June 20, 2025 • 32 mins
Breaking News - Senate Tax Bill Text Released. With both the House and Senate versions now on the table, which proposal offers bigger tax cuts? Which one could save you more money? I’m breaking down the differences between the House and Senate proposals and what’s changing and how it will affect you.
Intro & Why This Tax Bill Matters
00:00 - 00:02:25
Expiring Tax Provisions in 2026
00:02:25 - 00:03:32
Standard Deduction & Income Tax Rates
00:03:32 - 00:09:07
Child Tax Credit Breakdown
00:09:07 - 00:10:59
State and Local Tax (SALT) Deduction Debate
00:10:59 - 00:15:13
No Tax on Tips & Overtime Explained
00:15:13 - 00:20:14
Small Business Tax Breaks (QBI & Bonus Depreciation)
00:24:02 - 00:29:27
House vs. Senate: Final Comparison
00:29:27 - 00:30:25
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Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hey, this is Matt Sorensen with the Main Street
Business Podcast.
I want to share an update onthe big, beautiful bill.
What's happening in Congress?
The House bill passed a fewweeks ago by one vote and now
the Senate bill is out.
I'm going to go over thedifferences between the two bill
, where there's benefits, prosand cons between the House and
Senate.
What the current status of thebill is.
They're planning to have thissigned by July 4th.
(00:20):
We'll see.
Please enjoy my update.
We'll see.
Please enjoy my update.
Well, the Senate has releasedtheir tax bill this week and
there is a lot of provisions inthis that differ from the House
bill.
This is a critical piece of taxlegislation.
Make no mistake, if nothingpasses, everyone will be paying
more in taxes in 2026.
I'm going to break down theindividual tax breaks.
(00:41):
I'm going to go through sevendifferent tax breaks, how they
differ in the Senate versus theHouse bill.
The House bill is better, makeno mistake.
By the time we get through this, one of the major conclusions
you're going to see is that theHouse bill is better than the
Senate bill.
So it's not great news, but theSenate bill is better than
nothing.
But also, we're going to gothrough the small business
deductions.
So I'm going to go through somecritical business deductions
(01:01):
that affect you as a smallbusiness owner.
Big corporations I'm not goingto address that in the bill
Spending issues and other.
I'm not going over that.
I'm talking about tax cuts thataffect you next year on your
tax return.
And make no mistake, this isnot about wealthy individuals.
This is not about big business.
All this news you're hearingpolitically, I'm not talking
about it.
I'm talking about what's goingto affect everyday Americans
(01:23):
making a hundred grand, 200grand a year.
How does this affect you onyour tax return?
If nothing passes, you will bepaying two to $5,000 more in
taxes in 2026 than you're payingright now.
So this bill is critical.
It's going to affect you andit's going to be significant.
All right Now.
The first thing I want to makesure everyone understands is
when Trump was first in office,they passed tax reform that went
(01:43):
into effect in 2016, 2017.
However, most of thoseprovisions sunset this is the
last year those provisions arein effect.
So what that means is, ifnothing passes, all the tax
hikes are going to go intoeffect, all these tax cuts go
away.
So you're going to have higherindividual rates.
You're not going to have alarge child tax credit.
(02:04):
You're going to have higherindividual rates.
You're not going to have alarge child tax credit.
You're going to have a loss ofstandard deduction.
There's so many things thateveryday Americans are going to
lose if nothing passes.
So this bill is reallyimportant.
Now let's dig into theindividual items.
First, I'm going to go throughseven.
We're going to go through thestandard deductions.
We're going to go through theincome tax rates.
We're going to go through theincome tax rates.
We're going to go through thechild tax credit for those of
(02:25):
you with kids.
We're going to go through thestate and local tax deduction.
This is one that's screwing upthe bill, quite frankly.
I'll get into the politics onthat.
We're going to get into no taxon tips, no tax on overtime.
There's differences in almostevery one of these sections on
what the House is doing andworse is what the Senate is
doing.
After that, I'm going to getinto the small business
deductions.
We're going to talk about QBI.
(02:45):
This is the 20% deduction youget right now on your business
income.
If you're a small businessowner, you make 200 grand.
You're only taxed if you make160K.
It is huge.
That goes away next year ifnothing passes.
The House and Senate havedifferent versions on this.
We're also going to get intobonus depreciation.
This is a massive benefit tosmall business owners who are
growing their business, buyingequipment.
(03:06):
It's going to be gone next yearor it's only going to be 20%
instead of 100%.
I'm going to dig into thatbecause, again, the House and
Senate can't get their craptogether and they are different
on this.
And there's some other things Iwant to mention here the
deduction for seniors, alsodifferent between the House and
Senate.
The state tax exemption also.
That one's actually the same,but it's going to be a big
change if nothing passes, allright.
(03:28):
So let's dig into the individualones and let's talk about the
standard deduction.
This is one that affectseverybody.
Everyone has this issue ofwhether to file the standard
deduction.
What the standard deduction isis it's a deduction you get to
automatically take on your taxreturn.
You don't have to track allyour charitable contributions if
If you have any mortgageinterest, if you have it, you
just say, hey, I'm taking thestandard deduction.
Now, again, go back 10 years.
(03:50):
This standard deduction wasn'tvery valuable.
It was doubled back in 2017.
And right now that's going togo back and get cut in half.
So right now, the standarddeduction in 2026, if nothing
passes is going to be $8,000 forindividuals, $16,000 for
married couples.
Now, if the bill passes theHouse and Senate are actually
(04:12):
similar on this one.
This is one of the few thatthey're actually lined up pretty
similar on is going to go to$32,000 if you're married and
about $16,000 if you're single.
What that means is let's sayyou make $100,000 a year you're
married.
What that means is let's sayyou make 100K a year you're
married, you get to take a$32,000 deduction.
You're only taxed if you made$68,000.
That's pretty freaking awesome.
That is a massive deduction.
(04:33):
It means you only pay taxes ifyou made $68,000.
So if nothing passes, that'sgoing to go to $16,000 next year
.
Again, you make $100,000.
You're going to be taxed as ifyou made eighty four.
All right, what that means isyou have more taxable income.
You will be sending more moneyto the federal government in
taxes.
Now, between the House andSenate bill, the only difference
(04:54):
here is the Senate wants tomake that permanent.
They're saying we are going tomake this permanent.
This is the one thing I thinkthe Senate bill is better than
the House is this doubling ofthe standard deduction and
making it permanent starting in2026.
The House bill is saying we aregoing to make it actually go up
to $32,000 through 2028, andthen it goes to $30,000 starting
(05:17):
in 2026.
So not too big of a difference.
The Senate gives you an extrabump.
That's permanent.
The House bill gives you anextra bump up to the 32, then
back to 30 in 2026.
But both of those are prettysimilar and bottom line is we're
going to get higher standarddeductions, which is really
something that everydayAmericans file.
This is not a wealthy personthing.
(05:39):
Wealthy people don't take thestandard deduction.
Wealthy people itemize, theytrack all their charitable
contributions.
They take the mortgage interestdeduction.
They take state and localincome tax deduction.
We're going to come back herein a second.
They don't take the standarddeduction.
So losing this valuabledoubling the standard deduction
is going to hurt middle-incomeAmericans.
So critical point there.
(06:00):
But the bill is very muchsimilar here.
The only difference here, againon the Senate side, is they
give a permanent increase up tothe 32K instead of 30K on merit
and it's, like you know, 16versus 15 singles.
So not too big of a difference.
All right, let's talk about theincome tax brackets, this one's
massive right, the brackets thatwe have where you pay tax
(06:21):
depends on the income level youhave the higher income bracket
you end.
The higher income you have thehigher tax bracket you're in.
Right now, the highest bracketis 37%, sitting in 2025.
Next year it's going to go upto 39.6%.
The middle income brackets, forexample.
Let's say you're currently in a12% bracket.
That's going to go to 15% nextyear if nothing passes.
(06:43):
So everyone's bracket is goingto go up between 2% to 4% next
year.
