Episode Transcript
[00:00:05] Speaker A: This is the Kassouf podcast network where your trusted advisors are at your fingertips or in your earbuds. At Kassouf, we are an accounting and advisory firm with a team of specialists in a variety of industries. Everything from cybersecurity to healthcare consulting to everything in between.
I'm Tara Arrington, and I'm your host. As an ex journalist turned marketing professional, I'm the non expert who will be chatting with our experts, giving you all the tips and tricks you need to help your business succeed.
Today's episode is part one of a three part series on the one Big Beautiful Bill Act. Kassouf director Joel Jones will discuss the Act's tax implications and how those can affect you and your business.
Part one will focus on a little bit of background information on the act, how we got here, and then we will dive into some of the individual tax considerations.
Let's tune in and listen to Joel.
[00:01:04] Speaker B: So let's talk about how we got here. Okay. If you've heard me speak before, you know I'm a context guy because I believe context is important. And Jonathan kind of touched on it because it's been a very interesting road for us tax practitioners since 202020 because we started with the Tax Cuts and Jobs act in the first Trump administration, with President Trump's first administration, the Tax Cuts and Jobs act passed in 2017, most of that stuff effective in 2018.
It had what was then his execution of his vision for the country from a tax standpoint. So you had things like reduction in tax rates, increases in standard deductions, state and local tax limitations, bonus depreciation limitations around mortgage interest, the qualified business income, research and development costs and things like that. This is the world that we've been living in since 2018, 2017, 2018, they had some, some kind of odd effective dates. But what was interesting about this provision and what created a lot of angst amongst tax professionals was this last line is a lot of this stuff was scheduled by design to expire in 2025.
So we've had this year in 2025 of like what the heck was going to happen.
And so that's kind of what we've been operating under. And if you're a student of irony and you like ironic politics, consider that that was passed in 2018 with an expiration date of 2025. Right. So I would think President Trump at the time thought he would win re election, which meant that he was going to leave this behind for whoever was after him.
But instead you had what happened. And so he came back into office and had to deal with it. And that's what we've been watching in the news.
So then you had the 2020 election and you had the President Biden's administration, which was a completely different vision of the country, which also was reflected in tax policy.
So we had several things that came through when President Biden was in office. You had some enhancements of child tax credits, you had some enhancements of child independent care credits. You had 1099k reporting. I'll talk about that as we go. So that was one of the big tax provisions that passed during that administration.
You also had the Inflation Reduction act that was enacted during the Biden administration. If I had to sum up the Biden administration in one tax policy statement, it would be clean energy.
So a tremendous amount of the tax initiatives that came out of the Biden administration was related to clean energy as defined by that administration.
And that's what a lot of the Inflation Reduction act stuff was.
So now we also had during the Biden administration, the Secure 2.0 act, which was all retirement related stuff for the most part, which were changes in required minimum distributions, tax thing around student loan repayments, credits for small businesses adopting retirement plans, things like that. Mostly good things from taxpayer standpoint.
Okay. So then we come to the election of 2024.
And in that election, in that campaign, you had promises made by both candidates around what policy was going to be and how that was going to get enacted. And most of the campaign platforms and speeches around President Trump's campaign was around extension of the tax provisions the that were scheduled to expire. And we were all kind of operating under the idea that if it was a good idea in 2017, 2018, then one would think that the administration would think it was a good idea in 2025. And that's pretty much what happened. But we had again, politics entering the equation, which always makes it interesting.
And you saw that play out in the negotiation of this bill is from a timeline standpoint.
You know, this thing was introduced roughly, roughly introduced on April 5th of 2025 when the Senate approved the framework.
And so and then in May, you had how the House passed their version, which had all sorts of tax things in, then went to the Senate. The Senate passed their version, which was very similar, but different enough to create anxiety amongst tax professionals.
And then you had. But ultimately on July 3, the House passed the Senate version. So the Senate version became the final version. And then on July 4, it was signed by the President. Okay.
And we're going to refer to it as the one big beautiful bill or the Big beautiful bill. The one big beautiful bill act or the Big beautiful bill is what I will, what I will refer to it throughout the presentation.
It got changed at the last minute because people didn't like that being in the bill. And so it really doesn't have a name technically, but that's what everybody calls it. And so that's what we're going to call it today.
