August 2025
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Ep. 149 How to Build a Business That Lasts in a Recession
Ep. 148 Not All Alternatives Are Created Equal
Welcome to another episode of THE FINANCIAL COMMUTE. I'm sitting in for Chris Galeski, I'm Beau Wirick, and I'm with my colleague, Wealth Advisor, Ian Rennick, and today we are going over the One Big Beautiful Bill Act that passed Congress and was signed into law by President Trump on the 4th of July. We're in August now, and we've gotten a little bit of information from the government on how this applies to our clients.
So we're finally ready, I think, to give our clients some financial planning opportunities that they might want to talk with their wealth advisor or their CPA about. And so let's get into it. I will say you might have to take the long route to work today. Your financial commute is going to be a little bit long because this is I mean, ‘big’ is in the name of the One Big Beautiful Bill Act.
And so we are going to cover a lot and not all of it's going to apply to everybody, but we're going to try to hit the main points that apply to most people. To start off, let's just divide this into two different categories. The first category is stuff that is going to enable someone to make a decision.
This is going to be a planning opportunity. There's other parts of the bill that really don't affect your decision making. It's just kind of like, hey, thanks for being an American. Here's a tax break for you. And so, Ian, start us off with what are like the main points of the bill, regardless of whether or not they have planning opportunities.
The first one is the income tax brackets. Those are going to stay the same. Those are now permanent. So not a tax cut but not a tax hike either. The other one that I think people are focusing in on is the estate tax exemption. That one's going to start increasing instead of having which it was projected to do if the legislation didn't continue that on.
So last year, that was about $14 million a person. That was set to go back down to about $6.5 million a person. Now, next year per person, that's going to be about $15 million. And then increasing with inflation.
Yeah. And we're thinking about planning opportunities for clients. And what's interesting is, if this bill hadn't passed, there was a lot of planning to do. If your income tax is going to go up next year, we need to do some planning. If your estate tax exemption was going to go down next year, we have to do some planning.
But right now it's kind of like status quo is staying the same with the estate tax exemption. Instead of having to give money this year into a revocable trust, for example, you can kind of just wait around and let things go the way that they were going to go to begin with. So it's not really a decision, but it's like, thank you for being an American, and here's some more money in your pocket. As far as planning opportunities go, there's a couple big provisions in the bill. The one that got the most headlines was the Salt deduction cap, and that was the one that they were fighting over in Congress. And it was going to kill the bill. It eventually passed. What happened?
Yeah. So the SALT cap state and local taxes, this was an actual tax cut for higher income and higher state residents. This was set back in 2017 with the original bill at $10,000. So what's happening now is this is going to be increased to that $40,000 mark. So more people are going to be able to take advantage of state taxes or high property taxes that they might be paying right now.
So I think that's the the main thing that people are going to be to be looking into. Once you hit about $500,000 of income and then up to $600,000 of income, that's going to be phased down as well. So something to really think about. Depending on how much money you're making.
Okay. So for people who live in like Texas who don't have state taxes, state income tax, this doesn't really affect them. But those who live in California, if you're getting state tax on top of your federal tax before 2017 or before 2018, we used to be able to write those off and then they were capped at 10,000. Now the cap is going up to 40,000.
One of the biggest things that I think is important to know about this is that whether or not you're single or you're married filing jointly, the cap is the same. And so you and I are both married. You and your spouse can write off a total of $40,000 of state and local taxes. If you were not married, each one of you would be able to write off $40,000 of state and local taxes.
That's a pretty big deal. And I hate to say it because I'm really pro-marriage, but if I were engaged right now, this provision only lasts until 2029. I would probably wait to sign the legal document until 2030, when the cap goes back down to 10,000. If you both make $500,000 a year, you're both in the 35% tax bracket.
And if you're able to write off $40,000 a year, you're getting $14,000 each back in your pocket. You could pay for a pretty nice honeymoon if you just wait to get married for a little bit longer. And so that's one of the things, there is a marriage penalty. And then that also applies to the phase down. Anything above $500,000, single or married filing jointly from $500,000 to $600,000 of adjusted gross income.
Your tax deduction limit goes from 40 back down to ten. So if you're in the top income bracket, you're not getting this $40,000 tax break.
So what are some planning opportunities that people should think about now that the SALT cap is being raised to 40,000?
Yeah, it really depends on where you are on the income threshold. So if you're below $500,000 so you're getting the benefit of that increase of the salt tax limit, what you can do is you can consider that as more money in your pocket now. So you can do another planning opportunity. So for instance, if you give to a traditional 401K now and the max is say $23,500, instead of giving you your traditional 401K because you're getting in another deduction with the SALT cap limit, you could give to a Roth 401K instead.