If nothing passes, soeveryone's bracket's going to go
up between two to 4% next year.
If tax relief isn't passed Nowin the house bill and this is
the same what they're doingbetween the house and Senate
they're saying, hey, let's makethese tax brackets permanent,
these lower rates, so that themax is 37%, the lowest rate is
(07:03):
10%.
Now, one of the things we hadheard from Trump about a month
or two ago is he was willing tokeep the 39.6 bracket for the
highest income earners andsaying, well, let's reduce the
brackets for everyone else, butstill keep 39.6 on the highest
bracket for the highest incomeearners.
And I think he was going totarget that those making 2
million or more.
Right now, that highest bracketis like 400 K or so.
(07:26):
Now that is not in the bill,that was not in the house bill,
that's not in the Senate bill.
Maybe this is going to be anegotiating chip that comes back
later into play to get thisthing passed, but right now the
house and Senate are doingmaking these rates permanent.
The lower rate, which will bethe highest rate, will be 37%.
Everyone sees a 2% to 4%reduction if this bill passes
(07:48):
and this is going to be madepermanent.
The problem, what happened 10years ago is in the last tax
policy that was revolutionary.
Corporate America got permanenttax breaks and all the
individual breaks the ones thatare on the chopping block right
now, that are set to expire nextyear, and why we're even
talking about this.
They had a 10-year sunsetclause and said, hey, after 10
(08:08):
years, these go away.
What the Republicans are doingright now in the House and
Senate bill and what Trump'sbeen arguing for, is make the
individual breaks permanent.
Let's get them permanent, whichis what they're doing on the
doubling of the standarddeduction and what both bills
also do on the income tax breakslowering the rates.
Again, the highest rate will be37%.
Now, if you're making a hundredK a year, again this one
(08:30):
provision here alone let's sayyou're making a hundred to 200 K
a year that's going to save youtwo to $4,000 a year in taxes.
Just this one provision aloneyou're picking up another couple
thousand dollars on thestandard deduction item.
I mean this is we're talking alot of money in federal income
tax to everyday workingAmericans.
This is bigger than anystimulus bill you ever get, or
(08:51):
check you'll get, from thegovernment.
This is you keeping more moneyinstead of sending it to the IRS
.
All right.
Next one Big is the child taxcredit.
For any of you with kids orplanning to have kids, this is
significant.
There's some differences,though, in the bill.
Right now, you get a $2,000child tax credit per child that
you have.
Now, this is a credit, not adeduction.
Okay, deduction reduces yourtaxable income.
(09:12):
Right, you make $100K and youget a $2,000 reduction.
You're only taxed if you make$98,000.
A tax credit is a credit againstthe tax you owe.
So, for example, when you runall your numbers on your taxes
and they say all right, you owe$6,000 this year, but you're
like, but I got two kids,they're like great.
You have a $4,000 tax deductionor, excuse me, a $4,000 tax
(09:33):
credit.
You only pay tax on the 2000left because you get to take the
credit against the tax owed.
So tax credits are veryvaluable.
They're way more valuable thandeductions.
Now, in 2026, if nothing passes, the child tax credit gets cut
in half.
It's only going to be athousand dollars per child.
In the house bill they increasedit to $2,500 per child through
(09:55):
2028.
And then it's $2,000 a year andit's indexed for inflation
after 2028.
So what they're saying herebasically is for the next few
years we're going to give you$2,500 per kid on the child tax
credit, but then it's going togo down to $2,000.
Not down to $1,000, but down to$2,000.
In the Senate bill they didsomething entirely different.
(10:16):
Of course.
They said we're just doing$2,200 per kid for the child tax
credit, we're not letting yougo up to 2,500, but we're not
going to put it at 2,000 after2028.
They just said 2,200 right outof the gate.
So if you're looking at thisbill and you're thinking of your
household and kids, basicallyif you got like older teenagers,
the house bill is better foryou because 2,500 bucks a year
(10:37):
for the next few years you'regoing to get more bang for your
buck.
If you've got younger kids, the$2,200, but over time being the
same, you're going to bebenefiting from the Senate bill.
Not too much of a differencethere.
Basically, those with kids wineither way big time between the
House or the Senate bill.
But I think the Senate billcomes out ahead here on the
child tax credit.
(11:00):
All right, let's go to state andlocal tax deduction.
This is the one that has a tonof politics involved in it.
What the state and local taxdeduction is is the federal
government says hey, if you paidtax to the state, you get to
pay a deduction to us.
Or, excuse me, you get adeduction on your federal taxes
based on what you paid to thestate.
So for example, let's say youmade 200000 a year and you paid
(11:21):
$20,000 to the state ofCalifornia because you're a
California resident.
They say well, that doesn'tmake sense.
You have to pay tax on $200,000.
You didn't make $200,000.
You only made $180,000 becauseyou had to send $20,000 of that
to the state of California.
So traditionally the federalgovernment has given you a
deduction of taxes you pay tostate and local governments and
they say we don't tax that moneybecause you didn't get it.
(11:47):
You had to send it to yourstate or local taxing authority.
Well, back when tax reform ispassed, to pass all these tax
cuts, they said we need to raisetaxes in some areas.
So they said we will only letyou take a $10,000 deduction on
your state and local tax.
And that's what passed back andwent into effect in 2017.
Now that $10,000 cap on howmuch you can take as a deduction
for state and local tax, thatgoes away entirely in 2026.
(12:12):
And we go back to the old ruleno cap.
Now, if you think about this,those who live in high income
tax states California, newJersey, new York, massachusetts
I mean states that have a lot ofhigh state tax this is punitive
to them.
Okay, this 10,000 cap hurtsthem.
Frankly, they want no cap, theywant nothing to pass on this
(12:35):
specific provision because when2026 hits, the cap goes away
entirely and they can take adeduction for all of their state
and local tax.
Now what the House did in thebill is they said, well, we're
not going to get rid of this cap, but $10,000 isn't enough.
So the House said we're goingto move up to a deduction of
$40,000.
So your cap on state and localtax under the House bill is
(12:58):
$40,000.
So again go back to the example.
You're making 200K a year inthe state of California, you
have $20,000 in state and localtax, you've paid, you're under
the cap of 40K.
So you get to take a 20,000deduction.
The federal government onlytaxes.
If you made 180K.
In the Senate bill theybasically said we're sticking to
the $10,000 cap.
(13:19):
Now, if you think about thepolitics of this, why did the
bill come out that way?
Well, most senators and this isall politics are from states
that have low state income tax,that are Republican, right, the
senators from California, thesenators from New Jersey, the
senators from New York are allDemocrats.
They don't have a say in thisbill and, frankly, they're not
(13:40):
that excited about tax reformfor the most part.
And so in the Senate you've gotsenators that are Republicans
from states like Texas, florida,states that have no state
income tax.
This is not a critical issuefor their residents as much.
But when you go over to theHouse, there's a lot of House
Republicans from California,there's a lot of House
Republicans from New Jersey.
(14:00):
They've all banded together andsaid, hey, we're passing
nothing in this bill unless weget a deal on state and local
tax, and so they can hold out inthe House and force this issue.
So there's some politics tothis and this is one of the
major issues that is causingdisputes between the House and
the Senate and that could,frankly, screw up this bill
entirely, because they cannotget on the same page on this.
(14:21):
The first three items Imentioned there the standard
deduction, income tax ratesgoing down, the child tax credit
the Republicans between theHouse and the Senate are all on
the same page on that.
There's not much differencethere.
You hit this one.
There's a lot of disagreementon how this should be handled
because of the politics on itand because of the House
(14:42):
Republicans from high income taxstates who want a higher
deduction on this.
So again, the House is at a 40Kmax, the Senate wants a 10K max
on your state and local taxdeduction and basically what the
Senate Republicans are sayingis go back to your state and
tell them they shouldn't betaxing you as much.
I mean, that's kind of whatthey're saying right now.
So there might be an impassethere.
