Teaching Tax Flow: The Podcast

Welcome back to the Teaching Tax Flow Podcast, episode 180! This week, we're diving deep into State and Local Tax (SALT) planning, a crucial aspect of your overall financial planning. We'll explore effective tax strategies for high-income individuals and share valuable tax tips to help you navigate these complex regulations.
 
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  • (00:03) - Exploring State and Local Tax Planning Changes
  • (01:38) - Impact of SALT Deduction Limits on High-Tax States
  • (04:49) - Understanding SALT Tax Deductions and Their Implications
  • (09:48) - Tax Changes and Estate Planning Made Easy
  • (10:56) - Tax Strategies for Business Owners to Maximize SALT Deductions
  • (17:05) - Teaching Tax Flow Podcast Encourages Listener Engagement

Creators and Guests

Host
Chris Picciurro
Founder, Teaching Tax Flow
Host
John Tripolsky
VP of Marketing, Teaching Tax Flow

What is Teaching Tax Flow: The Podcast?

Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.

Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.

In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.

Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.

Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com

John Tripolsky:

Hey, everybody, and welcome back to the Teaching Tax World Podcast episode 180. We are gonna look at some salt tax planning. So what salt is, we're not talking about salt and pepper shakers here. We're talking about that state and local tax. And how do you actually plan for that?

John Tripolsky:

We're about to find out here. Chris Picciurro, my cohost on this wonderful show that we do every week. How's it going, man? You ready to to dive into this guy?

Chris Picciurro, CPA:

Absolutely. Big change with, the one big beautiful bill act that I think is gonna affect somehow probably about 20 or 30,000,000 taxpayers, believe it or not. So, yeah, I think it's it's often overlooked. It's one of the driving forces that we're seeing causing larger tax refunds this year. So for so many people, they find this to be a positive.

Chris Picciurro, CPA:

And

John Tripolsky:

And with it too, like, you mentioned that pretty large number, right, of people that it's gonna impact. I mean, a, that's a lot of people, but also too, like, there's opportunity, like you mentioned, that comes with this. But as far as for that goes, when the IRS looks at it, right, I mean, these changes are pretty widespread. Right? Like, they they impact a lot, just not one tiny little thing.

John Tripolsky:

Right?

Chris Picciurro, CPA:

Correct. Correct. So, yes, state and local income tax. It's not necessarily only income tax. It's state and local tax.

Chris Picciurro, CPA:

The acronym is SALT. And with the one big beautiful bill act, which is, as we know, September 2017, it lowered the SALT tax deduction to 10 up to a max of $10,000 for married couple filing joints. So what that means is this. We all know that you get a standard deduction, or you can itemize your deductions. If you if you itemize your deductions, you file a schedule a, and you add up several different types of deductions.

Chris Picciurro, CPA:

And if those deductions add up to more than your standard deduction, then you wanna take the higher amount. Well, for so to give you an example, with let's say someone lives in Michigan, and let's say their household income is a $150,000, and let's say they have a $6,000 worth of pay worth of property taxes, which is not a huge amount. That person would have paid about $9,000 of state income tax. They would have paid $6,000 of property taxes, $15,000. Say it's a married couple.

Chris Picciurro, CPA:

And let's say they purchased let's say they have sales tax and they purchased a vehicle and they have $17,000 worth of state and local tax paid. They maybe they live in the city of Detroit or city of Grand Rapids where they're paying a state or a local tax. So we that person would have paid, let's just say, $17,000 worth of state and local tax. If they itemize their deductions, they would only be able to deduct up to $10,000 of those taxes. So it's very limited.

Chris Picciurro, CPA:

So it's it's the the the tax cuts and jobs act really hurt the people in the higher income tax states, higher property taxes, high higher income tax. Then you think about California's, New York, New Jersey's, where these folks, you know, in Illinois, their property taxes are really high in general. So so those people, though, that that was limiting their ability to deduct this to their state and local income tax, which led to less people itemizing their deductions. And one of the things that one big beautiful bill act did is that brought people from both sides of the aisle, in DC, so your Republicans and your Democrats, to compromise. And for those states with higher income taxes, and we're typically going to be a more democratic state like a California, New Jersey, and New York, they wanted their constituents to be able to deduct more of the state tax that they paid because it's kind of a rip off that, you know, that, hey.