I prefer a Roth just because it's tax free money for the rest of your life. You're buying out your share, the government share of your money, and you don't know what tax rates are going to be in the future. So if it's going to be all the same to me, I might want to consider moving that to a Roth.
Secondly, if you're used to taking the standard deduction, you might find yourself this year in 2025 itemizing for the first time. The standard deduction is going up from $30,000 to $31,500 for married filing jointly. But if all of a sudden you are now writing off $40,000 of state and local taxes, you're now going to be itemizing, because that's a greater number than the standard deduction.
So you might not used to give to charities. You might not used to calculate your medical expenses. But now you might want to talk to your CPA or your wealth advisor if there are other write offs that you can do above and beyond the standard deduction, take advantage of it this year and we'll get into some more on that with charitable contributions especially.
And then lastly, if you are above the $500,000 threshold, you really want to do everything that you can to lower your AGI to get back down to that $500,000, there's a couple things that you can do. Doing a traditional 401K contribution lowers your AGI. Doing an HSA or health savings account contribution lowers your AGI, so those never make it to your personal income tax.
And so that could get you back down to that $500,000 limit. So that's the SALT cap. And there's kind of a cousin to the SALT cap that I want to talk about. And it's the pass-through entity tax workaround. When the Tax Cuts and Jobs Act passed in 2017 and the salt cap was limited at $10,000, what states like California did was give us a way to kind of work around that limit and have our companies pay our state taxes for us.
So tell us what that looks like. Is that still going on? Is that still a provision? Talk to us about that.
Yeah. So the original Tax Cuts and Jobs Act when this was created it's called AB 150 that California uses. It's a workaround for people with partnerships, LLCs or S Corps to have their state taxes paid on their behalf. That way it's not flowing through to their own personal tax return. So now that people have this SALT cap increase, it's still going to affect people maybe a little bit less, but it's still something that you should probably reach out to your CPA, reach out to your wealth advisor, see if that's something that might make sense for you still, that way you can still take advantage of all of those, SALT taxes that you may be missing out on if you're above that 40,000. Yeah.
And so think about it. If you're in the top bracket, if you're in the 37% bracket federally, that means you're making over $750,000. If you're in there, you're not getting the SALT cap increase. You need to still have some other way to get this tax write off. And the best way to do it is through a pass through entity tax workaround.
One of the things that people need to know is there is a 9.3% cut off on the corporation's income. So let's say I have an S Corp, it makes $100,000 of taxable income a year. 9.3% of that is $9,300. My corporation can pay the state of California $9,300, and they'll credit it towards my state taxes. So de facto, that's a federal tax write off because it's never making it to my personal income.
But I pay more than $9,300 in state income taxes. So for me, I'm probably going to want to take advantage of both. I want to do the pass through entity workaround, and I want to take advantage of the SALT cap, especially if I'm in the high above the $600,000. You definitely want to look into that if that's possible.
And for someone who has a high property tax bill, pass through entity tax workaround does not pay your property taxes. It's only state income taxes. So you want to talk to your CPA about can I write off more of my property tax now with this new SALT cap limit?
Another big provision with this bill is with charitable contributions. So starting in 2026, you're actually going to have to clear a half a percent floor before you can even get a deduction. So what does that mean? Let's pretend that you make $1 million a year. Half a percent on that would be $5,000. So anything above that $5,000, that's when you would start to get that charitable contribution deduction from that.
So that's going to be a little bit new for people. This like I said, doesn't start until 2026. So in 2025, people are actually going to have some opportunities to basically make sure that they can take advantage of things that are different today, that will be changed tomorrow.
And that same person who's making the million dollars a year, what else do they need to consider with this new bill? There's another provision that affects just that, right?
Yeah. So if you're in the highest income tax bracket, 37% so married filing jointly that $750,000 and up, you're only going to be able to deduct 35% of that charitable contribution as well.
They treat you like you're in the 35% tax bracket. And that starts in 2026 as well. So that's the big planning opportunity for high-income earners who are in the 37% tax bracket. 2025 is kind of your year to make things happen without that threshold of the 0.5%, without that cap of 35% on your income tax.
So for an example, one thing that clients might want to do if their cash flow allows for it, is to take whatever charitable contributions you were going to make for the next five years. Just bunch those up all into 2025. Let's say you give $50,000 a year instead of doing that. What if you gave $250,000 in 2025? That way, you're getting the full 37% tax write-off from a million down to 750.
