Ep. 415 • How Big & Beautiful Is the New Bill for Hairdressers? w/ Michelle Cook - The Hair Game

Episode Transcript
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(00:10):
The Hair Game (00:00)
Hey Michelle, how are you doing?
Michelle Cook (00:01)
Doing great, glad to be here.
Happy to have you here. So you've been on the Hair Game podcast before. Those dutiful listeners who've been listening for a long time will remember you. You are small business CPA on Instagram, which is a really cool Instagram handle. You probably got that very early. And you're cartercookcpas.com on the World Wide Interweb. So you specialize in helping ⁓
small businesses with their taxes, and you focus on the beauty industry, which is why we like to have you on.
The beauty industry is what we love. We're here for it all day long. It's pretty much exclusively who we serve. We make exceptions for spouses of stylists and things like that so that everyone in the family can join in. But it's what we live and breathe every day.
Very good. I didn't know you're exclusively the beauty industry. So that's even better. Okay, something I want to focus on today. And by the way, the episodes that we've done in the past have had various topics, always, you the topic du jour, whatever might be something that has been thrown around in the beauty ether. And I felt like we needed to talk about it.
Today, we've got this thing called the big beautiful bill signed into law July 4th, 2025. And, ⁓ you know, if you like Trump or don't like Trump, you have to appreciate his marketing bravado, right? I mean, he's always naming things and adding monikers to things and signing laws on the 4th of July and other very marketing and signal heavy things.
but ⁓ I just think that that's really entertaining. So here's the big, beautiful bill. It could or could not be big and beautiful, but we're here to hear your ⁓ perspective on what it has in there for beauty professionals. Actually, I'm just gonna kind of stop there and throw it out to you. Is there anything in there impactful specifically for beauty professionals,
employed or self-employed.
Yeah, this is one of the doozy. We have some really huge tax laws that have passed that will impact the beauty industry. Some are temporary for a few years and others are permanent changes that will have lasting impacts on the industry.
Very good. Okay, so the big part of the bill name is certainly true. Are they beautiful?
For the beauty industry, is for sure. ⁓ Overall, ⁓ we're, let me put this into perspective. For all of our clients, every single quarter, we pull everybody's numbers. We run an estimated tax calculation just to say, what should you pay this quarter? And we're about to run those for the third quarter. And we're like, my gosh, we're going to be lowering everybody's expected payments for Q3 because the laws are going to be very impactful.
Wow.
Phenomenal, okay, so this bill truly is big and beautiful for the beauty professionals. I'm sure Donovan, we can get a good title out of this, you know, using all sorts of puns and stuff. Okay, so let's start with, let's start at the top. What's the most, what's the biggest and the most beautiful part of the bill?
So the one that's getting the most chat about is the tips deduction. So there's a provision that people who are in traditionally tipped industries, which of course would include the beauty industry can deduct up to $25,000 in tips. So this is a really big deal because if you, let's say, you you want to get a loan or you want to buy a house, car, whatever it is.
you can present your tax return. It will show total income and you get the deduction. So you're not paying taxes on it, but you can still show the earnings from your tips. So you still get the benefit of saying, look at all this money I made, but then you don't have to pay federal taxes on it. So it's pretty exciting.
that is very exciting. You said up to $25,000 to deduct off of your total taxable income, right? So let's say your taxable income was $100,000 and you made 25, that you made the exact amount in tips that you're allowed to deduct. Actually for effect, let's say you made $24,000 in tips. And so you can,
take the 100,000 in taxable income minus 24,000, you end up with 76,000 in taxable income, I guess, what is that, adjustable, taxable income, effective, adjusted, okay. So you end up having to pay taxes on 76,000, not 100,000.
sure there's adjusted gross income and taxable income, but yeah.
Exactly. Yeah. And if you have a spouse that's also in the industry, they haven't been clear on this yet, but we're all kind of reading it. Like each of you would get 25,000 if both of you are in tipped industries. So it's pretty exciting.
That's pretty amazing.