So but because of the way this thing kind of played out is to me, and maybe it's just me is it created all sorts of confusion because you would see you had this, this cadence play out in the 24 hour news media of the House version passes, everybody goes out and writes commentary of this is what's in it, this is the good and this is the bad.
Then the Senate version passes and everybody goes out and writes this is the good, this is the bad. Then the final bill passes, which is what we have.
And people write commentary about that. The reality is if you go out and google the one big beautiful bill, you got to make sure you've got the commentary on the right one.
And so look at the dates of the articles because if you see I was doing this in preparation of this presentation, I would google big beautiful bill and if I saw an article that was written in May, like this one may not be correct. It's probably mostly correct, but it may not be correct.
And then on top of that, it's 800 over 850 pages long.
The final bill is all of that is not tax provisions because it's the overall budget bill. But the reality is it's 850 pages long. So if you decide to download it and read it, it's challenging control find is your friend unless you want to read 850 pages.
So the idea today is to try to provide clarity around this stuff so that we can make decisions about what we want to do as taxes. Kind of play into that. Okay. And we're going to start with the individual tax provisions. Okay. Which I would argue the biggest shooters in this are the individual tax provisions. There's business tax provisions in here that are, that are super, super taxpayer friendly. But the individual tax provisions are the ones that I think are going to impact the most of us.
So let's start with tax rates.
So what you see on the left hand side are the rates that we've been operating under in 2025 throughout the year. So this is, these are the rates that were, that were enacted by the original Tax Cuts and Jobs Act. That middle column is what rates were scheduled to go to absent the enactment of this bill. Okay, so if this bill had not passed to bring the tax rates forward, then we would have had a tax raise across the board. The reality is we landed where we started the year. The good thing about this and the good thing about a lot of the big beautiful bill from a tax practitioner standpoint is a lot of these things are permanent, which is nice.
Things that expire create lots of anxiety amongst tax professionals because you end up with this decision tree of like, do I do it now or do I wait? I got to have think through that stuff. A lot of this stuff is permanent. And one of the things that's permanent is the rates, which is good.
So it provides some clarity around making decisions.
The next thing to notice is standard deductions.
So prior to the Tax Cuts and Jobs act, we had standard deduction items that were relatively low, right.
Which made itemizing very beneficial. So for the most part, people got benefit for their mortgage interest, got benefit for their charitable deductions, got benefit for their state and local taxes. Because usually if you have a mortgage and you've got some charitable giving inclination and you're paying taxes in your state, you're going to be over these.
The standard deduction that was in place prior to the Tax Cuts and Jobs act, the Tax Cuts and Jobs act raised the standard deduction to a number that for 2025 was going to be in this area. 15,000 single, 30,000 married, filing jointly, which took a lot of the benefit off of itemizing. And so you had this rise of charitable giving around. Some of the things I'll talk about in a second, we're still going to have that condition going forward. So the new standard deduction is that far right hand side. So we still have a permanent enhanced standard deduction that's higher than it was going to be. So we've got a little bit of a bump at the, at every level. So married filing jointly went from 30 to 31.5, single went from 15 to 15, 750. Okay. So that means that the things that we've been doing since 2017, 2018 are still going to apply particularly or particularly around charitable giving.
So we've seen things like what's called bunching donor advised funds, qualified charitable distributions. The idea being that if I'm not going to itemize because my standard is so high, then I may not get benefit of my charitable deduction. Because if I'm going to have a standard deduction of 31,500 if I typically give, you know, $10,000 to a charity and I don't have anything else that gets my total itemized deductions over this number, then I'm really not receiving federal benefit of my charitable deduction because I'm going to get this either way.
And so to kind of work around that, you had things such as bunching. Bunching just means if I normally give $10,000 a year to my church, maybe this year I give 20 and next year I give none. And so the year that I give the 20 May in total get me over the standard deduction to be able to get a tax benefit.
Same thing with donor advised funds is rather than giving $10,000 a year for 10 years to my church, I'll give $100,000 to a donor advised fund, take a donation for that, that will put me over the standard deduction and I'll get a tax benefit.
