And I live in a state that has very high property taxes and a very high income tax.
There is a belief that if I have this higher SALT deduction that I’m going to pay less taxes. And what I’m going to show you today is some proof. You may or may not agree with it, but it is some sort of relative proof. We are simulating a tax environment for a W-2 and we are simulating a tax environment for an S Corp. And there are two very different outcomes that are going to happen. Most people believe that if the SALT deduction was restored, they are going to pay less taxes. So we’ve created an environment, and everything I’m about to say is potentially not accurate for you. Your own circumstances will dictate whether or not this is appropriate. This is just a version and a view of very simplistic income components.
So what I have here is a W-2 person, meaning I work for somebody and I get paid a half a million. It could be a $300,000 salary and a $200,000 bonus. It could be a $500,000 salary. I’m not deferring into a 401(k) plan. I’m not doing anything else. All I’m basically saying is I make $500,000. I’ve got a little bit of taxable interest. I got money in the bank. I have a deduction, there’s a mortgage here and the $10,000 SALT. I am not using the standard deduction; I’m just using an itemized deduction, and I’m going to show you the detail on this.
The tax for 2025 is going to be $103,000 on a half a million federally. We’re not including New Jersey; we’re not doing anything here. Okay, when I look at this, this is your Schedule A on your tax return. You’re going to see that this person making a half a million pays about $25,000, about 5%, to New Jersey. They pay $13,000 in real estate taxes.
It totals $38,000, but we have the SALT limitation of $10,000. And the reason why I’m using a half a million is at a half a million, they’re talking about that cap is going to be back to $10,000. But what makes people angry is that I’m only getting $10,000 worth of that SALT deduction on $38,000. So I’m losing $28,000 of deduction. Then I have mortgage interest of $25,000. So there’s the $10,000 plus that, which gives me $35,000 of deduction for the $103,000 of tax.
Fast forward to 2026, and what you’re going to see is the deduction. Now, you get the full $38,000, and you get the $25,000 worth of interest. So your itemized deduction here on line 12 of your tax return is $60,613. I must be paying less taxes now. But the reality is, I’m paying $60,000 in real estate taxes, New Jersey taxes, and mortgage interest. And now I get that deduction. But your CPA calls you and says, “The $100,000 you paid in for taxes is not good. You owe another $20,000 in taxes.” And you’re like, “What?” I’m like, “Yeah, because the tax law sunsetted and we’re back to this original thing. We’re going to pay $20,000 more in taxes if the law sunsets.”
So that’s really, really powerful. Right, when I look at this, this is a summary that shows in 2025, you make half a million with a $35,000 deduction and you’re at the $103,000 in tax. Go to the following year, now I’ve got the $60,613 deduction, but my taxes totally went from $103,000 to $123,000. That’s a problem. What is that going to do to your budget? What is that going to do to your household savings rate? What’s the opportunity cost of an extra $20,000 in taxes being spent? $20,000 a year for the next 20 years is the difference of a good retirement plan versus not. Think of the macro impact. That’s student debt for your kids. Who knows what your ripple is, right? That’s why this podcast is designed to get you to think strategically.
Now we’re going to fast forward and we’re going to get a deduction for something. The Big Beautiful bill affects the W-2 person as bad as it affects the S Corp person. And I think it affects the S Corp person substantially more. So, we have a smart business owner, and they make $300,000 salary. They pay themself a $300,000 salary, and they have an S corporation distribution of $600,000. So they’re making $903,000 in this example. And they’re getting the same $35,000 of deduction—that’s the state and local income tax, so they’re paying $200,000 in taxes. But if you look at line 13 on your personal tax return right now, if you have a qualified business income deduction, and there are limitations and caps on this, you potentially have a $120,000 199A deduction. And, if you live in New Jersey (and many similar states), there’s a thing called a pass-through entity tax (PTE). In New Jersey it’s called the BAIT tax, which allows the business owner to pay their state-level taxes from the corporation and take a full deduction from it from a federal perspective. I am not doing that here, but I cannot tell you how many people miss that deduction, which is frightening.
Okay, so when I look at this, I’ve got my $35,000 worth of deduction, I got $120,000 worth of qualified business income deduction or 199A, and I paid $200,000 in federal taxes. But I’m angry because I paid $80,000 to New Jersey. Now if I use the pass-through entity tax of the $80,000, I reduce my $600,000 of S Corp to $520,000. So technically I’m even saving more taxes. But I just want to make it simple.
But as we know, my dad and I were partners for 25 years, and he had a sign in his office on the whiteboard: “Complex problems have simple, easy-to-understand wrong answers” So true, right? But the idea is complex problems do not have simple and easy-to-understand solutions. You might have to go a couple layers deep on it to really understand if am I really paying the right amount of taxes? But if I don’t understand the current tax law, how am I going to be ready for the Big Beautiful Bill? Let’s get real here.
So, I got $73,000 worth of deduction that I’m pissed off about that I don’t get. And I still got my $25,000. So I got $35,000 worth of deduction. So that’s the $200,000 of federal tax. So now I go to 2026 with the same $300,000 and same $600,000 in S Corp distribution. My deduction is now $83,000. I’m so happy. But line 13 is gone; there’s no qualified business income deduction. My taxes are now $259,000. That is nearly $60,000 of additional taxes. What is the ripple effect in a business owner strategy when they pay $60,000 more taxes?
I believe in macroeconomics, the velocity of money and the money multiplier effect. Money in motion, money in the economy makes the economy healthy. When money is put off and is hoarded or it is stored or is given to somebody that doesn’t put it in motion, the economy is not healthy.
And I’m going to say that paying taxes above and beyond what I want to pay, beyond what I have to pay, represents an opportunity cost. Therefore, my estimate is that if the W-2 payer pays $20,000 more in taxes, that’s $20,000 that’s not getting spent in their community. It’s $60,000 that’s not getting spent in the community for the business owner or invested or saved. But when you look at this, you see the deduction goes up by nealy $50,000; the qualified deduction goes from $35,000 to $83,000. The qualified business income deduction goes from $120,000 to zero. $60,000 more taxes.
So why am I talking about this today, right? The House and the Senate are going to vote on a big beautiful bill and there’s going to be an outcome. If you haven’t mastered the current strategy with your current plan, what makes you think you’re going to do the next one right? And I really want you to maximize this. Because if you get what I was talking about on opportunity cost, what you’re going to realize is that every dollar that I waste that is unnecessarily paid represents money lost in my future. Meaning, if I pay an extra $40,000 in taxes, not only have I lost the $40,000, but I’ve lost the potential of what that $40,000 could be worth in my future. And if I do that over and over again for the next 25 years, the amount of wealth lost is unrecoverable.
All right, so what I urge you to do is if this message resonates with you, you can call us at 1-800-797-1000 and you set up a free, no-obligation Wealth Curve Conversation. If you like that and you want to work with us, we’ll work with you. If you want to just share this with 48,000 friends, we also appreciate that too. The more people that hear this message can look at your own personal plan and realize “Oh my God, I haven’t maximized this. What else am I missing?” We want to share this knowledge.
I’ve been doing this for 35 years, happily—despite my resting face. But the reality is that what makes me happy is when people get it optimized. When people are not optimized, they’re not creating as much wealth as they could. And everything in your plan is a lever. When we move three and four and five levers, you get an exponential potential out of that plan. I look forward to hearing from you. I look forward to talking to you. Thank you for your time.
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