And you're not having to clear that $5,000 threshold. If you do that, you won't get the write offs in the following years, but you wouldn't get a worse write off in the following year. So it's kind of hard to conceptualize, but it is technically the better thing to do from a tax planning standpoint. And then the way to do that, one of the things they might want to consider is using a donor advised fund, because I don't want to give just $250,000 to my favorite charity and then give nothing next year.
Well, you can get the tax write off this year by donating it to a donor advised fund, and then next year give $50,000. The following year, $50,000, so on and so forth. You can invest that money and have it grow tax free. And in all honesty, the charity might walk away with more money in their pockets because you're investing it well and it's growing past the pace of inflation.
So that could be something that we do. Another thing that I think is going to be a ramification of this provision in the Bill is that qualified charitable distributions is going to become the preferred way to give to charities. If you're over the age of 70.5, you have the ability to give to charities directly from your retirement accounts.
You can give up to $108,000, and it counts towards your required minimum distribution if you're over the required minimum distribution age. So now in 2026, even though there's that 0.5% threshold that you talked about, even though there's that 35% cap, I can give straight from my retirement account. And it's as though that cap and that threshold don't exist, because it's never getting to me and my personal income taxes.
So I think QCDs are going to be something that become a lot more popular after this. There's another charitable contribution provision that's in this bill for people who take the standard deduction. What's going on there?
Yeah. So normally you would have to itemize to be able to take the charitable deduction. What's happening now is similar to what the CARES Act did back in COVID. And people that only take the standard deduction are going to be able to still make a donation. There's certain limits. So if you're married filing jointly, you can get a $2,000 deduction.
If you're single, you can get a $1,000 deduction. So that's a new provision where you don't have to itemize to get this deduction. You have to make this contribution in cash. It can't be to a donor advised fund. It can't be property. It can't be stocks. So just a few things to think about there. But people who don't itemize now can take advantage of this.
Yeah. And so I think this mostly affects the person who's on that cusp of do I take the standard deduction or do I itemize. If you are itemizing around the same number as that standard deduction, 2025 becomes a planning opportunity year for you. Because instead of taking the standard, you can now itemize and again supercharge frontload some charitable giving.
If you've got a bunch of stuff in your attic that you want to give to the Goodwill, but you wouldn't have gotten a charitable deduction for it because you were taking the standard deduction this year. You can itemize and therefore give property to the Goodwill, give appreciated stock to a donor advised fund, take advantage of all those things, and then next year go back to taking the standard deduction.
And then you can get this additional $2,000 charitable contribution. So that might be something that works for that subset of clients where they're right on the cusp of doing share itemized or standard deduction. There's another provision in this bill where it doesn't matter if you itemize or take the standard deduction. What's this one?
So the new thing in this bill is if you're 65 or older, you can now take advantage of a $6,000 deduction per person. So if you're married that's $12,000 you automatically get as a deduction. So that's great for people that, meet those qualifications. And like you said this is for itemize and people taking the standard deduction.
It doesn't really matter. There are some phase outs that we need to think about. So if you're single it's going to be 75,000 to, 175,000. And then 150 to 2 50,000, for married filing jointly there. That will go down by 1% for every thousand. You are above that limit. So for starting with 75, 76,000, you'll go down by 1% and so on.
So this is for kind of middle class earners who are over the age of 65. They're probably going to be somewhere in that 12 to 22% federal tax bracket based on those income thresholds, most of them. And so what's interesting about this is that you're getting a good tax write offs, but you're not necessarily in the highest tax bracket.
I have several clients who already have called me, after the bill is fast and said, hey, I already do Roth conversions up to that 22% threshold. I want to add $12,000 to my Roth conversions, because I now want additional money going from my IRA to my Roth IRA, because I want to take advantage of this new write off.
I think that's one of the planning opportunities for someone who's in that income threshold. Doing Roth conversions, or if you're still working, instead of giving to your traditional 401K, you might want to consider giving to your Roth. Again, buying the government out of your retirement account is kind of what that does. Ian. Next on the list is one of my favorites.
The One Big Beautiful Bill has some big beautiful bonus depreciation that we need to talk about. What's going on with this?
This is for businesses that are making large purchases that tend to be depreciated over, let's say, 5 or 7 years. What business owners can do now is depreciate that entire asset. And year one, even if they finance that. So that can be a huge break for some people.
So if business owners are thinking about possibly making that purchase, they're not sure if they should buy that piece of machinery. Let's say maybe it makes more sense for them to do it now. This is different than how it was before. In 2025, you can only depreciate, 40%, you know, and it had been going down by 20% every single year until it had gotten down to zero.
So maybe we'll see a few more G wagons on the road.