And then qualified charitable distributions are always great tools. And I'll talk about that as we go, which are just directing your IRA distribution to a qualified charity.
If you, if you're eligible, that gets it out of your adjusted gross income. You don't get a deduction for it, but it gets it out of your adjusted gross income, which you'll see as we go is super helpful with the way a lot of these limitations are applied. Okay, so that's exemptions. All right. The next thing I want to talk about is we're still in the exemptions and deductions section is prior to the Tax Cuts and Jobs act, we had a personal exemption that was temporarily eliminated with the Tax Cuts and Jobs Act. Well, it is, or actually suspended was the word.
It has been permanently eliminated. Okay. So we no longer have a personal exemption to worry about. Okay. So we can take that off of our minds. What we do have now, though, is a new deduction which is referred to in the, in the act as a senior citizen deduction, which is an enhanced deduction of $6,000 per taxpayer for taxpayers who are age 65 before the end of the year. So what this is designed to be, even though it's not called, this is no tax on Social Security. It's a backdoor way to not tax Social Security in theory, without saying we're not taxing Social Security.
So $6,000 per taxpayer. It applies for this year. Okay. Now here's the challenge.
It gets phased out for married taxpayers with adjusted gross income over 150,000, or if you're single, 75,000.
So it can, it can go away relatively fast if You've got a lot of other income, but it is there. And so again, remember what I said earlier about qualified charitable distributions is anything that you can do to reduce your adjusted gross income would enhance the ability to take this deduction. Okay? So just so we're all on the same page, when I say adjusted gross income, generally speaking, that's your income before deductions, generally speaking. So the way tax returns flow is you've got all of your income comes to a number, then you take your deductions, gives you a taxable income number. So you're talking about your income before your itemized deductions. Generally speaking, there's a lot that goes into that, but that's roughly where we are. So anything that you can do to bring that number down could give you this deduction.
Now, another thing that you're going to see that's a theme throughout this act is valid Social Security number. Okay, that is not. Was not required apparently for a lot of things before, but it's black letter in the act now is you're going to see this with child tax credits. You're going to see it with this deduction, is it's going to require a valid Social Security number. And where that's important is to get the deduction, obviously. But the way it's worded in the act is it's treated as a mathematical error. If you don't have a Social Security number, it's treated as a mathematical error. What that means is if it's not a valid Social Security number, they're going to disallow the deduction period. There's not going to be this back and forth of letters or anything like that. So it's just going to be, hey, we recalculated your tax return without that deduction. So it's important to get that information in the tax return. This one is temporary. I said most of this stuff is permanent. This one is temporary. So we've got this one through 2028, but this is a new deduction available for folks that are age 65 at the end of 2025.
Okay, this one is interesting and I don't think it's being talked about a whole lot.
So there's this crazy term in the tax world called it's either peas or peace. I'm not sure which. I call it peace. It's probably peas. It is a limitation on itemized deductions. Prior to the Tax Cuts and Jobs act, this thing was around, all right? And the idea is you accumulate all of your itemized deductions I'm talking about prior to the Tax Cuts and Jobs act, you accumulate all your itemized deductions. So you've got your state and local taxes, your charitable deductions, mortgage interest. All of those things together gave you a number.
If your adjusted gross income was over a certain limit, you lost the benefit of those itemized deductions through what's called the PEAS amendment or PEAS limitation. Okay?
So prior to or back in 2017, that threshold was $314,000 for married filing jointly. So if you were married filing jointly and your income was over 314, you calculated your itemized deductions, applied this limitation, and you lost some of your deduction. Okay?
Tax Cuts and Jobs act eliminated that deduction altogether. I mean, that limitation altogether. So There was no peas limitation since 2017, 2018. There is now.
There is now for taxpayers that are in the maximum tax bracket, okay? Maximum tax bracket for 2025 is $626,350 if you're made filing jointly. Okay? So it's a big number, but it applies. Okay? And the way I think this works is you calculate your adjusted gross income. I mean, your taxable income. Excuse me, before your itemized deductions.
So you said, which is basically your AGI, for the most part, that gives you a number. If you're in the upper tax bracket, you start applying this limitation.
The limitation is 2:37, which is a small percentage of the lesser of your itemized deductions or the amount your income exceeds that maximum tax bracket. Okay?