(00:31):
Okay,
even bigger and more beautiful there. And I'll take a little aside here to make sure that everybody understands, all the listeners understand the staged or kind of the stepped nature of the tax system that we have here and the federal government in the US, where you've got brackets. I think the first bracket's up to what, $10,000 or something.
and I think you pay the minimum tax rate on that first $10,000. What is it? 12%, something like that? Something like that. Okay, and we're gonna be very general here, but, and then I think from 10,000 to about 50,000, I think it's like 47,000. So from 10,000 to 47,000, there is a, that's the second tax bracket, and there's a higher rate.
Yeah, about that. 10 to 12, somewhere in there.
on those dollars, right? So you're paying, so if you earn $50,000, you're not paying the higher rate on all $50,000. On the first 10,000, you pay the lower rate. The 10 to 50,000 or so, you're paying the second rate. And then so on and so forth, right? So.
Right. Which is,
well, I was going say that's why this deduction is so powerful because it's taking it off the top, which is your highest rate.
The most,
right, the dollars that are taxed at the highest rate. And so it's even better, that's why I wanted to bring it up, because it's even better than it might sound because of the kind of stepped or staged nature of the tax system. Okay, so it's up to 25,000. ⁓ If somebody's making a million bucks a year, do they still get to take it or is it qualified?
So there are some limitations and the limitations are different if you're married or single, ⁓ obviously higher if you're married. There's a phase out if you start making too much money, but I ran through the numbers for our clients. The phase out is actually really slow. So yeah, by the time you're at a million dollars, you're not gonna be getting anything. ⁓ But even for people that are making $500,000, they're still probably gonna be able to duck some portion.
Wow, that's fantastic. All right, that's certainly big and beautiful. ⁓ Anything else we need to talk about with the node taxon tips before we move on?
Yeah,
I'll say this because there has been some confusion around who does this apply to? Is this just for employees? Is this for business owners? Who's getting the benefit here? And there have been several versions of the bill that were coming out. So at different points on the different versions, the answer was different to that question. But ultimately, the final bill that passed is the most generous possible version of that, which means that as an employee,
As long as the tips are reported on your W-2, you get the deduction. But also if you are a business owner with no employees, ⁓ just a sole proprietor, as long as your business has a profit that is more than what the tips are, then you can also take that deduction. So everyone wins.
And that's huge. know that in early parts of the bill, ⁓ as the lawmakers are going back and forth and the lobbyists are jumping in there to try to get their clients' favorite elements into the bill or out of the bill or whatever, these bills change, the details change, and the details are very important. I know in early parts of the bill, ⁓ the self-employed people were not part of this deduction, right?
specifically carved out were S corporation owners, which is the vast majority of our clients and a lot of beauty professionals are our S corp owners. So that we were scared for that, but they changed it at the last minute. That was great.
And I think there was some fear with some lawmakers that there would be some abuses in the tax deductibility. so people might skew their pricing in such a way that maybe some, let's say a service behind the chair is $100, maybe they would make it $75 and then $25 tip, right? And then all of sudden that obviously has a huge tax advantage.
And easier to do that if you're a small business owner and you have full control of your pricing, you have the relationship directly with your client and it's easy to do. Much harder to do if you're an employee and it's all kind of on your W-2.
Yeah, it sounds like you've been talking to beauty professionals. one of the first questions I got when the law was being debated was, so can I just like not charge a price at all? And I'll just say it's like tips only so that I can deduct everything. Yeah. but the law does specifically state what is considered to be a tip. So, it has to be up to the client to decide how much there has to be no consequence for whether or not it is paid or how much.
Exactly. And why not, right?
Um, so, know, when you have a business model like that, that just says whatever tip you want, you know, in theory, someone could tip zero and are you going to let them continue to come to you for services? Probably not. Um, so anyways, but that's also why it was capped at $25,000. It cuts down on some of those abuses. doesn't really, you know, make it worthwhile in most cases to do something like that. Um, but then of course the IRS can always audit and see if you're following all the tip laws.

(00:52):
Mm-hmm.
Right. So that's very important. They define what it is to be a tip. And so, harder to take advantage of the law. So anybody who wants some more details on this, you can search for the new definitions of what it is to be a tip and explicitly the things that exclude ⁓ certain income from being considered a tip.
You already named a couple of them. Anything else about this particular thing we need to talk about?
One of the, one bit of language that was in the bill that was confusing to people was it said cash tips. So people took that to mean literal cash. Yeah.
Right. Literal, yeah, dollars,
like physical paper money.
Exactly. And that was never the intention. But what they meant by that was not a gift, not tickets to an event, not some other way that could also potentially be considered a tip. ⁓ They just mean money currency. Yeah. So they've, fixed the language to clarify that as well, but we're talking ⁓ Venmo, Zelle, Cash App, actual.
currency.
cash in your hand currency, but also anything that went through your credit card processor. So all of those are going to be included in this.
checks, everything. money flowing from one side to the next.
Does this add an additional consideration or complexity to a self-employed person who maybe...
finds it difficult to report the taxes, difficult to track and report the taxes.
Yes. ⁓ And by difficult you mean that they don't claim them?
⁓ I like the pause.
Well, I'm just saying from an administrative standpoint, know, nobody likes to do their taxes. And that now, of course, that's where Michelle Cook, small business CPA comes in. But even with Michelle Cook, small business CPA on your side, there's still some stuff that you have to do. You you ask questions, you know, leading up to your tax calculation for your clients.
and your clients have to go back and, you know, find the numbers to fill in the blanks of the questions that you're asking so that you can do your work. ⁓ Now, hopefully today, a lot of people have digitized their bookings, you know, administration, their, ⁓ all of their kind of back-end admin, because there's so many tools to do that nowadays.
but I imagine not everybody does. So they might be kind of scratching into their check register or their bank account statement or something. what deposits or how much of a deposit is a tip versus not a tip. And I could just see it being a little bit, an additional thing that you have to consider.
Sure. The first thing I'll say is this is why it pays infinitely to stay organized and have a good back end system and slash the dirty word of bookkeeping. ⁓ because if you're doing that every single month, which is just a good business practice, this is no big deal. Where I've seen people start to get overwhelmed and like really hate
getting all of this stuff done is they create a backend system that is complex. And then it's just an absolute pain to go in and try to figure things out. So for example, someone might use multiple payment processors, plus they're taking cash, plus they're taking Venmo and Zelle. Like they're just accepting money in all these different places. Stop. It's as easy as that. Just choose.
one payment method that you're willing to take. And if I do get the whole like credit card processing fees or whatever. So if you want to have some other kind of option that people can pay you through, fine. Still check them out through your point of sale system. So that, that is your source of truth. That is the one place that we go to and we know where everything is. And it just takes a couple minutes to check someone out like that. And they can.
in whatever way you want to accept your payments, not a problem, just have that one place. And all of a sudden, something that seems really big and overwhelming, all of a sudden just like disappears into simplicity.