You mentioned G wagons. Let's put a little context into that. So let's say that you have an S Corp and you're going to have a high income year this year. And you want to reduce your taxable income. This is this is a good strategy for that. Let's say you buy a G wagon for $100,000, which is a great deal.
And, in that first year, you can write off that entire $100,000 purchase instead of depreciating it over several years. So what that does is that takes a $100,000 off of your personal taxable income once that flows through to you and you're at the 37% tax bracket, so you're saving $37,000 in that first year. But in order to finance the car, you're only paying, say, $20,000.
So you're actually making in year one, $17,000 a year. And then maybe in year two, you're in a lower tax bracket. So it wouldn't have made as much sense to depreciate it in year two. So there's some planning opportunities around that. For small businesses. There's definitely planning or opportunities about around it for large businesses that have a lot of capital expenditures with machinery and equipment.
And so people are going to be very happy about this, and there's going to be a lot of planning opportunities. If you finance things with interest rates really high, it might be a decision maker, actually, if you can write it all off in year one. So it's going to be interesting with our business owner clients to see who takes advantage of it and who doesn't.
There's another provision in this bill that I think is a little bit of a dark horse, but I want to get into it. Opportunity zone funds, opportunity zone funds came about in the Tax Cuts and Jobs Act and what it was is if you have a capital gain, let's say you sell stocks and you get $100,000 of gains that you would have to pay taxes on, what you can do is reinvest that $100,000 into a qualified opportunity zone fund, which invest in real estate that is in underinvested areas throughout the country.
So that was in 2017. But the benefit of that provision expires at the end of 2026. Right. So what that means is if I did that today in 2025 and I got a $100,000 capital gain, I reinvested it in a qualified opportunity zone fund. I would be able to defer that gain from being taxed until 2026.
I only get a one year deferral. It was great when it was 2017, you got the deferral until 2026. Now it's only a one year deferral. However, starting in 2027 with this new bill, there's a new five year regime that starts. And so if I have a gain in 2027, I get to defer that gain from my taxes for five years.
As long as I hold on to that opportunity zone fund, not only do I get to defer that gain, but when I finally pay the taxes, I get a little bit of a step up in basis on that. Either 10% or 30%. We'll get into that later. And then if I hold on to that fund that I reinvested the money in for at least ten years.
I never pay taxes on the gains that the fund gets once I sell the qualified opportunity zone funds. So there's a lot of tax benefit to using this. What are the planning opportunities around this? Like what scenarios where you would see this working for somebody?
Yeah, I think people need to think about do I delay that capital gain until 2027? That opens up that longer window and I know you had mentioned, the step up, the 10%, the 30%... that's between whether or not you're going to put it into a raw fund or an urban fund. So we need to know which investment even makes sense, what's going to do?
Well, I think that's a question that you should reach out to your financial advisor about. And we can get deeper into that. But those are a few things that I think people need to really think about. If they're going to go the route of the opportunity zone.
Yeah, because if I'm nearing retirement, for instance, and I'm in a high capital gains bracket, say, the 23.8% bracket, if I can defer that gain for five years. And by the time I realize it, I can be retired and be in the 15% capital gains bracket. It might make a lot of sense to reinvest this inequality. Qualified opportunity zone fund, whereas today it wouldn't make sense to do that.
So someone might want to delay those gains until 2027 to take advantage. Okay, Ian, I think we've gotten to the third act of this play. The last thing that I want to go through is the rest of the big provisions in this bill. Some of them are planning opportunities, some of them are not. But we're kind of going to do some rapid fire.
We're not going to get into as much detail just because they don't affect as many people. So first one, the mortgage interest deduction, $750,000 of mortgage debt on your primary residence. You can write off the interest on that debt. That's been the case since the Tax Cuts and Jobs Act. That is being made permanent. It's not going to be indexed for inflation, $750,000 is the flatline number.
So as inflation continues to make real estate go up in value, the mortgage interest that you can deduct is staying the same. So that's a big deal for first time homebuyers. I think it's going to incentivize people to buy homes. The next one is 529 plans. The maximum that you can give to K through 12 or spend on K through 12 is going from $10,000 a year to $20,000 a year. And you're not only going to be able to spend it on tuition, you're going to be able to spend it on some ancillary items. Thirdly, there's a new scholarship grant program that I think a lot of people are going to take advantage of. If you donate money to a 501c3 that is specifically designed to give grants to students in K through 12 private schools in your state, you can give up to $1,700, totally tax refundable, which means I give $1,700 to this charity.