So for example, if you have in 2025, if you're. It should say taxable income, not AGI is $850,000 and you have itemized deductions of 75,000, then you're going to lose $4,000 of your itemized deduction deductions, which is 237. Okay? So it's just something to keep in mind if you're in the maximum tax bracket. Just keep this in mind starting in 2026. Okay, so what does that mean?
There's a limitation, obviously, that also means that if you're in my mind, if you're in that maximum tax bracket and you're considering charitable giving, this may be a good year to do it, 2025. Because if you wait and do it in 2026, you're going to lose some of the benefit of that. It's not a huge number, but it's a huge number when you apply it to a big number. Okay? So I mean $4,000 of a deduction if you're in the maximum tax bracket, that's the tax is 37% of that number, whatever that math is, I'm not going to try.
So that's what it costs you for the. From a federal standpoint. So I don't know how much this is being talked about, but I don't. I haven't seen it talked about a whole lot. So I did want to highlight it, but it applies starting next year. It's designed, I saw, I read a commentary last night that it's basically brings the benefit of your itemized deductions down to the 35% tax bracket. I have no idea if that works. Somebody way smarter than me did that calculation.
But that's what it said was that it is the. Effectively brings your itemized deductions down to the 35% tax bracket. So what this means going forward again is brings back in the concept of qualified charitable donations. Okay. Because that takes this calculation completely off the table, because when you do a qualified charitable donation, it doesn't even hit your itemized deductions. So that is a way to manage this. It's also something to consider going forward. You know, once we get into 20, 26, 2027, when you start thinking about charitable giving, is taking this into account and trying to determine if there are ways you can bring down your taxable income, which is always good, but this even kind of highlights that even more. Okay.
All right.
The next one is the home mortgage deduction. There's not a whole lot changed here. You know, prior to the Tax Cuts and Jobs act, we had a mortgage interest limitation of $1 million, I think, meaning that you could take interest deductions on a mortgage up to a million dollars.
You could take the interest on a mortgage that is a million dollars. You get a million dollars of interest.
And then you could also do another hundred thousand dollars, I think, for a equity line of credit. The Tax Cuts and Jobs act brought that down to $750,000, subject to some limitations that was made permanent. Okay, so nothing's changed there. We're used to this calculation, but there was some question about whether or not that would go away.
It is not. So this is the world that we're going to be living in.
They did add that we now have the ability to treat mortgage interest premiums as acquisition indebtedness. I'll be honest, I don't know what that means. I know what it means. I don't know how that factors into the calculation. So I think it may be in the Act. I didn't see it. Where I'm going is if I have a 7, $900,000 mortgage, I'm going to be limited on my mortgage interest. If I have, for whatever reason, insurance premiums, I don't know how that factors into that calculation. So there may have to be some guidance related to that that this applies for after this year. And all that means for us is for this year, $750,000 limitation, which is what we were expecting in 2025 and 2026 and forward, $750,000 limitation and some inclusion of mortgage interest premiums is what that means.
There is. Now this is a new deduction which is the auto loan interest deduction.
So the thing to me that's interesting to me and probably no one else, and that's okay, is watching how tax policy is used to drive economics. Right.
You'll see that with bonus depreciation, and I think you see it with auto loans is if I can create, if we can create deductions related to auto loan interest, then that makes auto loan interest cheaper, which might make folks more apt to buy vehicles. Okay, that's what I think.
And so that think that's what this is.
So starting in this year, there is a auto loan interest deduction of up to $10,000 that starts phasing out once you get to $100,000 of AGI for single filers, $200,000 of AGI for joint filers.
It has to be a, it's supposed to be, it's supposed to be a new personal use vehicle is what that's supposed to say, not a person's use vehicle.
The design is to, it's not business, it's a personal. So it'd be like for my, my vehicle that is not used for business purposes, I would be able to take that interest deduction on my personal tax return as long as I met those other criteria. That it's got a final assembly in the United States with a gross vehicle weight of less than 14,000 pounds, which is going to capture most vehicles.
It is also a deduction available for folks who don't itemize. Okay, so that's a big deal.
So that's going to be probably a. I don't know where it's going to be on the tax term, but you're not going to have to itemize.