(15:05):
There's going to be some otheritems here I'm going to go over
that have some disagreement, butthis is the number one item
that Republicans cannot get onthe same page on, and this one
item could screw up the bill,because there's about 20 or so
House Republicans and rememberthis House bill where they
negotiated that 40k max.
They passed by one vote in theHouse of Representatives.
(15:29):
The Senate hasn't even voted onthis yet, but they got razor
thin margins in the Senate aswell.
Now the Senate leadership hassaid we're open to negotiating
on this.
$10,000 is a starting point.
They didn't want to go to40.,000.
Maybe it ends at $20,000 or$30,000 where they negotiate on
this in the final bill betweenthe two chambers in Congress.
All right now let's go to someof the other deductions, some of
the stuff that Trump talkedabout and other Republicans on
(15:51):
the campaign trail.
No tax on tips and no tax onovertime.
Now, right now.
This is one of the provisionsthat has nothing in the law.
You pay tax on your tips.
Now, right now.
This is one of the provisionsthat has nothing in the law.
You pay tax on your tips.
You pay tax on your overtime.
This is not something they'retrying to fix.
You just pay tax on overtime.
You pay tax on tips under thehouse bill.
What the House Republicans saidis no tax on tips.
(16:11):
They did not cap it at all.
But there is a phase-out forincome.
When you make about $160K ormore per year Now this is per
worker that's getting tippedincome.
If you're making more thanabout $160K per year, you're
what's called a highlycompensated employee under the
tax rules.
You don't get to take thisdeduction Now.
The tips must be voluntary.
(16:33):
You don't get to take thisdeduction Now.
The tips must be voluntary.
That's one of the provisions inthe code that says it must be a
tipped worker that you're in aprofession or a line of service
where tips are customary andtips are voluntary.
So, for example, when you'regoing to check out and they
force you to pay a tip forsomething they would have to pay
(16:54):
taxes on that, the tip must bevoluntary.
There must be an option to nothave to pay a tip for something
they would have to pay taxes onthat.
The tip must be voluntary.
There must be an option to nothave to pay a tip.
Otherwise they're saying you'rejust increasing prices and
calling it a tip and try not topay tax on that portion of
income.
All right, so no cap on that,but again there's an income
phase out at 160K a year on notax on tips.
Now in the Senate bill they puta cap on this and they said the
no tax on tips is up to $25,000.
(17:14):
So if you get paid $40,000 intips, they're like you only get
to take up to 25,000 of that asa deduction.
The other 15,000 in tips of the40,000, you have to pay tax on.
Okay.
So they put a cap on it in theSenate bill.
Now in the Senate bill theybasically they didn't go with
160,000 per worker.
That's getting that income.
They just said 150 K if you'resingle phase out.
(17:37):
300 K if you're married phaseout.
So a little different on that.
But essentially in both thehouse and Senate bill they say
if you're kind of a higherincome worker, make it more than
150 K a year.
Again, 300 K for those married.
Under the Senate bill thisphases out and you don't even
get to use it.
Also, the distinction here inthe Senate bill is it's up to a
(17:58):
max of $25K.
You do not get this deductionat a higher rate.
So the House bill is better onthis because they do not have a
cap on the amount of tips thatyou get and it's $160,000 per
worker.
That's getting this tippedincome instead of $150,000
single.
So I think the House bill winsout on no tax on tips.
Now, in both of those billsthis is not a permanent
(18:18):
provision.
This will only go from 2025 to2028.
So this will have to be renewedlater in Congress.
We are getting at least fouryears of tax relief for no tax
on tips, either the House or theSenate version.
Again, just a little differentapproach on how they're dealing
with it, and high-income earnersaren't going to be able to use
this.
All right, let's go to no taxon overtime next.
(18:39):
Again, there's no provision.
Right now you pay tax on yourovertime, just like you do on
any other income.
In the House bill, again, theydid not put a cap on this, but
they said in the House bill youphase out at 150,000 of income,
a single, 300,000, married.
All right, so no cap, anunlimited amount.
But again, if you're a highincome earner, you start phasing
(19:01):
out and you don't get to usethis.
Now, frankly, most people aresalaried that are making those
those amounts of income 150 to300 K.
150 that's for single, 300 Kfiling joint.
Most of those workers aresalaried people.
So you don't get overtime, so Idon't know that that's too big
of an issue.
There might be some higher paidhourly workers that are hitting
(19:22):
those income limits or theyhave a spouse that makes a lot
more.
You're not going to get thebenefit of this.
You will phase out, all right.
In the Senate bill they cameback and they instituted a cap
again.
That's basically a theme thatthe Senate bill has versus the
House.
On tips and overtime, as theysaid, we're capping this.
We're also putting a highincome phase out on it, but
we're putting a cap on it.
So in the no overtime, no taxon overtime there's a cap that
(19:50):
is 25K again and phases out also150,000, 300,000 annual income,
single versus married.
So if you're someone making ahundred K a year and you're
getting some overtime pay, thisis going to be a big benefit to
you.
You will get a deduction onthis.
The tips again as well.
Under the Senate bill, again,it maxes out at 25 K.
No cap on the house bill oneither of these, all right.
(20:13):
So that's no tax on tips andovertime.
Another one that's been popularthat's came up is the older
Americans.
If you remember, trump on thecampaign trail was saying no tax
on social security.
Well, what he basically camedown with is we're not going to
do it that way.
We're just going to say you geta deduction if you're an older
American, 65 or older, on yourincome and in the House bill
(20:35):
they said it's a $4,000 incomeexemption or tax exemption.
The Senate is $6,000.
So the Senate's giving a littlebit higher amount for older
Americans on their taxes.
That's going to reduce theirtax burden.
Both of these only go through2028 as well.
So a lot of this new stuff, thecampaign stuff no tax on tips,
no tax on overtime, no tax onSocial Security which just kind
(20:58):
of became this like taxreduction, I should say, is what
they're calling.
It is $4,000 in the House,$6,000 again in the Senate, but
these go away in 2028.
These are not permanentprovisions.
Everything else reduction onthe rates, the doubling of the
standard deduction, the childtax credit, the state and local
(21:19):
tax deduction those provisionsthey're going for permanency on.
They don't want to come backand have to rehash these issues,
which is good for taxpayers.
We don't want to have to begoing through this every cycle
of when Republicans change orDemocrats are in power and
wondering who's going to renewthese provisions and who's not
All right.
Other on the individual side.
Just a couple more things.
Then we're going to get tosmall business, the estate tax
exemption.
Right now, when you die, youhave approximately about a $15
(21:43):
million, $30 million $50 millionsingle, $30 million married,
where that can pass on to yourfamily.
No estate tax, no inheritancetax at the federal level.
Next year, in 2026, though,that gets sunsetted the doubling
of that and it goes down to $7million if you're single, $14
million if you are married.
In the bill they are going backto keep this doubling of the
(22:05):
estate tax exemption.
So it'll be $15 million single,$ 30 million married.
This is the same in the Houseand in the Senate and it will be
made permanent.
This is a critical one forthose that have had small
businesses, the family farm,that have tried to build and
grow wealth over their lifetime,want to pass it down to their
kids, want them to keep thatbusiness or the family farm or
(22:27):
whatever, without having to sellit.
And it's also something uh, ifyou think of the politics in,
this is generally the argumentis I was taxed when I made it
with income tax, I was taxedwhen I held it as property tax,
and now I'm taxed when I pass iton to my loved ones, when I
pass away.
It just doesn't seem fair to alot of people.
Again, politics on that andyour opinion on it, uh.
(22:49):
But giving a exemption up to 30married, $15 million single is
where the House and Senate aretargeting this, and that will be
made permanent under both oftheir provisions that they have
proposed.
All right.
Now, remember, the House billhas already passed.
That's the good news.
It passed by only one vote, theSenate bill.
What has been released is whatcame out of the Senate Finance
Committee, that's, who writestax policy for the Senate, and
(23:12):
the Senate has not voted on thisyet.