Chris Picciurro, CPA:

I'm paying a tax to a state, and I should at least get a deduction for it on the federal tax return, but they weren't. So with the one big beautiful bill act, the the salt tax limit increased. So let's talk about first what are salt taxes. As you mentioned, it's not something you put on your, you know, your hamburger or or pizza or scrambled eggs or something. They includes property taxes, so that's homeland, state income taxes, not just estimates that you pay, but that's a state income taxes that are coming out of your paycheck, local income taxes, sales tax.

Chris Picciurro, CPA:

So, like, here in Tennessee, in many states that don't have an income tax, we have a high sales and personal property taxes. So if you buy a vehicle or a boat, all those things add up, and that's your salt for the year. And there's some planning involved we're gonna talk touch on at the end of the end of the episode. So that's the salt. And so for many people, again, they weren't really benefiting from the entire salt tax that they were paying.

Chris Picciurro, CPA:

So

John Tripolsky:

And I'm sure people are asking that question of, like, well, how do I actually plan for this? Right? I mean, I think if anybody's listening to this, they're kind of taking step one right now, like, what it actually is, what it entails. And I love that we talked about in a previous episode too was I forgot the title, but it was kind of the the hidden, the sneaky the sneaky taxes. Right?

John Tripolsky:

Like, talk about a crazy scenario, but not really. Right? Like, you could have somebody who smokes, I don't know how many packs of cigarettes per day, but lives in New York City. Right? Like, I mean, think about the sales tax that they're paying.

John Tripolsky:

I think that's a sales tax that makes that so high. But, yeah, that's that's a significant amount of of sales tax they're paying per year just on one item.

Chris Picciurro, CPA:

Or think about, you know, in in California where things are very expensive. You could you could I mean, they're those entry level professional athletes are barely making it. You could be making $4,500,000 and barely making it in paying $4,050,000 dollars of state income tax and getting no bet no federal tax benefit that. So this does give you that in for 2025, it's a $40,000 max. That is indexed for inflation.

Chris Picciurro, CPA:

I think it's gonna be about $40,400 for 2026. The bottom line is the maximum salt tax deduction quadrupled in the one big with the one big beautiful bill act. Now there are some phase outs. I mentioned that California item. Your modified adjusted gross income.

Chris Picciurro, CPA:

So remember, tax brackets lie to you. Your marginal tax rate is what's important. We talk about that all the time, but you're you could get what's called phased out of some of your salt tax deduction. Now remember, and if you have not thought about this before, definitely look at that teaching tax full YouTube channel. We have a ton of one minute quick tips like this.

Chris Picciurro, CPA:

There's a difference between a phase out and a cliff. A tax cliff means if I go a dollar over the income threshold to get a deduction or credit, it goes bye bye completely. It's all or nothing. A phase out is more generous to the taxpayer. A phase out means if I go a little over the income phase out so let's say I go over $500,000 of income and that was the phase out for for deducting all of my salt tax.

Chris Picciurro, CPA:

I get to deduct maybe 95 percent of it or 90% of it. You don't it doesn't just go bye bye. There's a a phase out is a gradual decrease in that benefit. So and and so that's and so your income and your filing status both play a role in those phase out situations. For purposes of this podcast, the vast majority of of taxpayers will never get close to the phase out.

Chris Picciurro, CPA:

Now in our private CPA practice, it's a little different. Right? Probably over well over half our clients are in the phase out range, and that's where some planning comes in, which I'm gonna sprinkle that on you guys in in a few minutes. So what are you did

John Tripolsky:

mention earlier on too really quick, Chris. You know, I think a lot of people think of it like, oh, I pay, you know, income tax. Oh, I pay property tax. But you're right. Like, if somebody goes and purchases a new vehicle, I know I feel like when I lived in the state of South Carolina, we had a, I don't know, $500 maximum per purchase.

John Tripolsky:

But if you buy one here in Michigan, I mean, you're you're paying a lot. I mean, that's they add up especially if you're, you know, going through different vehicles all the time or different items, and it could be anything. Right? Like you like you mentioned, you can go buy a boat. So you buy a dirt bike.

John Tripolsky:

Say you buy a, I don't playground set for your kid. Anything. Right?