And so it's a, it's a pretty big deal for folks that this qualifies for. And it's going to be for indebtedness occurred after December 31st of 2024. Okay, so again, think about what I just said. What are they trying to do? Encourage people to buy cars? So you create a deduction. And so starting in 2025 up through the end of 2028, you buy vehicles that meet this criteria, you may get a deduction subject to those modified AGI limits.
There will be reporting around this. Okay, so what this means is, you know, right now, if you've got a mortgage on your home, you get a Form 1098 that's got your mortgage interest on it. It's got other stuff on it too, but it's got your mortgage interest on it. There's going to be some sort of reporting similar to that. I don't know what the form is going to be. Can't be a 1099, can't be a 1096. Maybe a 1097. I don't know. Could be form au auto, I don't know. But there'll be something that will come out.
So that just means that if you've got a vehicle that you bought in 2025 and going forward that you're paying interest on, look for a reporting document, you're going to need it for your tax return. Okay.
Yes. Did you read that that was only going to be for new vehicles?
Only new vehicles. Yes. Sorry. Thank you for saying that. That's what the slide was supposed to say, was only brand new vehicles. So used vehicles don't count.
It's got to be brand new. Yes.
Oh, sorry.
The question was, Jonathan, thankfully asked, is, isn't it true that this only applies to new vehicles? That is absolutely the case. Not new to you. Brand new vehicles, first owner. You have to be the first owner of the vehicle in order for this to apply.
Thank you.
All right, the next thing to mention is charitable donations because there's changes here.
So the Tax Cuts and Jobs act added a partial charitable donation for folks who don't itemize. Okay. So going back to what we said earlier, standard deduction is really high.
So if you don't have things that get you over that limit, you don't really receive tax benefit for your charitable.
And as a part of that, because of that, the Tax Cuts and Jobs Act. Nope, that was later. There was a provision added during COVID because charities were hurting. And so a, a deduction was created during the COVID area tax. Covid era tax legislation to provide a deduction for taxpayers who don't itemize.
So the idea being that, you know, I give. The only donation I give during the year is 500 bucks. The red Cross, I don't itemize. I could take that deduction on my tax return even if I don't itemize. So they were trying to encourage folks to give money to charities as charities were trying to recover from COVID All the COVID stuff, this is returned with the Tax Cuts and Jobs act permanently. So now we have a $1,000 deduction for single taxpayers, $2,000 deduction for married filing jointly taxpayers. It's not a new standard deduction. Okay. So the idea is if I'm a single taxpayer, If I give $500 to the Red Cross and I'm not itemizing, my deduction is 500. If I give $2,000 to the Red Cross and I'm single and I'm not itemizing, my deduction is 1,000. Okay, so that's, that's the idea.
So this will be on, on tax returns going forward for 2025. So this applies for this year.
The other one that I think is interesting, that I think is being mentioned a lot is a floor on charitable deductions. This is new. This is new. A 0.5% floor on charitable deductions for individual taxpayers. Okay, so what does this mean? It means that I take my adjusted gross income, I Multiply it times 0.5% and I only get donations that exceed that number.
So reality is folks in adjusted gross income in excess of half a million dollars have lost more of the benefit of their charitable deductions. It may not be a big number, depends on how much they exceed the half a million dollars, but it's still a number. Okay, so there's a lot of stuff that in my view is impacting charitable giving.
Probably not in the best way. If you're taxpayer, if you're from the taxpayer's perspective, and this is one of those ways.
So there's going to be a calculation that applies this floor. So if you have adjusted gross income of half a million dollars, you only receive a deduction for charitable donations that exceed $2,500. Okay. Said another way, if you're over half of me, if your adjusted gross income is half a million dollars, you're going to lose $2,500 of your deductions. That's probably a better way to say.
[00:27:48] Speaker A: That.
[00:27:51] Speaker B: That'S in addition to the FEAS limitation. That's exactly right.
It also probably doesn't carry forward. It might. Which is unbelievably, shockingly complicated.
It might, but it probably does not. Yes.
Yes.
Oh, it doesn't apply this year. I'm sorry. Yes.
Applies this year.
Yes, yes. For folks online, just to reinforce what, what the question was, is this slide. These provisions apply after this year, so not in 2025. The rate reductions apply this year in 2025.