There's already some bickeringand there's already some
senators that said they're notgoing to vote for this, that
they're against it.
They're, frankly trying tonegotiate some stuff, so we'll
see.
It seems like the Senatebelieves they can get this
passed, but if they pass twocompeting versions of the bill
which is what they're on trackto do then they have to go into
reconciliation between the twoand it gets messy.
(23:32):
The goal that the HouseRepublicans and the House Senate
had on Trump's mandate was toget a bill that President Trump
could sign by the 4th of July.
Now the House said they couldget a bill passed by Memorial
Day and everyone laughed at themand they did it.
So I don't know.
We'll see if the Senate can getthis together here in the next
few days.
We may see a vote as early asnext week on this and then.
(23:54):
But then again, if they pass acompeting version here, they're
going to have to goreconciliation because they have
to have passed similar bills inorder for it to go to the
president for signature.
Ok, let's hit the small businessprovisions here.
These are really big.
The first one, which is myfavorite, is QBI.
Again, go back to 2017, new taxpolicy goes into effect.
There was a new provision thatsmall business owners got called
(24:15):
qualified business income.
This is the QBI deduction, andwhat that provision says is you
get a 20% deduction on yoursmall business income.
Again, let's say you're a smallbusiness owner, you're making
200K a year.
You get a 20% deduction on yoursmall business income.
Again, let's say you're a smallbusiness owner, you're making
200K a year.
You get a 20% deduction on yourincome.
That means your only tax is ifyou made $160,000.
That is a huge win.
If you're in a 30% tax bracket.
(24:37):
Think of paying 30% on that40,000 you would have otherwise
had to claim as income.
I mean, what is that?
That's a $12,000 saving intaxes right there alone.
So QBI was pretty significantwhen it passed and it's really
the big benefit that smallbusiness owners got.
Corporate America went from a35% in the big corporations 35%
(25:00):
tax bracket down to 21 madepermanent.
They got a 16 or 14% reductionin their tax made permanent.
They got a 16 or, excuse me, a14% reduction in their tax rate
made permanent.
And then small business waslike well, what do we get?
We're taxed at individual rateswhich are the max rate now is
37, could go to 39.
We don't get a 21% rate.
And so the provision that smallbusiness got was this QBI 20%
(25:23):
deduction, which was prettyawesome.
I take QBI.
Most of our clients in my lawfirm, kko Sawyers our small
business owners.
They're taking the QBIdeduction every year and it's
saving them tens of thousands ofdollars.
Now, under the house bill, theysaid we are going to make QBI
permanent because it's set to goaway in 2026.
It just disappears entirely.
The house bill said we're goingto make it permanent and it's
not only going to be 20%, we'regoing to make it 23%.
(25:44):
So again, 200k 23% deduction,you get a $46,000 deduction
under the House bill.
Now the Senate says let's alsomake it permanent, but we're
sticking at 20%, we're not goingup to 23.
We're just going to keep thesame thing that we have.
It's going to be 20%.
So the House bill wins out onthis one and this is why I think
, when you add it all up, theHouse bill is actually better
(26:07):
Higher child tax credit, higherQBI deductions for small
business owners.
Everything else kind of worksout the same between the two,
frankly, but the House bill isbetter.
Definitely, qbi is one where itis significantly better by
giving you an extra 3% on yourqualifying business income.
But the Senate bill is stillgood because we still can keep
QBI and both of them arepermanent.
(26:27):
Both of these provisions willmake QBI permanent, whether it's
at 23% or 20%, all right.
Next provision that affectssmall business owners is bonus
depreciation.
So bonus depreciation wassomething that was again
instituted again back in 2017.
It is, and it was, a hundredpercent deduction at first,
where it said hey, if you go buynew equipment in your business
(26:48):
or a vehicle in your business,let's say you spent $50,000 on
that.
On new piece of equipment orthe vehicle, you can take a
hundred thousand dollardeduction on it immediately.
It's called bonus depreciation.
Typically when you buyequipment or a vehicle in your
business you don't get to take100% write-off for it in year
one.
You expense it over time andeach type of property whether
(27:11):
it's some pieces of equipment ora car they say, well, that's
going to last you five years,seven years, 10 years let's say
it's 10-year equipment, forexample, $50,000.
They'll say, well, you take$5,000 a year over 10 years to
deduct it.
Well, that's not that great,you'd rather have a deduction
now than take it in pieces over10 years.
So the bonus depreciation saidyou get to take a write-off 100%
(27:33):
in year one, no matter thelifetime of that property.
And there's some rules to this,but I'm generalizing it here.
So under the house bill theysaid we are going to go back to
100% bonus depreciation and itis going to go through 2029.
Okay, so they it's not going tobe permanent, but we're going
to give you 100% bonusdepreciation and it doesn't
(27:54):
phase down, it's going to gothrough 2029.
Now, starting in 2026, the bonusdepreciation rules go to a 20%
bonus depreciation.
You can do not a hundredpercent, it's better than
nothing.
But the current state of thetax code is bonus depreciation
you can do not 100%, it's betterthan nothing.
But the current state of thetax code is bonus depreciation
has already kind of beenwhittled down.
It was first passed at 100%.
It went down 20% every coupleof years.
(28:16):
So right now the bonusdepreciation actually for 2025
that you get to take is 40%.
Ok.
So let's say you bought again a$50,000 piece of equipment.
You get to take a 40% deductionon that.
You don't get to take is 40%.
Okay.
So let's say you bought again a$50,000 piece of equipment.
You get to take a 40% deductionon that.
You don't get to take a hundredpercent, but you can take 40%
in the first year, all right.
So the house bill is going tosay bonus depreciation is back,
(28:36):
but it's not permanent.
It's through 2029.
This allows you to take largerexpenses as you're growing your
business, buying equipment,vehicles that you use in the
business.
In the Senate bill, bonusdepreciation is back at 100%,
starting in 2025.
Again, that's what the Housebill does too.
This goes into effect for 2025,but it will be made permanent.
(28:56):
Now this is one area where theSenate bill is superior to the
House bill is the bonus.
Depreciation is permanent, sothere's some give and take
between the two.
I still think the House bill isbetter at the end.
It doesn't have caps on tax onovertime and tips.
Qbi is 23% higher child taxcredit for the first few years
2,500.
(29:17):
But there's definitely pros andcons between the two.
Either way, though, the Houseand Senate bill are essentially
90% the same, and whether you'refor one or the other, they're
far better than nothing passingcoming 2026.
Because nothing passing comingin 2026, you're going to pay a
couple thousand more in federalincome tax if you're making 100K
(29:38):
or more 200K.
We're talking $4,000 to $6,000,depending on whether you have
kids or not, and this could besignificantly more.
I'm just talking about everydayworking Americans.
Then you take the smallbusiness owners.
I mean you just see thedifference here on QBI, a 20%
deduction.
That's massive.
You're a small business ownermaking a million dollars a year.
You're only taxed if you made800.
(29:59):
That is huge.
Think of $200,000 of income atyour 37% bracket.
We're talking $70,000 offederal income tax that you're
going to pay more.
Instead of that, putting backthat money into your business,
growing it, employing morepeople growing, serving more
customers, so this is a big deal.
(30:20):
Now where we're at right now,the Senate Finance Committee has
put out this bill.
It's still got to be voted on.
The Senate is still workingthrough this and negotiating
these provisions.
The House is actively engagedin this.
Speaker Johnson has alreadybeen trying to negotiate on this
because they know that theSenate version is different in a
number of key areas.
State and local tax area is theone where you see some House
(30:42):
Republicans already bandingtogether.
They've already said they'renot going to vote for the bill
if it has a 10,000 and they willhold out on the entire thing
and sabotage the entire bill.
They're willing to like crashyou know the car here to get
what they want.
So we'll see where this goes.
I'm going to be providingupdates, so please be subscribed
.
I'm Matt Sorensen.
We'll see you next time.
Speaker 2 (31:00):
And thank you everyone for listening.