(01:13):
I imagine that some people might want the complexity because they might feel like some portion of their income is over there and not over here. And maybe over there isn't, nobody knows about that over there. So I imagine they might think that that's, you know, worth the additional complexity.
Sure. mean, no reason for me to get between you and wanting to hide money from your spouse or something, do whatever you want to do. ⁓ have a separate bank account, whatever you want, but, ⁓
I mean, it's like the cash going on the pocket. I don't know how many people actually, how many clients pay cash anymore, but if there's a hundred bucks and it's handed to you, that goes in your pocket. Very unlikely. It goes through the system, so to speak. Right. ⁓ so anyway, I'm just trying to think through all the little things, while trying to be helpful to the listeners here. I mean, it's certainly you advise that there is a structured.
digital system that keeps track of everything. And if there's $125 paid for a $100 service, then the $25 is automatically accounted for as a tip.
And the like systems of like point of sale processing, is that your question? So typically what happens is when your client's getting checked out, they'll say and put in the amount that they're paying as the tip. that's how the processing system determines what the tip is.
Yes.
Okay, so let's maybe take an aside here in the conversation from the big, beautiful bill ⁓ and talk about what you've, with all your clients, you know, almost exclusively the beauty business for the self-employed people, what are you finding to be the best platforms to be on? I mean, are the booking systems a sufficient tool for this kind of stuff?
Yeah. So we have clients that use pretty much everything. So I see, ⁓ Figaro, Square, Gloss Genius, Mango Mint, Boulevard, Booksy, like I've seen pretty much the backend of, ⁓ most of them. ⁓ no platform will ever be perfect, but I do think that there are certain platforms that
work best in certain scenarios. So ⁓ if you have like a booth rental type model or, and commission, Vegaro does that really well. ⁓ Being able to differentiate between someone who's booth rental and someone who's an employee. They also have a good inventory tracking system. ⁓ Square is really
really good. ⁓ What I really like about Square as a company is they're always pushing out new features and improving. I know their R &D department is like always actively working on something. So it just does seem like their product gets a little bit better all the time.
Gloss Genius is really...
like a pretty interface and I know that matters to beauty professionals. ⁓ I think it works well for those who don't have employees and I know that they've kind of changed and I haven't necessarily seen their back end now that I know they do have some like employee based offerings. So I can't speak to that. But I would
Yeah, it is. And people like that.
That is true,
they launched really focusing on the independent beauty professional and since then they've developed an enterprise product and systems and things like that.
So I would say...
Those three are probably what the vast majority of beauty professionals are using in my experience.
Yes,
yes, that's what we find as well. Okay, so in those platforms, if a client pays with a check, can the hairstylist put that on there? Okay, all right. And if they pay with a cash, if they pay with physical cash, they can put that in there?
Yeah, so.
Yeah. So when you go to check someone out, you can choose the payment type and you can choose, you know, credit card, cash, check, gift card, whatever might come through. ⁓ some backends will even let you add in your own names of payment types. So we've had some clients even create a payment type called Venmo or Zelle if they have that as a, option. and that way they're more easily able to kind of reconcile where the money came in from.