Well, the rate. Yeah, the rates are. Yeah, the rates are still the same.
The reason I say charitable donation limitations can apply is there's already limitations on that have not changed. Like there's a adjusted gross income limitation on cash donations and adjusted gross income limitation on non cash donations. Those things still apply. And if you lose your charitable deductions because of that limitation, that carries forward to the next year.
This one does not, unless you otherwise have a carry forward, which doesn't make any sense, but that is how it works.
So, you know, for me, this is not an issue for me as far as losing because of percentages of AGI. Okay? So if I lost some of my donations because of this new limitation, then my benefit is just gone. Okay? So again, bringing back. I keep preaching the same thing, but think about that first charitable donation slide, okay? About bunching about donor advised funds, about doing it this year versus next year, and about QCD Qualified charitable distributions.
Qualified charitable distributions. Really effective to combat this if you're in this situation, because it not only gives you full benefit of the donation, it also does not go into your adjusted gross income. Okay?
So just something to think about if you have the ability to make those types of donations.
One that has been in the news is this deduction for tip income.
This is a new deduction, a brand new deduction of up to $25,000 for qualified tips for individuals in traditionally and customarily tipped industries as determined as of December 31, 2024, which is very specific language. Right?
Very specific language.
So it's two things are that's designed to do two things. One is to prevent companies from changing to tipping this year to create deductions. Right? So we couldn't say, hey, Joel, you work at Kazukin Company, you're a tax practitioner. You were a W2 guy last year. We're gonna start paying you in tips. Like, sweet, I get a deduction. No, because it didn't exist prior to 2025, 2024. In addition, it's not an area that is traditionally and customarily tipped.
Okay? So it's going to be what we all think about, like folks that work at restaurants, folks that work in salons, things like that. Right?
The deduction is a deduction on the individual tax return of the taxpayer. Okay? So it's not, it's not a Rate differential. It's not anything else. There's going to be a place on the tax return to take that deduction.
It phases out like a lot of this stuff does.
Once your adjusted GROSS Income hits $300,000 for joint filers, it starts phasing out. Okay.
It applies to Tips reported on 1099s, W2s, or Form 4137. Also intentional language. So what does that mean? It means that if it ain't on a W2 and it ain't on a 1099, there's no deduction. So that's going to create all sorts of interesting things around cash tips, which are technically supposed to be on those forms anyway.
Not sure they always make it, but they should be. And so that's the idea is if it's not on the form, you're not going to get the deduction.
It is available for individuals who don't itemize, which is good.
As an aside, there's also. There's a. This FICA tip credit has been around for a long time. It is applied exclusively, I think, to restaurants. In the past, they've expanded that tip. The FICA tip credit credit to the beauty and the salon industry.
The IRS is supposed to provide a list of occupations.
So the act specifically says more sophisticated than this. Hey, IRS put out a list, and they will. So they have to put a list of who this applies to or which industries this applies to.
It does require a valid Social Security number. And married taxpayers have to file together, which I think is designed to keep people from gaming the AGI system. Right.
You know, like, if I had a. If my spouse, you know, made, you know, $200,000, and I made $75,000 as a. As a waiter. As a waiter, and I had, you know, $30,000 of tips. I don't know if that math works. Nope. If she made 300,000, I had 75,000. We would have a phase out.
But if we filed separately, I wouldn't have a phase out.
This doesn't allow that. So if you're married, you have to file together in order to get this deduction.
This begins. This starts in this year.
So this is a 2025 tax provision that's going to be around until 2028. A lot of this stuff expires in 2028.
Is that when his term ends? Think about that. Is that right? That is right. It does. It does. I hadn't thought about that until just now.
Same same approach as the first time.
All right, the next one and this one's in the news a lot or has been in the news a lot is a deduction for overtime pay.
So this is a deduction of up to12.5 for a single taxpayer or $25,000 for joint tax returns for qualified overtime compensation. Qualified overtime compensation is, is the halftime compensation. What I mean by that is you get over 40 hours, you get paid time and a half. It's just that half portion, not the full overtime pay.
I have to get that straight in my head because to me, anything over 40 is overtime. But that's not how it works. It's going to be the half portion of the time and a half is eligible for this deduction.