A quick disclaimer and reminderthis presentation does not
constitute an attorney or CPAclient relationship and it is
always in your best interest toconsult competent legal and tax
professionals when conductingyour own personal transactions.
Speaker 1 (31:17):
We also want to make sure you know this is not
investment advice or financialadvice.
We're just trying to give youeducation, ideas and strategies
you can take to yourprofessionals or conduct your
own research on.
We'll see you next time, thankyou, thank you.
Hey, this is Matt Sorensen with the Main Street
Business Podcast.
I want to share an update onthe big, beautiful bill.
What's happening in Congress?
The House bill passed a fewweeks ago by one vote and now
the Senate bill is out.
I'm going to go over thedifferences between the two bill
, where there's benefits, prosand cons between the House and
Senate.
What the current status of thebill is.
They're planning to have thissigned by July 4th.
(00:20):
We'll see.
Please enjoy my update.
We'll see.
Please enjoy my update.
Well, the Senate has releasedtheir tax bill this week and
there is a lot of provisions inthis that differ from the House
bill.
This is a critical piece of taxlegislation.
Make no mistake, if nothingpasses, everyone will be paying
more in taxes in 2026.
I'm going to break down theindividual tax breaks.
(00:41):
I'm going to go through sevendifferent tax breaks, how they
differ in the Senate versus theHouse bill.
The House bill is better, makeno mistake.
By the time we get through this, one of the major conclusions
you're going to see is that theHouse bill is better than the
Senate bill.
So it's not great news, but theSenate bill is better than
nothing.
But also, we're going to gothrough the small business
deductions.
So I'm going to go through somecritical business deductions
(01:01):
that affect you as a smallbusiness owner.
Big corporations I'm not goingto address that in the bill
Spending issues and other.
I'm not going over that.
I'm talking about tax cuts thataffect you next year on your
tax return.
And make no mistake, this isnot about wealthy individuals.
This is not about big business.
All this news you're hearingpolitically, I'm not talking
about it.
I'm talking about what's goingto affect everyday Americans
(01:23):
making a hundred grand, 200grand a year.
How does this affect you onyour tax return?
If nothing passes, you will bepaying two to $5,000 more in
taxes in 2026 than you're payingright now.
So this bill is critical.
It's going to affect you andit's going to be significant.
All right Now.
The first thing I want to makesure everyone understands is
when Trump was first in office,they passed tax reform that went
(01:43):
into effect in 2016, 2017.
However, most of thoseprovisions sunset this is the
last year those provisions arein effect.
So what that means is, ifnothing passes, all the tax
hikes are going to go intoeffect, all these tax cuts go
away.
So you're going to have higherindividual rates.
You're not going to have alarge child tax credit.
(02:04):
You're going to have higherindividual rates.
You're not going to have alarge child tax credit.
You're going to have a loss ofstandard deduction.
There's so many things thateveryday Americans are going to
lose if nothing passes.
So this bill is reallyimportant.
Now let's dig into theindividual items.
First, I'm going to go throughseven.
We're going to go through thestandard deductions.
We're going to go through theincome tax rates.
We're going to go through theincome tax rates.
We're going to go through thechild tax credit for those of
(02:25):
you with kids.
We're going to go through thestate and local tax deduction.
This is one that's screwing upthe bill, quite frankly.
I'll get into the politics onthat.
We're going to get into no taxon tips, no tax on overtime.
There's differences in almostevery one of these sections on
what the House is doing andworse is what the Senate is
doing.
After that, I'm going to getinto the small business
deductions.
We're going to talk about QBI.
(02:45):
This is the 20% deduction youget right now on your business
income.
If you're a small businessowner, you make 200 grand.
You're only taxed if you make160K.
It is huge.
That goes away next year ifnothing passes.
The House and Senate havedifferent versions on this.
We're also going to get intobonus depreciation.
This is a massive benefit tosmall business owners who are
growing their business, buyingequipment.
(03:06):
It's going to be gone next yearor it's only going to be 20%
instead of 100%.
I'm going to dig into thatbecause, again, the House and
Senate can't get their craptogether and they are different
on this.
And there's some other things Iwant to mention here the
deduction for seniors, alsodifferent between the House and
Senate.
The state tax exemption also.
That one's actually the same,but it's going to be a big
change if nothing passes, allright.
(03:28):
So let's dig into the individualones and let's talk about the
standard deduction.
This is one that affectseverybody.
Everyone has this issue ofwhether to file the standard
deduction.
What the standard deduction isis it's a deduction you get to
automatically take on your taxreturn.
You don't have to track allyour charitable contributions if
If you have any mortgageinterest, if you have it, you
just say, hey, I'm taking thestandard deduction.
Now, again, go back 10 years.
(03:50):
This standard deduction wasn'tvery valuable.
It was doubled back in 2017.
And right now that's going togo back and get cut in half.
So right now, the standarddeduction in 2026, if nothing
passes is going to be $8,000 forindividuals, $16,000 for
married couples.
Now, if the bill passes theHouse and Senate are actually
(04:12):
similar on this one.
This is one of the few thatthey're actually lined up pretty
similar on is going to go to$32,000 if you're married and
about $16,000 if you're single.
What that means is let's sayyou make $100,000 a year you're
married.
What that means is let's sayyou make 100K a year you're
married, you get to take a$32,000 deduction.
You're only taxed if you made$68,000.
That's pretty freaking awesome.
That is a massive deduction.
(04:33):
It means you only pay taxes ifyou made $68,000.
So if nothing passes, that'sgoing to go to $16,000 next year
.
Again, you make $100,000.
You're going to be taxed as ifyou made eighty four.
All right, what that means isyou have more taxable income.
You will be sending more moneyto the federal government in
taxes.
Now, between the House andSenate bill, the only difference
(04:54):
here is the Senate wants tomake that permanent.
They're saying we are going tomake this permanent.
This is the one thing I thinkthe Senate bill is better than
the House is this doubling ofthe standard deduction and
making it permanent starting in2026.
The House bill is saying we aregoing to make it actually go up
to $32,000 through 2028, andthen it goes to $30,000 starting
(05:17):
in 2026.
So not too big of a difference.
The Senate gives you an extrabump.
That's permanent.
The House bill gives you anextra bump up to the 32, then
back to 30 in 2026.
But both of those are prettysimilar and bottom line is we're
going to get higher standarddeductions, which is really
something that everydayAmericans file.
This is not a wealthy personthing.
(05:39):
Wealthy people don't take thestandard deduction.
Wealthy people itemize, theytrack all their charitable
contributions.
They take the mortgage interestdeduction.
They take state and localincome tax deduction.
We're going to come back herein a second.
They don't take the standarddeduction.
So losing this valuabledoubling the standard deduction
is going to hurt middle-incomeAmericans.
So critical point there.
(06:00):
But the bill is very muchsimilar here.
The only difference here, againon the Senate side, is they
give a permanent increase up tothe 32K instead of 30K on merit
and it's, like you know, 16versus 15 singles.
So not too big of a difference.
All right, let's talk about theincome tax brackets, this one's
massive right, the brackets thatwe have where you pay tax
(06:21):
depends on the income level youhave the higher income bracket
you end.
The higher income you have thehigher tax bracket you're in.
Right now, the highest bracketis 37%, sitting in 2025.
Next year it's going to go upto 39.6%.
The middle income brackets, forexample.
Let's say you're currently in a12% bracket.
That's going to go to 15% nextyear if nothing passes.
(06:43):
So everyone's bracket is goingto go up between 2% to 4% next
year.
If nothing passes, soeveryone's bracket's going to go
up between two to 4% next year.
If tax relief isn't passed Nowin the house bill and this is
the same what they're doingbetween the house and Senate
they're saying, hey, let's makethese tax brackets permanent,
these lower rates, so that themax is 37%, the lowest rate is
(07:03):
10%.