Chris Picciurro, CPA:

In any tax that's considered what's called ad valorem, meaning it's based on the the value of the asset. So in Michigan specifically, we're talking about vehicle tabs to to you know, in in any asset. It could be a boat. It could be an RV. If it's based on the value, I know in South Carolina, it's pretty expensive, also for some of those.

Chris Picciurro, CPA:

So vehicle to in general, for most states, the tabs or the the renewal fee you pay for your vehicle every year is part of the SALT deduction.

John Tripolsky:

And it's called the add value? Is it

Chris Picciurro, CPA:

Ad valorem. Ad valorem. The tax is based on the value of the asset. It's not a flat $100 if it's a $100, it's and that would be deductible. So Absolutely.

Chris Picciurro, CPA:

A lot in the basket of salt tax. And believe it or not, there's people that pay more than the $40,000, which is the limit for 25 for a married filing joint couple. But what that's what I'm saying is, that's why we're seeing higher refunds because all of the, withholding tables for w two wage earners were based on the $10,000 SALT tax limit. All of the quarterly estimated tax payments were based on the $10,000 SALT tax limit. So that's kind of pro tax payer.

Chris Picciurro, CPA:

We're gonna see and and, actually, I'd love to hear if if anyone's watching this or listening to this. Jump on our YouTube. In your in our comments, we've been getting a lot more comments lately, which we love. We do reply to them. We time block, multiple times per week to go in and answer your questions.

Chris Picciurro, CPA:

Has your paycheck changed from 26 to 25? Have have the you know, have your do you are you seeing less tax withholding due to the one big beautiful bill act provisions, especially on overtime and tips and and and stuff like that? So and you never know. We might we might mail you a free defeating taxes book. Who knows?

Chris Picciurro, CPA:

We might be generous if you if you make a comment.

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John Tripolsky:

Hey. That's true. And, yeah, you're right. A lot of it too. It's I mean, so here here's a question too.

John Tripolsky:

It's kind of a kind of a dumb one, I guess, but, you know, there's no dumb question, but, you know, whatever. Maybe this will answer something else. Somebody's thinking. So, obviously, if you're running a business, right, and you buy or just say, hey. I bought this piece of equipment here.

John Tripolsky:

It was a thousand bucks. Obviously, I had to pay tax on it. That's a bit that kind of falls under an expense. Right? You don't have to you're not itemizing business expenses and separating out the tax.

John Tripolsky:

That's different. We're talking more for individual returns.

Chris Picciurro, CPA:

Correct. So any sales tax paid by business would be deductible, but we're gonna talk about a strategy for business owners in just a minute. Who did this benefit then? Well, benefited lower, middle, and upper middle income households. Okay?

Chris Picciurro, CPA:

So because they were getting limited. People paying high pay property taxes and then homeowners in high tax states. So that's that's what really, really benefited. It's not gonna change things for many of the people in Florida or I mean, it could if they have property taxes. Texas has notoriously high property taxes.

Chris Picciurro, CPA:

So even though there's not a state income tax, you have a lot of people paying $1,520,000 dollars of property tax that now are going to benefit. So we're gonna see a lot more itemizers, a lot more schedule a's, a lot more schedule one a's, which is an we have a lot more other content on that in the 2025 filing year and beyond. Now dovetailing into what you're saying, what if you're a business owner and you are paying more than 10,000 or $40,000 of of income tax, state or local, and you're phased out. You're kinda in a you're you used to be in a bad spot, right? So, let me paint a picture for you.

Chris Picciurro, CPA:

You are in oh, I don't know. Let's come up with a new state that we haven't talked about yet.

John Tripolsky:

We won't razz at California anymore.

Chris Picciurro, CPA:

Don't feel like Maryland. Let's go to Maryland. Right?

John Tripolsky:

There you go.

Chris Picciurro, CPA:

So you're in Maryland. You're a business owner. Let's say you own an s corporation. You are own a plumbing contracting company, and you are doing well. You have a 600,000 profit.

Chris Picciurro, CPA:

You're probably gonna pay $4,050,000 dollars of Maryland income tax, alright, based on the the that business profit. Let's say you're married and your spouse is a teacher, and that spouse already is having a lot of state income tax without, and you have property taxes. For that business owner, they're gonna be way over that $40,000 of, salt, and they're gonna be phased out of it anyway. So what the business owner can do, if they have either an s corporation or a multi member LLC taxed as a partnership, they can make you're ready for it. We have another acronym, What that means is that the business owner can elect to say, you know what?