Same phase out.
Once you get over $300,000, if you're joint, there's going to be a phase out deduction applies to individuals who don't itemize. Again, requires a Social Security number, requires married taxpayers to file together.
Will require reporting on a W2. Okay. This is. The deduction is going to be complicated enough.
I'm actually worried about this part because employers who have, who pay employees overtime are going to have to capture this information and report it on a W2.
So it's one of those things of, you know, it may, it probably makes sense for employers to start thinking about this and how to capture that information going forward.
Probably not that big a deal.
My guess is payroll companies and payroll applications are going to have to put some sort of reporting mechanism in their software to capture this information.
What I'm worried about is getting to January, getting sitting down to do W2s and having to go back and manually figure this stuff out.
So, you know, we know what it is. So if, if you're employing folks that have overtime pay, it's worth looking at this or at least thinking about it as to how to capture this because you're going to need it for W2 reporting when the time comes.
And this also applies now, so applies in 2025 and magically expires in 2028.
So that's not a hand. That's okay. No, you're good. Just making sure.
Okay.
All right, next one. This one's been in the news, which is the state and local tax deduction.
So prior to the Tax Cuts and Jobs act, there was no limitation on your state and local tax deduction. So when I say state and local tax deduction, it in Alabama, I'm talking about state income tax, car tags, property taxes primarily. All right. Prior to the Tax Cuts and Jobs act, whatever that number was that was paid in the year was includable on your itemized deduction schedule without limitation.
And then it just went into the overall itemized deduction. And you may get limited by that peas limitation. But there was no specific state and local tax limitation that we had to worry about.
Tax cuts and Jobs act reduced that deduction down to $10,000, which created lots of anxiety for folks in high tax states.
And it again created this really interesting to me anyway, political environment where most of your high tax states are mostly Democrat voting states. So California, Massachusetts, New Jersey, New York, not across the board, but for the most part.
And so we come forward to this year and all of a sudden you have bipartisan support for a raise of the state and local tax deduction, but it did not get eliminated altogether.
Is we have a higher deduction for most taxpayers, but not all taxpayers.
So the limit prior to 2020, prior to 2025 was $10,000.
Now the limit has been increased to $40,000 this year.
Up to 40, it goes to 40,000, 426, 101% of whatever the number was in 26 for 27, 28, 29.
Then it goes back to $10,000 in 2030.
Okay, so it's going back down in 2030.
What was added is this phase out is even though the limit has been raised, there's a phase out. Once your modifier, once your adjusted gross income gets above half a million dollars and it phases out really, really fast.
When I say really, really fast, I mean if you've got modified adjusted gross income of 500,000, once you get to modified adjusted gross income of 600,000, your SALT deduction is back down to 10.
So it goes out very, very fast.
All right. So again, I keep saying this, but that is a reason to try your best to manage your adjusted gross income to the extent you have the ability to do that.
Okay, so we're entering this crazy world of and this has always kind of been the case where we've always worried about taxable income, but mostly because of taxable income.
Modified adjusted gross income has mattered historically, but it really matters now when you start thinking about all the things that are impacted by that number.
And this applies this year in 2025.
One of the other one offs that I want to mention is alternative minimum tax. This won't impact a whole lot of folks, but I did want to mention it, because I mentioned it in the spring because I was worried about it, is the alternative minimum tax has been around for a long time. Most of us don't worry about it. A whole lot.
But there was some exemptions that were added in the Tax Cuts and Jobs act that really made it not that big a deal to a lot more taxpayers. So it really hasn't been on our mind a whole lot, except in specific instances since 2017, 2018.
And the reason it hadn't been on our minds is there were exemptions and phase outs that created that. And those were set to expire. Well, those were extended, so that's good. So we're still in the same situation that we were in. But there is a change around the phase out amount is you have a phase out and you could lose up to 25% of it before now you can lose up to 50% of it before. The phase out doesn't apply until your income gets really, really high.
But I did want to mention this because I was worried about it going away altogether, but it's still here, which is good. If you're in Altman Child and dependent care credits.
This has also been a little bit of a political football because it's really good politics to apply child credit to push out child tax credits. That plays on both sides of the aisle.