Now, one of the things we hadheard from Trump about a month
or two ago is he was willing tokeep the 39.6 bracket for the
highest income earners andsaying, well, let's reduce the
brackets for everyone else, butstill keep 39.6 on the highest
bracket for the highest incomeearners.
And I think he was going totarget that those making 2
million or more.
Right now, that highest bracketis like 400 K or so.
(07:26):
Now that is not in the bill,that was not in the house bill,
that's not in the Senate bill.
Maybe this is going to be anegotiating chip that comes back
later into play to get thisthing passed, but right now the
house and Senate are doingmaking these rates permanent.
The lower rate, which will bethe highest rate, will be 37%.
Everyone sees a 2% to 4%reduction if this bill passes
(07:48):
and this is going to be madepermanent.
The problem, what happened 10years ago is in the last tax
policy that was revolutionary.
Corporate America got permanenttax breaks and all the
individual breaks the ones thatare on the chopping block right
now, that are set to expire nextyear, and why we're even
talking about this.
They had a 10-year sunsetclause and said, hey, after 10
(08:08):
years, these go away.
What the Republicans are doingright now in the House and
Senate bill and what Trump'sbeen arguing for, is make the
individual breaks permanent.
Let's get them permanent, whichis what they're doing on the
doubling of the standarddeduction and what both bills
also do on the income tax breakslowering the rates.
Again, the highest rate will be37%.
Now, if you're making a hundredK a year, again this one
(08:30):
provision here alone let's sayyou're making a hundred to 200 K
a year that's going to save youtwo to $4,000 a year in taxes.
Just this one provision aloneyou're picking up another couple
thousand dollars on thestandard deduction item.
I mean this is we're talking alot of money in federal income
tax to everyday workingAmericans.
This is bigger than anystimulus bill you ever get, or
(08:51):
check you'll get, from thegovernment.
This is you keeping more moneyinstead of sending it to the IRS
.
All right.
Next one Big is the child taxcredit.
For any of you with kids orplanning to have kids, this is
significant.
There's some differences,though, in the bill.
Right now, you get a $2,000child tax credit per child that
you have.
Now, this is a credit, not adeduction.
Okay, deduction reduces yourtaxable income.
(09:12):
Right, you make $100K and youget a $2,000 reduction.
You're only taxed if you make$98,000.
A tax credit is a credit againstthe tax you owe.
So, for example, when you runall your numbers on your taxes
and they say all right, you owe$6,000 this year, but you're
like, but I got two kids,they're like great.
You have a $4,000 tax deductionor, excuse me, a $4,000 tax
(09:33):
credit.
You only pay tax on the 2000left because you get to take the
credit against the tax owed.
So tax credits are veryvaluable.
They're way more valuable thandeductions.
Now, in 2026, if nothing passes, the child tax credit gets cut
in half.
It's only going to be athousand dollars per child.
In the house bill they increasedit to $2,500 per child through
(09:55):
2028.
And then it's $2,000 a year andit's indexed for inflation
after 2028.
So what they're saying herebasically is for the next few
years we're going to give you$2,500 per kid on the child tax
credit, but then it's going togo down to $2,000.
Not down to $1,000, but down to$2,000.
In the Senate bill they didsomething entirely different.
(10:16):
Of course.
They said we're just doing$2,200 per kid for the child tax
credit, we're not letting yougo up to 2,500, but we're not
going to put it at 2,000 after2028.
They just said 2,200 right outof the gate.
So if you're looking at thisbill and you're thinking of your
household and kids, basicallyif you got like older teenagers,
the house bill is better foryou because 2,500 bucks a year
(10:37):
for the next few years you'regoing to get more bang for your
buck.
If you've got younger kids, the$2,200, but over time being the
same, you're going to bebenefiting from the Senate bill.
Not too much of a differencethere.
Basically, those with kids wineither way big time between the
House or the Senate bill.
But I think the Senate billcomes out ahead here on the
child tax credit.
(11:00):
All right, let's go to state andlocal tax deduction.
This is the one that has a tonof politics involved in it.
What the state and local taxdeduction is is the federal
government says hey, if you paidtax to the state, you get to
pay a deduction to us.
Or, excuse me, you get adeduction on your federal taxes
based on what you paid to thestate.
So for example, let's say youmade 200000 a year and you paid
(11:21):
$20,000 to the state ofCalifornia because you're a
California resident.
They say well, that doesn'tmake sense.
You have to pay tax on $200,000.
You didn't make $200,000.
You only made $180,000 becauseyou had to send $20,000 of that
to the state of California.
So traditionally the federalgovernment has given you a
deduction of taxes you pay tostate and local governments and
they say we don't tax that moneybecause you didn't get it.
(11:47):
You had to send it to yourstate or local taxing authority.
Well, back when tax reform ispassed, to pass all these tax
cuts, they said we need to raisetaxes in some areas.
So they said we will only letyou take a $10,000 deduction on
your state and local tax.
And that's what passed back andwent into effect in 2017.
Now that $10,000 cap on howmuch you can take as a deduction
for state and local tax, thatgoes away entirely in 2026.
(12:12):
And we go back to the old ruleno cap.
Now, if you think about this,those who live in high income
tax states California, newJersey, new York, massachusetts
I mean states that have a lot ofhigh state tax this is punitive
to them.
Okay, this 10,000 cap hurtsthem.
Frankly, they want no cap, theywant nothing to pass on this
(12:35):
specific provision because when2026 hits, the cap goes away
entirely and they can take adeduction for all of their state
and local tax.
Now what the House did in thebill is they said, well, we're
not going to get rid of this cap, but $10,000 isn't enough.
So the House said we're goingto move up to a deduction of
$40,000.
So your cap on state and localtax under the House bill is
(12:58):
$40,000.
So again go back to the example.
You're making 200K a year inthe state of California, you
have $20,000 in state and localtax, you've paid, you're under
the cap of 40K.
So you get to take a 20,000deduction.
The federal government onlytaxes.
If you made 180K.
In the Senate bill theybasically said we're sticking to
the $10,000 cap.
(13:19):
Now, if you think about thepolitics of this, why did the
bill come out that way?
Well, most senators and this isall politics are from states
that have low state income tax,that are Republican, right, the
senators from California, thesenators from New Jersey, the
senators from New York are allDemocrats.
They don't have a say in thisbill and, frankly, they're not
(13:40):
that excited about tax reformfor the most part.
And so in the Senate you've gotsenators that are Republicans
from states like Texas, florida,states that have no state
income tax.
This is not a critical issuefor their residents as much.
But when you go over to theHouse, there's a lot of House
Republicans from California,there's a lot of House
Republicans from New Jersey.
(14:00):
They've all banded together andsaid, hey, we're passing
nothing in this bill unless weget a deal on state and local
tax, and so they can hold out inthe House and force this issue.
So there's some politics tothis and this is one of the
major issues that is causingdisputes between the House and
the Senate and that could,frankly, screw up this bill
entirely, because they cannotget on the same page on this.
(14:21):
The first three items Imentioned there the standard
deduction, income tax ratesgoing down, the child tax credit
the Republicans between theHouse and the Senate are all on
the same page on that.
There's not much differencethere.
You hit this one.
There's a lot of disagreementon how this should be handled
because of the politics on itand because of the House
(14:42):
Republicans from high income taxstates who want a higher
deduction on this.
So again, the House is at a 40Kmax, the Senate wants a 10K max
on your state and local taxdeduction and basically what the
Senate Republicans are sayingis go back to your state and
tell them they shouldn't betaxing you as much.
I mean, that's kind of whatthey're saying right now.
So there might be an impassethere.
(15:05):
There's going to be some otheritems here I'm going to go over
that have some disagreement, butthis is the number one item
that Republicans cannot get onthe same page on, and this one
item could screw up the bill,because there's about 20 or so
House Republicans and rememberthis House bill where they
negotiated that 40k max.
They passed by one vote in theHouse of Representatives.
(15:29):
The Senate hasn't even voted onthis yet, but they got razor
thin margins in the Senate aswell.