Chris Picciurro, CPA:

I'm paying $50,000 of state of Maryland tax just based on my business income. I'm an s corporation. I'm gonna have the business pay for its portion, that $50,000 of tax, and I'm gonna be able to take it as a business deduction and actually get a reduced amount of federal income tax. So it's gonna reduce your federal income tax by $50,000. At that person's marginal tax rate, that that alone is probably gonna save them between 12,500 and $15,000.

Chris Picciurro, CPA:

Now you have to you should definitely work with a test licensed tax professional, CPA, enrolled agent, attorney when working through this PTET. Is it is someone that's a sole proprietor or taxed on a schedule c eligible? No. So usually, you know, I'm anti or very cautious about s corp elections. But in this fact pattern, it might make sense to consider an s corp election to take advantage of the PTT or potentially you add a member.

Chris Picciurro, CPA:

Maybe you put your spouse on the entity, and now you have a multi member LLC. So the point is this. If you're listening to this and you're a business owner and your income is more than $200,000 talk to your tax professional about a potential PTT. Maybe your business is already eligible for it. Maybe you have to restructure just a little bit to make make it eligible because when you're paying twenty, thirty, forty, fifty plus, we've had clients paying hundreds of thousands of dollars on state tax and getting a benefit.

Chris Picciurro, CPA:

We want to make sure they get that benefit. So, if you're an individual, really review that schedule a, make sure you're taking advantage of the p of the SALT tax, and a portion of that SALT tax for business owners. So for business owners, if you're paying state or local income tax on your business income and and you're getting phased out of the SALT tax or it's it's over $20,000 or rather you have more than $200,000 of business income, talk to your tax professional. That's your actionable item. It would take you three minutes to five minutes for someone to look at your returns, chat through it.

Chris Picciurro, CPA:

And if you don't have someone to turn to, just comment in the you on YouTube channel or go to defeating taxes private Facebook book private Facebook group. John's gonna put the the link in our description and just comment in there, and you can even do it anonymously. We are happy to help you out because ultimately, there's no excuse you should not be deducting as much of your salt as possible.

John Tripolsky:

And this is great too. This is a great place to wrap up because, really, I mean, we've taken what we've been saying for a long time, right, so you've been saying. I've been facilitating this coming out of you. You know, a lot of people jump into electing as an s corp. A lot of people jumped into, you know, throwing in somebody into a multi member LLC, not knowing that the compliance costs go up drastically.

John Tripolsky:

So in those cases, right, you might look in and say, oh, well, Chris, well, you just said x number of episodes ago that it's gonna cost me thousands of dollars more a year in in filing my taxes as a as a multi member LLC. But think about it. Right? Couple thousand dollars here for a few years. You said that example, one simple move might save you $10.15, $20,000 now and years down the road.

John Tripolsky:

So what offsets it?

Chris Picciurro, CPA:

Absolutely. Absolutely.

John Tripolsky:

It was a great little great little connection. So good job, sir. You get a little trophy. I get a

Chris Picciurro, CPA:

little Thank you.

John Tripolsky:

Candy I'd give you, bud.

Chris Picciurro, CPA:

We're good. After all, Ron, I'll be back on the chocolate and peanut butter kicks.

John Tripolsky:

There you go. He'll have peanut butter on his on his nose or something all over his face. It'll be a fun little party. But, Chris, as you mentioned, we're gonna drop some links here in the show notes. Everybody check those out.

John Tripolsky:

Again, comment on anything if you have questions. You have no excuse to say you did not know where to ask them. So don't be lazy. We're here for you guys here on the Teaching Tax Flow Podcast, and we'll see everybody again next week here on the show. Thanks for joining us.

John Tripolsky:

Have a great week.

Disclaimer:

The information in this podcast is educational and general in nature. It reflects the opinions of teaching tax flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Securities are offered and supervised through Cabin Securities Inc member, FINRA SIPC.

Disclaimer:

Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment advisor. Chris Picciurro is a registered of Cabin Securities and an investment advisor representative with Cabin Advisors LLC, teaching Tax Flow as an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.