(01:34):
ether.
Okay, all right, let's see. I don't have any more questions. Any other kind of ⁓ curiosities about the no taxon tip?
The only other thing I'll say is that...
The law itself says that the tips must be reported on a form that is reported to the IRS. So that looks like a W-2, 1099K, ⁓ which is what comes from the point of sale system. It's the merchant processor 1099. There's the 1099 NEC. NEC stands for non-employee compensation, such as the general independent contractor. Those are the three official forms.
And then after the law got passed, the IRS came out and said, we're not changing the 2025 forms. Basically we don't have enough time to go in, change the forms, get these out to everyone. It's just too much of a project. So I think there's going to be some leeway in 2025 as far as like saying it absolutely has to be on an IRS form. So that's one thing. But for W2s, just so people know, there's already a breakout for tips on that. So that form doesn't need to change and you will need to have it.
Mmm.
showing on that form broken out. And then the other thing I'll say is, what are they going to do with cash tips? I'm still wondering because cash tips don't go through your payment processor. Like the merchant account, they're not, you're, they're not going to show up. So I'm not really sure what their plan is and knowing
When you say
cash tips, you're talking now about physical cash. Like when you drop the coins in the little glass jar at the point of sale. Yeah, those I don't think have ever been above the books and will ever be above the books.
I am.
For the first time, there's incentive to get them above the books just because you're not going to pay taxes on them anyways. And now if you want to show that income, like to get a loan or other reasons why you might want your income to look a little bit higher, there's at least the incentive that has never been there historically. But is there, are they going to come up with some kind of official way to document this? I'm not really sure if
Kinda.
That's true. That's true. Yep.
They have a plan yet.
Right. Yeah. And of course, yeah, depending on where you are on the tip scale, you know, if you're significantly under 25,000, then yes, that incentive is there to go ahead and count the extra whatever, 5,000. And that'll benefit your credit or, you know, your purchasing capability. But if you're kind of on the cusp, you're probably still just gonna stick in your pocket like you've been doing your entire career.
All right, very interesting.
You know, as
people's accountants, I'm just gonna like plug my ears and I'm just gonna lalala and pretend that everyone's claiming their cash.
I didn't say anything. I
didn't say a thing. Okay. All right. What next in the big beautiful bill?
Okay. So the second most impactful change, and in my personal opinion, I actually believe this one to be more impactful than the tips deduction, ⁓ because actually what we didn't say about the tips deduction is that deduction is valid from January 1st, 2025 through December 31st, 2028. So we've got four years of being able to deduct those tips, which is great. We're going to be really happy about it for four years, but then it's gone in four years. But the next thing, which is a really big deal.

(01:55):
Unless
it gets extended, which right? Yeah, like the big beautiful bill extended a lot of the taxes that went into place. Yeah, last time Trump was there and we didn't know if that was going to happen and did get extended. Yep.
It could always happen. You never know.
Exactly.
Yeah. So the FICA tip credit is, has historically only been available to the restaurant industry. And the restaurant has had it for decades and PBA has been over there lobbying, trying to get equal treatment for salons and they were finally successful. ⁓ and this change is a permanent change. There's no timeframe phase out. So for as long as.
They continue to have this law. Beauty salon owners are now eligible to get a tax credit on any payroll taxes that they pay on their employee tips.
Okay, ⁓ payroll taxes on employee tips. Does that include a self-employed person?
Only if that self-employed person is a W-2 employee. So an S corporation owner, for example, is usually a W-2 employee. And if they're running their tips through payroll, then yes.
for someone who is maybe a Schedule C filer, so that would be like a single owner LLC or a sole proprietor, and maybe they're not quite large enough to make that election for an S corporation, then they wouldn't be able to get the credit for their personal tips, but if they have employees, it would still be good for them as well.
Okay, and the payroll tax is about 15%, am I correct? Ish? Maybe it differs by state.
So
no, no, no, you're right. So total payroll taxes are 15.3%, but the way that it works is that employees pay half and employers pay half. So the employer portion is 7.65%. And historically what's happened, and this has just been very controversial in the industry, and I'll catch you up if you haven't been part of this controversial discussion, is a lot of owners have been really frustrated that they have to pay
taxes on their employees tips. It's not revenue to the company and it's not something that salon owners have any control over how much their employees are making. And so it's a real issue and a very large expense for salon owners that have a lot of chairs and employees. It's a reason why
We see a lot of like 1099 contractor type relationships, which is like kind of a whole other discussion about whether or not that's legal and blah, blah, blah. But that's been the incentive to create those 1099 relationships because they're been trying to avoid paying payroll taxes on these tips. So now we have incentive to make our workers W2 employees, which is good because that's probably more in line with it.
and with what the laws are saying they should be. And now that burden is no longer on salon owners. It's a huge dollar figure when you have a fully functioning running salon with employees and it will be thousands of dollars that these salon owners are gonna be able to get a credit for now.
That's huge. That's
what I think is super exciting is that S corporation owners get a double benefit now related to tips because they can get a FICA credit for the payroll taxes that are getting paid on those tips and they get that $25,000 deduction. So just in terms of like, what's the value of this to an S corp owner. And I'm talking just an owner who does not have any employees other than themselves.
Right, self-employed with an S-corp entity.
Yeah, the numbers I'm running are showing if you have the max tips of $25,000 between the FICA credit and the tips deduction, assuming a 22 % marginal tax rate, which is a pretty average, it's about a $7,400 savings. It's Yeah, I...
Enormous. Wow. And
of that, you figure maybe four of that is in the no tax on the tips and then the balance, the three and a half, 100 bucks, and know, 3,500 bucks is on the FICA tax deduction? Give or take? boy.