Now the Senate leadership hassaid we're open to negotiating
on this.
$10,000 is a starting point.
They didn't want to go to40.,000.
Maybe it ends at $20,000 or$30,000 where they negotiate on
this in the final bill betweenthe two chambers in Congress.
All right now let's go to someof the other deductions, some of
the stuff that Trump talkedabout and other Republicans on
(15:51):
the campaign trail.
No tax on tips and no tax onovertime.
Now, right now.
This is one of the provisionsthat has nothing in the law.
You pay tax on your tips.
Now, right now.
This is one of the provisionsthat has nothing in the law.
You pay tax on your tips.
You pay tax on your overtime.
This is not something they'retrying to fix.
You just pay tax on overtime.
You pay tax on tips under thehouse bill.
What the House Republicans saidis no tax on tips.
(16:11):
They did not cap it at all.
But there is a phase-out forincome.
When you make about $160K ormore per year Now this is per
worker that's getting tippedincome.
If you're making more thanabout $160K per year, you're
what's called a highlycompensated employee under the
tax rules.
You don't get to take thisdeduction Now.
The tips must be voluntary.
(16:33):
You don't get to take thisdeduction Now.
The tips must be voluntary.
That's one of the provisions inthe code that says it must be a
tipped worker that you're in aprofession or a line of service
where tips are customary andtips are voluntary.
So, for example, when you'regoing to check out and they
force you to pay a tip forsomething they would have to pay
(16:54):
taxes on that, the tip must bevoluntary.
There must be an option to nothave to pay a tip for something
they would have to pay taxes onthat.
The tip must be voluntary.
There must be an option to nothave to pay a tip.
Otherwise they're saying you'rejust increasing prices and
calling it a tip and try not topay tax on that portion of
income.
All right, so no cap on that,but again there's an income
phase out at 160K a year on notax on tips.
Now in the Senate bill they puta cap on this and they said the
no tax on tips is up to $25,000.
(17:14):
So if you get paid $40,000 intips, they're like you only get
to take up to 25,000 of that asa deduction.
The other 15,000 in tips of the40,000, you have to pay tax on.
Okay.
So they put a cap on it in theSenate bill.
Now in the Senate bill theybasically they didn't go with
160,000 per worker.
That's getting that income.
They just said 150 K if you'resingle phase out.
(17:37):
300 K if you're married phaseout.
So a little different on that.
But essentially in both thehouse and Senate bill they say
if you're kind of a higherincome worker, make it more than
150 K a year.
Again, 300 K for those married.
Under the Senate bill thisphases out and you don't even
get to use it.
Also, the distinction here inthe Senate bill is it's up to a
(17:58):
max of $25K.
You do not get this deductionat a higher rate.
So the House bill is better onthis because they do not have a
cap on the amount of tips thatyou get and it's $160,000 per
worker.
That's getting this tippedincome instead of $150,000
single.
So I think the House bill winsout on no tax on tips.
Now, in both of those billsthis is not a permanent
(18:18):
provision.
This will only go from 2025 to2028.
So this will have to be renewedlater in Congress.
We are getting at least fouryears of tax relief for no tax
on tips, either the House or theSenate version.
Again, just a little differentapproach on how they're dealing
with it, and high-income earnersaren't going to be able to use
this.
All right, let's go to no taxon overtime next.
(18:39):
Again, there's no provision.
Right now you pay tax on yourovertime, just like you do on
any other income.
In the House bill, again, theydid not put a cap on this, but
they said in the House bill youphase out at 150,000 of income,
a single, 300,000, married.
All right, so no cap, anunlimited amount.
But again, if you're a highincome earner, you start phasing
(19:01):
out and you don't get to usethis.
Now, frankly, most people aresalaried that are making those
those amounts of income 150 to300 K.
150 that's for single, 300 Kfiling joint.
Most of those workers aresalaried people.
So you don't get overtime, so Idon't know that that's too big
of an issue.
There might be some higher paidhourly workers that are hitting
(19:22):
those income limits or theyhave a spouse that makes a lot
more.
You're not going to get thebenefit of this.
You will phase out, all right.
In the Senate bill they cameback and they instituted a cap
again.
That's basically a theme thatthe Senate bill has versus the
House.
On tips and overtime, as theysaid, we're capping this.
We're also putting a highincome phase out on it, but
we're putting a cap on it.
So in the no overtime, no taxon overtime there's a cap that
(19:50):
is 25K again and phases out also150,000, 300,000 annual income,
single versus married.
So if you're someone making ahundred K a year and you're
getting some overtime pay, thisis going to be a big benefit to
you.
You will get a deduction onthis.
The tips again as well.
Under the Senate bill, again,it maxes out at 25 K.
No cap on the house bill oneither of these, all right.
(20:13):
So that's no tax on tips andovertime.
Another one that's been popularthat's came up is the older
Americans.
If you remember, trump on thecampaign trail was saying no tax
on social security.
Well, what he basically camedown with is we're not going to
do it that way.
We're just going to say you geta deduction if you're an older
American, 65 or older, on yourincome and in the House bill
(20:35):
they said it's a $4,000 incomeexemption or tax exemption.
The Senate is $6,000.
So the Senate's giving a littlebit higher amount for older
Americans on their taxes.
That's going to reduce theirtax burden.
Both of these only go through2028 as well.
So a lot of this new stuff, thecampaign stuff no tax on tips,
no tax on overtime, no tax onSocial Security which just kind
(20:58):
of became this like taxreduction, I should say, is what
they're calling.
It is $4,000 in the House,$6,000 again in the Senate, but
these go away in 2028.
These are not permanentprovisions.
Everything else reduction onthe rates, the doubling of the
standard deduction, the childtax credit, the state and local
(21:19):
tax deduction those provisionsthey're going for permanency on.
They don't want to come backand have to rehash these issues,
which is good for taxpayers.
We don't want to have to begoing through this every cycle
of when Republicans change orDemocrats are in power and
wondering who's going to renewthese provisions and who's not
All right.
Other on the individual side.
Just a couple more things.
Then we're going to get tosmall business, the estate tax
exemption.
Right now, when you die, youhave approximately about a $15
(21:43):
million, $30 million $50 millionsingle, $30 million married,
where that can pass on to yourfamily.
No estate tax, no inheritancetax at the federal level.
Next year, in 2026, though,that gets sunsetted the doubling
of that and it goes down to $7million if you're single, $14
million if you are married.
In the bill they are going backto keep this doubling of the
(22:05):
estate tax exemption.
So it'll be $15 million single,$ 30 million married.
This is the same in the Houseand in the Senate and it will be
made permanent.
This is a critical one forthose that have had small
businesses, the family farm,that have tried to build and
grow wealth over their lifetime,want to pass it down to their
kids, want them to keep thatbusiness or the family farm or
(22:27):
whatever, without having to sellit.
And it's also something uh, ifyou think of the politics in,
this is generally the argumentis I was taxed when I made it
with income tax, I was taxedwhen I held it as property tax,
and now I'm taxed when I pass iton to my loved ones, when I
pass away.
It just doesn't seem fair to alot of people.
Again, politics on that andyour opinion on it, uh.
(22:49):
But giving a exemption up to 30married, $15 million single is
where the House and Senate aretargeting this, and that will be
made permanent under both oftheir provisions that they have
proposed.
All right.
Now, remember, the House billhas already passed.
That's the good news.
It passed by only one vote, theSenate bill.
What has been released is whatcame out of the Senate Finance
Committee, that's, who writestax policy for the Senate, and
(23:12):
the Senate has not voted on thisyet.
There's already some bickeringand there's already some
senators that said they're notgoing to vote for this, that
they're against it.
They're, frankly trying tonegotiate some stuff, so we'll
see.
It seems like the Senatebelieves they can get this
passed, but if they pass twocompeting versions of the bill
which is what they're on trackto do then they have to go into
reconciliation between the twoand it gets messy.
(23:32):
The goal that the HouseRepublicans and the House Senate
had on Trump's mandate was toget a bill that President Trump
could sign by the 4th of July.