And there were some temporary things that were in place that have now become permanent.
All right, so the child tax credit has been raised to $2,200 per qualifying child and then it will be indexed going forward.
One of the things that was made permanent is the $1,400 refundable portion, which is kind of a big deal.
So in the tax credit world, you have credits that are refundable credits that are non refundable.
The way credits work is you calculate your taxable income, calculate your tax, then you apply your credits. If it's a non refundable credit, then to the extent your credit exceeds your tax, the excess just vanishes into the tax ether. If it's a refundable credit, you offset your tax and then whatever's left gets refunded, which is great. It's just, it's literally just money from the government.
There's been a fourteen hundred dollar refundable portion of the tax credit for a couple of years now, but it was set to expire and now it is permanent. Okay. So we don't have to worry about whether that's going to go away.
There is a phase out that starts at $400,000 for joint filers. That was also temporary. It has been made permanent. Okay.
So that really doesn't change a whole lot of calculations that we've gotten accustomed to. It's the same calculation. It's just a permanent phase out threshold.
There is now a requirement for Social Security numbers of at least one filer. Okay.
And for each qualifying child. So that I guess is new.
So it's just something to consider is having that information available when you prepare your tax returns.
The other one that was made permanent is with the Tax Cuts and Jobs Act. I think there was a $500 credit for other dependents that was created.
Generally speaking, in the tax world, a dependent is a child. Generally speaking, there was a credit that was created with the Tax Cuts and jobs act of $500 for other dependents. And the example I always use is elderly parent that lives, that lives with kids.
You know, the children are supporting the parent who lives there.
There was a credit for that that was created with Tax Cuts and Jobs act that was scheduled to expire. It's been made permanent, which is good. So we still have the $500 credit.
If that applies to your situation.
There is a change with child care and child and dependent care credits and adoption credits. This is kind of a big deal, I think, is, you know, we've had a credit for child and dependent care stuff for a while that generally takes the form of I'm paying daycare, so my kid. I pay to send my kids to daycare so I can work or look for a job.
Is the, is the general way that works. And the way the credit works is I would accumulate at the end of the year all of the stuff that I pay for child care.
And then that number, there was a percentage applied to that number with a maximum credit amount. Okay. The percentage that was applied was 35%.
So I would calculate all of my expenses, multiply it times 35%. That would give me a number, and then I would compare that number to the maximum credit. That percentage has been increased to 50% for some taxpayers, not very many, but that's the, that's the percentage. And the reason I say not very many is because it goes from 35 to 50%.
But it gets reduced by 1% for each $2,000 in which AGI exceeds $15,000, which is a pretty low number. Okay, So a lot of taxpayers will lose that first credit. But once you do that credit, then it's reduced by 1% for each $2,000 in which AGI exceeds $150,000 for joint filers or $75,000 for others.
So two phase outs, but credit will not be less than 20% of expenses.
I think that's new. Like, I think before it would phase completely out.
And I think that's a new provision that will apply credit that will allow credits for more taxpayers.
I searched and searched for a limitation around that and did not find one.
So I think this is new to where I believe that we're going to have more taxpayers with at least some credit for child independent care expenses starting in 2026 and going forward. Okay, and then the last one on this slide that I want to mention is there is now a refundable credit for adoption expenses. Nothing. I think there was a small increase.
Hang on, I'm getting ahead of myself. There's been a credit for several years for adoption expenses because adoption is expensive and the the credit was like 15 or 16, $17,000, something like that.
It got upped a little bit, but none of it was refundable. Remember what we said about refundable versus non refundable? This the big beautiful bill makes $5,000 of that refundable, which is a taxpayer friendly provision.
[00:45:46] Speaker A: And that wraps up part one of our three part series on the One Big Beautiful Bill Act.
Please be sure to come back to the Kassouf Podcast Network for parts two and three as we discuss charitable contributions, business tax implications and looking ahead for the future.
Thank you for tuning in to the Kassouf Podcast Network.
Resources for today's episode are linked in the episode notes. Thank you to our producer Russ Dorsey and for Kassouf for powering this podcast.
Be sure to stay up to date on new episodes and more information about today's episode by following @KassoufCo.
Until next time. Thanks for tuning in.