(02:16):
Let me run the numbers real quick.
I just challenged her with numbers and now she's...
So
22 % of $25,000 is $5,500. So $5,500 of that is the tip deduction. And then the remaining $1,900 is FICA credit.
See, I could have done the math better. I could have done that. Instead of just taking, you know, the like 20 % of 20,000 and coming up with 4,000, I could have done, yeah, I could have done that better. Okay, so ⁓ that's amazing. That's surprising to me. Not surprising. Yes, it is. It's surprising to me. I didn't think that the benefit on that latter element would be that great.
It's huge. Yeah, that's why I saying we're pulling back our clients' estimates for Q3 because that's a ⁓ pretty significant savings.
Yeah, that's a really big deal. And so somebody in the 22 % tax bracket, what stage, what step is that? Is that up to 50? No, that's north of 50 or 47,000, isn't it?
You know, I should have these tax brackets memorized, you would think, but they change them every year. So I just kind of peek. It's, it's somewhere around like that 50. It really, the other problem is that there's actually multiple brackets, depending on if you're single, married, filing jointly, married, filing separately, head of household, blah, blah, but yeah, it's no, this is like an average American making a living wage. Yeah.
Okay.
Right.
Yeah. But this is not somebody making $400,000 a year. This is, okay. Yeah.
Right. Wow, that's amazing.
Yeah, it's big deal.
Okay, what next?
So I would say the next most impactful change was something called bonus depreciation. So you were talking about how they made some provisions that were temporary, previously permanent. So this is one of those. Historically, what's happened is
Mmm.
When you make a large purchase over $2,500 for something that's a more permanent fixture in the business. So I'm not talking about like supplies or things that are getting consumed on an oral basis. I'm talking about, you know, shampoo bowls, chairs, cabinets, plumbing, all the furniture fixtures, whatever.
furniture.
You used to have to say, well, you know, this shampoo bowl is going to last me five years and I paid a thousand dollars for it. So I'm going to deduct $2,000 over the, or not $2,200 each year, um, over five years. So even though you lay out a thousand dollars in cash, you don't get the tax full tax benefit for until five years have passed. Um, which obviously is difficult for a business owner. Cause you're laying out all this cash in the beginning. And then it.
200.
It's taking a while for the taxes to come up. This has really come back to bite salon owners in the past, cause they do this big remodel and we're talking, you know, multi five figure, maybe even a six figure remodel on a salon. And then all of a sudden they have a tax bill and they're like, how could I possibly have a tax bill when I just spent all of this money getting this place put together? So this is once again, just going to be a really, ⁓

(02:37):
amazing change that you can just take the full deduction up.
And the same goes for somebody who takes, a beauty professional who takes a studio and they put furniture in there and cabinetry and stuff like that. They can write it off in year one. That's huge.
Exactly.
Yeah. And even smaller, like independent suites, I mean, you could easily spend $10,000 getting everything put together depending on what is or isn't provided to you.
So, ⁓ and this is for calendar year 2025.
correct. There's a little bit of a funny thing. You're talking about the marketing of things before. ⁓ it technically is effective January 19th, 2025. So if something was purchased between January 1st and January 18th, it doesn't count, which is just very silly, but I'll let you figure out what happened on January 19th.
So
that's really interesting. So we had bonus depreciation benefit in the past and January 18th we didn't have it.
So we've had bonus depreciation in the past. The prior law, we had 100 % and then it went down to 80 and then 60 and 2025 was supposed to be 40 % bonus. And then they said, we're gonna change this law, but we're gonna wait until inauguration day to say that it was actually applied. Yeah.
Okay.
⁓ yes, there you go. Inauguration
day. Isn't that interesting?
So
I know I'm like, as an accountant, I'm like, why do have to kick us in the pants like this? It's so much harder now to have to look at that.
I know, my god.
Brutal, okay. ⁓ But that's a good one for everybody in this industry, absolutely, whether somebody's in a studio or somebody's ⁓ opening a larger salon. Yeah, it's huge.
Or even,
I mean, a laptop sometimes can be more than $2,500. So it's just anything, any kind of asset that you're buying that's over $2,500, full deduction.
Awesome. Okay, what's the next one?
qualified business income deduction. This was a big one, QBI. So this was a brand new deduction that they created for business owners back in 2017 when they hashed out the new laws. And 2025 was supposed to be the last year that we were going to be able to get this deduction. And I'm over here like sweating for 2026 thinking like, oh my gosh, clients are going to end up owing so much more in taxes and they're just not going to be ready.
QBI.

