{"id":34869,"date":"2025-08-04T13:39:28","date_gmt":"2025-08-04T13:39:28","guid":{"rendered":"https:\/\/financialrush.com\/?p=34869"},"modified":"2025-08-04T13:39:28","modified_gmt":"2025-08-04T13:39:28","slug":"trumps-big-beautiful-bill-may-hit-high-earners-with-salt-torpedo","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=34869","title":{"rendered":"Trump\u2019s \u2018big beautiful bill\u2019 may hit high earners with \u2018SALT torpedo\u2019"},"content":{"rendered":"

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U.S. President Donald Trump gestures before boarding Air Force One as he returns to Washington, D.C., in Lossiemouth, Scotland, Britain, July 29, 2025. <\/p>\n

Evelyn Hockstein | Reuters<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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President Donald Trump<\/a>\u2018s \u2018big beautiful bill\u2019 added a temporary $40,000 limit<\/a> on the federal deduction for state and local taxes, known as SALT.<\/p>\n

But the phaseout, or income-based benefit reduction, creates what some experts are calling a \u201cSALT torpedo<\/a>,\u201d or artificially high tax rate, when modified adjusted gross income falls between $500,000 and $600,000.<\/p>\n

\u201cAnyone reporting income in that range\u201d should talk with their tax and investment advisors, said certified financial planner Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant.<\/p>\n<\/div>\n

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More from ETF Strategist:<\/h2>\n
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Here\u2019s a look at other stories offering insight on ETFs for investors.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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Trump\u2019s legislation<\/a> boosts the SALT deduction cap to $40,000 starting in 2025. That limit increases yearly by 1% through 2029 and reverts to $10,000 in 2030.<\/p>\n

The $40,000 limit decreases once MAGI exceeds $500,000, and phases out completely to $10,000 when income reaches $600,000. But the \u201cSALT torpedo\u201d creates a 45.5% federal tax rate on earnings between those thresholds.<\/p>\n

That 45.5% rate could impact higher earners for 2025, but you can still reduce MAGI to avoid the tax penalty before year-end, experts say.<\/p>\n

Here are some strategies to consider.\u00a0<\/p>\n<\/div>\n

Limit the \u2018sneaky year-end tax hit\u2019\u00a0<\/h2>\n
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If you\u2019re approaching the thresholds, you should manage any unexpected income, experts say.<\/p>\n

One solution could be opting for exchange-traded funds<\/a>, or ETFs, versus mutual funds in your taxable brokerage accounts.<\/p>\n

\u201cThis could help limit the sneaky year-end tax hit,\u201d said CFP William Shafransky, a senior wealth advisor with Moneco Advisors in New York.\u00a0<\/p>\n

While some mutual funds distribute year-end capital gains to shareholders, ETFs typically don\u2019t have a yearly payout.<\/p>\n

However, you would need to check the possible capital gain \u2014 and other tax consequences \u2014 from trading profitable mutual funds for ETFs in a brokerage account, Shafransky said.<\/p>\n<\/div>\n

Tax breaks become \u2018a lot more valuable\u2019<\/h2>\n
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With a tax penalty between $500,000 and $600,000, you could use tax breaks to keep earnings below those thresholds, experts say.\u00a0<\/p>\n

For example, you could switch from Roth to pretax 401(k) contributions to help bring earnings below $500,000, said Andy Whitehair, a CPA and a director with Baker Tilly\u2019s Washington tax council practice.<\/p>\n

The tax break \u201cbecomes a lot more valuable in that phaseout range,\u201d he said.<\/p>\n

Pretax 401(k) contributions lower your adjusted gross income, but you have to pay taxes when you withdraw the funds in retirement.<\/p>\n<\/div>\n

Avoid extra earnings<\/h2>\n
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If you\u2019re approaching the $500,000 level for 2025, you may avoid activities like selling investments or a home with large profits<\/a>, depending on your goals, experts say.\u00a0<\/p>\n

\u201cYou wouldn\u2019t want to take a big gain that\u2019s going to push you into this threshold,\u201d said Whitehair.<\/p>\n<\/div>\n

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You wouldn\u2019t want to take a big gain that\u2019s going to push you into this threshold.<\/p>\n

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Andy Whitehair<\/p>\n

Director with Baker Tilly\u2019s Washington tax council practice<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/blockquote>\n

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The same guidance may apply to Roth individual retirement account conversions<\/a>, experts say. Roth conversions transfer pretax IRA funds to a Roth IRA, which starts future tax-free growth. The strategy typically incurs upfront income.<\/p>\n

However, \u201cyou never want to do anything in a silo,\u201d and tax moves should always happen in tandem with your financial plan, Guarino said.\u00a0<\/p>\n

Trump\u2019s legislation includes several key changes, which may require multiyear tax projections to gauge the full impact, he said.<\/p>\n<\/div>\n<\/div>\n\n
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