The federal government gives me $1,700 back, $0 out of my pocket. No brainer. So many people are going to do this. I also think that people might get together in communities and say, let's start a 501c3 for all of our kids going to the same private school. So we'll see if people do that. And then finally, the Trump accounts, this one has gotten a lot of headlines.
The Trump account is a new investment account for children born between 2025 and 2028, including my kid. And so how it works is if I open up a Trump account, the government will put in $1,000 to be invested in a US stock index in this fund, starting at age one. Right. And so instead of wait until 18 and opening up a Roth IRA, it's kind of nice to be able to open up an account for your kids and have that first thousand dollars put into it.
One of the planning opportunities with the Trump accounts is that your employer can give money to your kid's Trump account, and it can be a tax write off to the employer. Whereas usually when you give money to it, it's not a tax deduction. So like Morton Wealth, my employer can give $2,500 to my kids Trump account. The question is going to become can I, as the owner of my own S-corp put $2,500 towards my kids’ Trump account? Since I'm the owner and the employee. I don't know if that's if that's going to be allowed, but if it is, that's going to be a huge way to get another $2500 tax deduction. So those are a few of the planning opportunities. There's a bunch of other provisions in this bill that they don't really offer a lot of decisions or planning opportunities to be made, but can you just quickly go through the rest of these provisions and give us a little bit of color on what they look like?
Yeah. So for one, the standard deduction is going to go up. So not something you're changing your ways by taking advantage of it... it’s just going to happen. The second thing is the child tax credit. That's going to go up by a little bit too. So from $2000 to $2200 per kid. So again, not something that is affecting your life, but something that is happening.
The qualified business income, the 20% of business owners were able to deduct from their income that's being made permanent. So you can still take advantage of that one to the, QB's or qualified small business stock. So this is going to affect people that have pretty much already been in this category already. The cap that your business qualifies for is going to be raised from 50 million to 75 million.
And the capital gain exclusion is going to be raised from 10 million to 15 million.
And that's for businesses that start. You have to, accumulate the stock after July 4th, 2025, in order to qualify for those new thresholds.
Right? That's right. Yeah. And the other difference here is before you had to wait five years before you could qualify for that capital gains exclusion. Now you can actually get half of that capital gains exclusion at year three. And then at your four get 75%. And then year five it would be the same as before where you're getting the the entire exclusion.
A little bit more flexibility.
Another big provision that people will pay attention to is taxes on tips. And over time that's also going to affect people. But the phase outs there are much lower. So it will still affect people, but maybe not as many as you would think. The the phase outs are $150,000 for a single taxpayer and $300,000 of married filing jointly.
The tips that you can exclude is $25,000, and for overtime, you can do up to 12,500 before you start being phased down for either one of those.
Similar to the other standard, like the new $6,000 deduction that we talked about, this will create planning opportunities for people who fall into that category of, hey, maybe you can spend more money, or maybe you can do more, Roth contributions, Roth conversions, that kind of thing. It's just more money in your pocket, more flexibility on your tax planning.
That's right. The other big one that people paid attention to was the car loan interest that you can now deduct. So you can deduct up to 10 to $10,000 from your, interest payments. It's not going to affect as many people as you would think. There are some caveats that you need to be aware of. The car has to be, built here in the United States.
It has to be brand new. And the phaseout limits are quite low as well. So if you think about it, the people that are probably qualifying for this aren't going to be buying a car with a huge loan that will allow you to take advantage of that entire $10,000. But still something to check out and maybe it makes sense for you.
You can always check with your CPA, to make sure the research and experimentation change is happening as well. Before you would have to depreciate this or take that, deduction over five total years. Now you can do that all and year one. So not going to affect a lot of people. But there are some people that will fall into that category.
And then alternative minimum tax limits that are going to come back a little bit. But it really is only going to affect you if you have incentive stock options or if you are have a lot of municipal bond interest. So if you think you may fall into that category, you can always double check with your wealth advisor or CPA.
But that is not something that is going to affect too many people.
Lastly, I just want to know that California doesn't necessarily comply with all of these provisions. This is a federal tax bill. So you're writing these off on your federal taxes. But things like bonus depreciation withdrawals from your 520 nines for K through 12 qualified stock qualified small business stock. Those things don't get written off of your California, tax returns.
It's just your federal tax returns. And there's more to that. So again, talk to your CPA before making decisions on this. Talk to your wealth advisor. But thank you so much for joining me today. And this was so fun. If you can call tax provisions fun at all. But thank you guys for joining us and listening in.
Hopefully we were here for your commute to work and from work. You're probably going to bed still listening to this, but at the end of the day, it's one big, beautiful bill.
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