(02:58):
for the increase and they made it permanent. So I'm really happy. It has a big impact on businesses. If you have $100,000 profit, you get a $20,000 deduction just for being a business owner. It's a big deal.
Okay, is it that simple, the QBI, like to define it for the audience?
Essentially, I mean, there's some other things that don't necessarily apply to the industry. Certain industries don't qualify to get it, but the beauty industry does. There's certain income limitations and things like that, but I think for the vast majority of beauty professionals, those limitations don't come into play.
Okay, so this is for a ⁓ beauty business owner. So an independent beauty professional, ⁓ a salon owner, but not a commission employed beauty professional.
Okay, pretty cool. All right, what next? This is like a whole big, beautiful bag of goodies.
There has been a bunch of stuff over the last few years, not that anyone pays attention to it in the way that I do, where they keep going around changing thresholds for how much money someone has to make to get a certain kind of 1099. And it's been going all over the place, but basically they've said, okay, starting in 2026, so not this year.
Unfortunately, I wish it was this year. You only have to issue a 1099 to a contractor if it's more than $2,000. It's historically been $600 and they made that $600 threshold in like the eighties. So everyone's over here just like, come on guys. Like we're issuing 1099s all over the place. This is getting ridiculous. So it's up to $2,000 and it's now going to be adjusted for inflation every year. Thank goodness. So.
wow. Yeah.
Yeah.
Right.
Right?
that's going to really help because I'll tell you what, it's really a pain to try and get contractors to sign for W-9s and to get all the paperwork in place. It's just a real headache. So I'm really happy for business owners that some of these really much smaller payments we don't have to worry about anymore.
but how much wasted time and fees and stuff. No offense. I'm speaking to Michelle Cook, Small Business CPA, but...
Yeah. No, I'm.
I'm with
you. tear my hair out because I have to follow up like a billion times, but in my heart of hearts, I've never seen anyone get audited for not issuing a 1099. So I'm just over here like the risk on this is just not there. Yeah.
Right. I know.
So small. It's just
ridiculous the amount of, okay, well that was a good one. That was a smart one. Amazing that it lasted so long. Classic government.
Yeah.
And then

(03:19):
on the 1099K, which is the one that the payment processors issue for credit card stuff, they have been like peeling it back, trying to get them to match the 1099 like ⁓ contractor NEC form thresholds. And they basically said, nevermind. We're going back to the old rules, which is $20,000 and 200 transactions. So if you have something less than that,
What I think is interesting about this one though is what does this mean for beauty professionals who don't have that threshold yet? Maybe it's their first year in business. They're just getting started. Do they get the tips deduction? Because the IRS has said it's got to be reported on an official form, but if they're not going to get a form, what does that mean for them? So I hope we get some guidance on that so that we can hopefully not leave those earners out.
Very interesting, very interesting. Okay, what next?
So I'll say in terms of like business provisions that are affecting the beauty industry, we pretty much hit the hard hitting ones, but there are some like personal tax provisions that might still be interesting to beauty pros.
Alright,
alright, I'm playing ball. I'm gonna let him hear him.
All right.
Um, there's a new car loan interest deduction. You can deduct up to $10,000 for a personal use vehicle, which is kind of out of nowhere that this has happened. You must be the first owner. So it can't be a used vehicle. It has to be purchased within the 2025 to 2028 tax years. So if you've already bought one in a prior year, you don't get to start.
Really?
What?
deducting the interest has to be assembled in the U S and weigh less than 14,000 pounds, which like most would qualify for that. Not a problem there. Yeah.
Right. Okay, all right. So this
is something where they're trying to encourage buying American cars or cars that are symbol in America. And a lot of the foreign cars, do have factories in the United States. ⁓ Okay, well, that's a freebie.
Yeah, the face outs are a little bit lower on this one. So it might, the face outs might impact more people. It's, ⁓ if you make over a hundred thousand dollars, if you're single or $200,000, if you're married. So that'll come into play a little bit sooner for people. And some of the others are face outs, but still pretty cool.
Yeah, okay. What other personal gimmies are they giving us?
All right, let's can rapid fire. Some of these are kind of small. Um, child tax credit is moving from $2,000 to $2,200 and they're going to index it for inflation, which has also never been the case. Um, if you are adopting, they are making the adoption credit, um, refundable up to $5,000. So what that means when they say something is refundable,
OK. All right.
It means that even if you don't owe any taxes, you can still get the money back. So I could have no tax liability whatsoever and still get a $5,000 refund. That's what that means. Um, this one actually will be really nice for beauty pros charitable contributions starting in 2026. So not this year in 2025, which we'll file next year, but starting January 1st next year, you can get a $1,000 deduction.
Wow. OK.
even if you don't itemize. And that's ⁓ really never been the case. You've always had to itemize. And just for those who don't know what itemizing is, ⁓ you have the option to either take what's called the standard deduction, which is just like a flat rate, or you can go in and give a bunch of details about state and local taxes, charitable contributions, mortgage interest. So you possibly like medical expenses, things like that. And then,
If all of those things added up together are more than the standard deduction, then you do what we call itemizing. ⁓