Now the House said they couldget a bill passed by Memorial
Day and everyone laughed at themand they did it.
So I don't know.
We'll see if the Senate can getthis together here in the next
few days.
We may see a vote as early asnext week on this and then.
(23:54):
But then again, if they pass acompeting version here, they're
going to have to goreconciliation because they have
to have passed similar bills inorder for it to go to the
president for signature.
Ok, let's hit the small businessprovisions here.
These are really big.
The first one, which is myfavorite, is QBI.
Again, go back to 2017, new taxpolicy goes into effect.
There was a new provision thatsmall business owners got called
(24:15):
qualified business income.
This is the QBI deduction, andwhat that provision says is you
get a 20% deduction on yoursmall business income.
Again, let's say you're a smallbusiness owner, you're making
200K a year.
You get a 20% deduction on yoursmall business income.
Again, let's say you're a smallbusiness owner, you're making
200K a year.
You get a 20% deduction on yourincome.
That means your only tax is ifyou made $160,000.
That is a huge win.
If you're in a 30% tax bracket.
(24:37):
Think of paying 30% on that40,000 you would have otherwise
had to claim as income.
I mean, what is that?
That's a $12,000 saving intaxes right there alone.
So QBI was pretty significantwhen it passed and it's really
the big benefit that smallbusiness owners got.
Corporate America went from a35% in the big corporations 35%
(25:00):
tax bracket down to 21 madepermanent.
They got a 16 or 14% reductionin their tax made permanent.
They got a 16 or, excuse me, a14% reduction in their tax rate
made permanent.
And then small business waslike well, what do we get?
We're taxed at individual rateswhich are the max rate now is
37, could go to 39.
We don't get a 21% rate.
And so the provision that smallbusiness got was this QBI 20%
(25:23):
deduction, which was prettyawesome.
I take QBI.
Most of our clients in my lawfirm, kko Sawyers our small
business owners.
They're taking the QBIdeduction every year and it's
saving them tens of thousands ofdollars.
Now, under the house bill, theysaid we are going to make QBI
permanent because it's set to goaway in 2026.
It just disappears entirely.
The house bill said we're goingto make it permanent and it's
not only going to be 20%, we'regoing to make it 23%.
(25:44):
So again, 200k 23% deduction,you get a $46,000 deduction
under the House bill.
Now the Senate says let's alsomake it permanent, but we're
sticking at 20%, we're not goingup to 23.
We're just going to keep thesame thing that we have.
It's going to be 20%.
So the House bill wins out onthis one and this is why I think
, when you add it all up, theHouse bill is actually better
(26:07):
Higher child tax credit, higherQBI deductions for small
business owners.
Everything else kind of worksout the same between the two,
frankly, but the House bill isbetter.
Definitely, qbi is one where itis significantly better by
giving you an extra 3% on yourqualifying business income.
But the Senate bill is stillgood because we still can keep
QBI and both of them arepermanent.
(26:27):
Both of these provisions willmake QBI permanent, whether it's
at 23% or 20%, all right.
Next provision that affectssmall business owners is bonus
depreciation.
So bonus depreciation wassomething that was again
instituted again back in 2017.
It is, and it was, a hundredpercent deduction at first,
where it said hey, if you go buynew equipment in your business
(26:48):
or a vehicle in your business,let's say you spent $50,000 on
that.
On new piece of equipment orthe vehicle, you can take a
hundred thousand dollardeduction on it immediately.
It's called bonus depreciation.
Typically when you buyequipment or a vehicle in your
business you don't get to take100% write-off for it in year
one.
You expense it over time andeach type of property whether
(27:11):
it's some pieces of equipment ora car they say, well, that's
going to last you five years,seven years, 10 years let's say
it's 10-year equipment, forexample, $50,000.
They'll say, well, you take$5,000 a year over 10 years to
deduct it.
Well, that's not that great,you'd rather have a deduction
now than take it in pieces over10 years.
So the bonus depreciation saidyou get to take a write-off 100%
(27:33):
in year one, no matter thelifetime of that property.
And there's some rules to this,but I'm generalizing it here.
So under the house bill theysaid we are going to go back to
100% bonus depreciation and itis going to go through 2029.
Okay, so they it's not going tobe permanent, but we're going
to give you 100% bonusdepreciation and it doesn't
(27:54):
phase down, it's going to gothrough 2029.
Now, starting in 2026, the bonusdepreciation rules go to a 20%
bonus depreciation.
You can do not a hundredpercent, it's better than
nothing.
But the current state of thetax code is bonus depreciation
you can do not 100%, it's betterthan nothing.
But the current state of thetax code is bonus depreciation
has already kind of beenwhittled down.
It was first passed at 100%.
It went down 20% every coupleof years.
(28:16):
So right now the bonusdepreciation actually for 2025
that you get to take is 40%.
Ok.
So let's say you bought again a$50,000 piece of equipment.
You get to take a 40% deductionon that.
You don't get to take is 40%.
Okay.
So let's say you bought again a$50,000 piece of equipment.
You get to take a 40% deductionon that.
You don't get to take a hundredpercent, but you can take 40%
in the first year, all right.
So the house bill is going tosay bonus depreciation is back,
(28:36):
but it's not permanent.
It's through 2029.
This allows you to take largerexpenses as you're growing your
business, buying equipment,vehicles that you use in the
business.
In the Senate bill, bonusdepreciation is back at 100%,
starting in 2025.
Again, that's what the Housebill does too.
This goes into effect for 2025,but it will be made permanent.
(28:56):
Now this is one area where theSenate bill is superior to the
House bill is the bonus.
Depreciation is permanent, sothere's some give and take
between the two.
I still think the House bill isbetter at the end.
It doesn't have caps on tax onovertime and tips.
Qbi is 23% higher child taxcredit for the first few years
2,500.
(29:17):
But there's definitely pros andcons between the two.
Either way, though, the Houseand Senate bill are essentially
90% the same, and whether you'refor one or the other, they're
far better than nothing passingcoming 2026.
Because nothing passing comingin 2026, you're going to pay a
couple thousand more in federalincome tax if you're making 100K
(29:38):
or more 200K.
We're talking $4,000 to $6,000,depending on whether you have
kids or not, and this could besignificantly more.
I'm just talking about everydayworking Americans.
Then you take the smallbusiness owners.
I mean you just see thedifference here on QBI, a 20%
deduction.
That's massive.
You're a small business ownermaking a million dollars a year.
You're only taxed if you made800.
(29:59):
That is huge.
Think of $200,000 of income atyour 37% bracket.
We're talking $70,000 offederal income tax that you're
going to pay more.
Instead of that, putting backthat money into your business,
growing it, employing morepeople growing, serving more
customers, so this is a big deal.
(30:20):
Now where we're at right now,the Senate Finance Committee has
put out this bill.
It's still got to be voted on.
The Senate is still workingthrough this and negotiating
these provisions.
The House is actively engagedin this.
Speaker Johnson has alreadybeen trying to negotiate on this
because they know that theSenate version is different in a
number of key areas.
State and local tax area is theone where you see some House
(30:42):
Republicans already bandingtogether.
They've already said they'renot going to vote for the bill
if it has a 10,000 and they willhold out on the entire thing
and sabotage the entire bill.
They're willing to like crashyou know the car here to get
what they want.
So we'll see where this goes.
I'm going to be providingupdates, so please be subscribed
.
I'm Matt Sorensen.
We'll see you next time.
Speaker 2 (31:00):
And thank you everyone for listening.
A quick disclaimer and reminderthis presentation does not
constitute an attorney or CPAclient relationship and it is
always in your best interest toconsult competent legal and tax
professionals when conductingyour own personal transactions.
Speaker 1 (31:17):
We also want to make sure you know this is not
investment advice or financialadvice.
We're just trying to give youeducation, ideas and strategies
you can take to yourprofessionals or conduct your
own research on.
We'll see you next time, thankyou, thank you.
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