(03:40):
I mean, in
California, and most of our listeners are in California and New York, ⁓ followed closely by Texas and Florida, but in California and New York states, we have heavy state and local taxes. So most people here are itemizing.
Absolutely.
Yeah. With the prior tax laws that they did in 2018, they doubled the standard deduction. And so because of that, we went to having like 75 % or something of Americans no longer itemize. So most people as a whole are taking that standard deduction.
And so they haven't been able to deduct charitable contributions since then. There was like a little exception during COVID. ⁓ But I think this is really nice, ⁓ a good incentive if people want to contribute to causes that they care about and get a little bit of a benefit without having to itemize.
For your California and New York listeners, they'll be interested to know that the state and local taxes that you can deduct when you itemize for the past, since 2018, however many years that's been, that was limited to $10,000, which if you live in California, know, yeah, you.
Yes, which was a killer, which was a killer.
It was basically a gigantic middle finger to California and New York. Now I'm no fan of high taxes, I'm, you know, state taxes. I'm from Texas, you know, I was born and raised in a tax free state, but I've been living in California for 35 years. And of course I hate the taxes here in California. So that was a big, you know, middle finger to, the high tax states.
Absolutely. But they did adjust it slightly and now they've increased it from $10,000 to $40,000. So at least it's something more. I think for...
Yeah, it's huge. So mortgage
deductions, you know, big deal, right? Especially in the places like New York and California, where the cost of even a cheap house is like a million bucks. It's insane. Right. And so everybody's got ⁓ a mortgage on that. And so the mortgage interest that everybody's paying on that big mortgage ⁓ used to be deductible. And then they, then they reduce the deductibility of it. Right.
Exactly. Yeah.
And now they've increased the deductibility of it. And did I say that accurately?
Yeah. So I'm talking about
property taxes. You're talking about mortgage interest. Um, but the, the mortgage interest is still not great. Um, they, for, for people that are in high cost of living States, cause you're right, you could have a million dollar home and still risk getting shot, walking down the street because you're in such a credit neighborhood. But, um, I, I grew up in the San Francisco Bay area to be clear. Like that's where I, uh,
well both, yeah.
Okay. I was going to say,
says the CPA from Utah, but you're from the Bay area. Okay.
Yeah, but anyways, I and
I go back there all the time to visit family and I know what it's like and it's a it's a very expensive ⁓ lifestyle there. So point being is. It the cap is $750,000 that they will let you. Deduct for mortgage interest, so if you have a loan for a million dollars.
then you have to kind of like figure out what was the portion of that related to the 750 versus over, and then it gets limited to that first 750. So that is a bummer for sure.

(04:01):
Okay, so no change to that. And got it. Okay, so I was confused. I apologize for that. So the property tax, that there is a benefit in the big, beautiful bill related to the property tax. Yes, okay. Which similarly, like you described, can be a big deal in the high ⁓ price housing states.
Yes.
Yeah. Because it's not just property taxes, it's also income tax, sales tax, all of these like state and local taxes all get added up on that form. ⁓ And as you would know in California, I mean, you'd be lucky to get under a $10,000 threshold. don't know that I saw it on any of our California clients. No. Yeah.
Not one. You didn't see it once. Yeah, I know.
That was the big middle finger. Okay, so now it's 40, and that's awesome. Yeah.
No, it's 40. Yeah. And so I think
for a lot of like average Americans, they'll probably end up below that threshold and maybe some high income earners might still, there's something called a pass-through entity tax, which is kind of like a workaround to this. So if you're like a high income taxpayer, you might still want to chat with your CPA about that. But I think most people will be fine now with the 40K cap.
Okay, what else? Any other grab bags of goodies?
⁓
If you want a tax deduction for an electric vehicle, buy it by September 30th of this year, because that credit's going away. That's $7,500 credit.
I have an electric vehicle, but I bought it in 2024.
So you should have already got the tax credit for when you filed. Yeah.
challenge my CPA to make sure that I got it. No, I did get it. I remember.
Yeah. They're increasing standard deductions overall. ⁓ And they, the tax brackets that we were talking about earlier in 2018, they basically lowered all of the brackets and they've made the rates associated with those numbers permanent. The, and what I say by that is like, you're in the 10 % tax bracket, you're in the 22%, like whatever, those numbers are now permanent.
What is never permanent and changes every year is the incomes that are associated with the different percentages. ⁓
Right.
So I think the second bracket tops out at 47,000. So that the 47,000 can change. Yeah.
Sure. Yeah. And it
does every year with inflation. So it might get a little bit higher every year. ⁓ Pretty much the only downer piece of information for ⁓ beauty pros that I know will impact my clients is there were some COVID era tax credits associated with the health insurance premiums and those are expiring and there was nothing
in the law about preserving those. So we'll see TBD, what the new ⁓ premium insurance rates will be. But if you rely on the exchange, like healthcare.gov or something like that, I think you can expect to higher health insurance premiums. So take your 7,400 ⁓ tax credits and deductions from the tips and maybe save some of it for health insurance.
There you go. Okay. Any others that we need to talk about? This is great. I mean, this is, ⁓ I feel really good about this big and beautiful bill.

(04:22):
Maybe only one more which is something called a Trump account and it's
Shut up. I
haven't heard about this. It's called the Trump account?
They are called
Trump accounts. That's the official name of them. They are investment accounts for babies born between 2025 and 2028.
Yes, I did hear about this.
So my understanding.
I didn't know.
I read about this. I don't remember it being called a Trump. Maybe I thought they were kidding. Okay, keep going. Sorry.
Um, but basically the idea behind it is that, um, the government's going to put a thousand dollars in this investment account and then, um, family members are welcome to also contribute to it. Um, and I think it's a, an interesting thing to do considering the time value of money and, putting money in a baby's account for a thousand dollars that can't be touched until they're at least 18. What a great way to start funding, uh, long-term wealth and education.
This has been a big topic for many years. A lot of big name people have come out and said, instead of the government paying a certain amount of money for adults who need it, you know, when they get older, why doesn't the government just put in a much smaller amount of money when they're born? And then this goes into an SMP 500 index account or something like that. And theoretically, you know,
rides the appreciation of the value of the US economy vis-a-vis the S &P 500, you know, stocks, and for the benefit of this one human who started as a little baby. And, you know, if anybody looks at a chart of the S &P 500 going back decades, there's very few, maybe zero decades where the number wasn't high, the value wasn't higher at the end as it was in the beginning.
So, you if you imagine that, and I think that there are certain elements of this where like when the kid turns 18, then maybe they get maybe a little bit or they can draw it or whatever. So, but the idea is to essentially create these, ⁓ I mean, I almost wanna call it a retirement account at birth. It's kinda like that, isn't it?
Essentially, I if you're not pulling those funds out, I think there is the ability to pull it out for education. ⁓ but if it doesn't get pulled out at that point, then. We're looking at a retirement account and I mean, that could be worth quite a bit by the time you're 65.
keeps going.
mean, right? Amazing. I mean, it makes Social Security laughable in comparison, especially if Social Security is not held separate in an account and we all know that it's gonna be there when we get older. ⁓ This supposedly is a separate account and it is ⁓ the asset of the baby as the baby turns into an adult and gets on in years.
I think theoretically it's amazing. ⁓ The government does a good job of screwing things up. I'll, you know, we'll wait and see if they screw this one up. But I think it's really cool. I didn't know that it's called a Trump account, which is absurd, which of course is going to make 50 % of the people hate it, even if it's great, you know, but okay.
Is this true?
I think what's really cool about it is that
You can, as a parent, put money into it. A grandparent can put money into it. So there are other things like 529 plans that people can put money into, but there's, think, a little bit more stipulations on how those funds are spent and then what happens to them if you don't use them for education. So it seems like this account is a little bit better in terms of some flexibilities and how great that, as you pointed out.
Amazing.

(04:43):
Education.
It doesn't need to all get used for education. Okay, this can just continue to grow and accrue over the years. ⁓ Are your only other option in terms of getting a tax advantaged account, I guess specifically you can put money in a brokerage fund whenever you want for a child, but for a tax advantaged account, you have to wait until your child is old enough that they can work and then they can start contributing to like a Roth IRA. Yeah.
Roth IRA, IRA. Yeah,
this is just, this makes so much more sense. You get all the compounding starting, you know, very early. So I am curious, is there any, what is the taxability? What is the taxable nature of this asset when you start to draw on it? You know, $1,000 is gonna turn into whatever, $300,000 by the time they're 65, 70 years old and.
So what's the taxability there?
Yeah, so I believe it functions similar to like a traditional IRA where the growth is taxable, but the initial investment is not.
The thousand dollar. Like who cares about that? Okay. Amazing. This is great. Anything else?
sure.
Those are the big ones.
Okay, well hopefully we've fully confused the listeners and we've only added to the questions that they have, but of course they can then focus those questions towards their CPAs. And of course everybody should have a CPA helping them. Even if you don't think that you make enough money, I think it really, really behooves you to have a CPA helping you out because you could get some advantages. ⁓
The advantage pays for the accounting fees many times over. Wouldn't you say, Michelle Cook, CPA?
couldn't have said it better myself.
And look at that. I'm not even getting paid. I'm just a humble podcast host here. All right. You are small business CPA on Instagram. You're Carter, Carter Cook CPAs with an S at the end.com on the worldwide interweb. Thank you so much, Michelle. Great to see you.
Thank you.

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Ep. 415 • How Big & Beautiful Is the New Bill for Hairdressers? w/ Michelle Cook

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Ep. 415 • How Big & Beautiful Is the New Bill for Hairdressers? w/ Michelle Cook