July 3, 2025 • 22 mins
In this must-watch episode of the Profitable Painter Podcast, Richard Dunton, Enrolled Agent and Advising Director for Profitable Painter CPA, breaks down the controversial House Resolution No. 1 (HR 1), the so-called "One Big Beautiful Bill", and how it could drastically impact your taxes, deductions, and bottom line as a small business owner.
🔹 Will the government raise taxes in 2025?
🔹 Hidden pitfalls in the new tax bill, what they’re NOT telling you!
🔹 Child tax credits, overtime rules, and SALT deductions, will you win or lose?
🔹 100% bonus depreciation is BACK (but for how long?)
🔹 The #1 tax strategy every painting business owner MUST know before 2026!
This isn’t just politics, it’s your money, your business, and your future. Whether HR 1 passes or fails, you need to act NOW to avoid a nasty surprise at tax time.
📢 WARNING: The information in this episode could save you thousands. Don’t wait until it’s too late, watch now and prepare!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the Profitable Painter Podcast.
The mission of this podcast issimple to help you navigate the
financial and tax aspects ofstarting, running and scaling a
professional painting business,from the brushes and ladders to
the spreadsheets and balancesheets.
We've got you covered.
But before we dive in, a quickword of caution While we strive
to provide accurate andup-to-date financial and tax
(00:20):
information, nothing you hear onthis podcast should be
considered as financial advicespecifically for you or your
business.
We're Hi.
This is Richard Dunton.
Speaker 2 (00:44):
I'm an enrolled agent and the advising director for
Profitable Painter CPA, andtoday is a special episode of
the Profitable Painter podcast.
We are going to talk aboutHouse Resolution no 1, better
known as the One Big BeautifulBill, what it means for you as a
small business owner, and howthis bill is going to change as
(01:06):
it makes its way through theSenate.
Now, this is a very politicallycharged bill and there is a lot
in there.
We're just going to focus onthe tax implications for small
business owners.
We're also going to look atwhat happens if this bill does
not pass.
What is that going to mean foryou?
If this bill does not pass,what is that going to mean for
you?
And we'll talk about what youshould be doing right now to
(01:27):
prepare for 2025.
So let's go ahead and jump intoit.
If you haven't heard about twoweeks ago, the House did pass HR
1 by a narrow margin.
It was one vote that allowedthis to move through, and now
the bill is with the Senate.
This to move through, and nowthe bill is with the Senate.
The Senate is making its owntweaks and adjustments and they
(01:48):
will have a vote on theirversion pretty soon.
So a lot can happen between nowand then, and a lot is
certainly going to change beforeand if it hits the desk of the
president to be signed into law.
But why do we even need to havethis kind of tax reform right
now, in 2025?
This all goes back to the TaxCuts and Jobs Act of 2017.
(02:11):
Now, this was the largest taxreform that this country has
seen since 1986, under PresidentRonald Reagan, and it
drastically changed how you andI, and even big corporations,
pay their taxes.
There were a lot of benefitsfor everybody all around, but
there was one big key differencebetween the benefits that big
(02:34):
corporations received and thebenefits that small businesses
and individuals received, andthat is the corporate tax cuts
were permanent, they were lockedin, but the tax cuts that you
(03:07):
and I received, those were setto expire after 10 years, and
now here we are at the bill, asthey wanted to, 10 years down
the road.
And so now today's Congress hasthat difficult responsibility
of deciding what has worked,what do they want to keep in and
what do they want to change,and, as you can imagine, there's
a lot of different opinions andideas of what we should
maintain and what we shouldjettison.
Now, why is it so importantthat we have something?
If nothing passes, theneverything reverts back to
(03:32):
before the Tax Cuts and Jobs Act, and that is going to mean an
immediate overnight increase inyour taxes.
So, for whatever flaws thesebills have and, believe me,
they're not perfect we don't goback to the pre-2017 tax system.
So let's talk about whatspecific areas are going to
affect you as a small businessowner.
(03:54):
We'll talk about the Houseversion, we'll talk about the
Senate version and we'll talkabout what happens if nothing
passes, so that you can be readyfor anything that might come
down the pipe.
All right.
Number one is the income taxbrackets themselves.
We still have seven differenttax brackets, but they are
significantly lower than the taxbrackets we had before the Tax
(04:16):
Cuts and Jobs Act.
So both versions started at 10%, but before 2017, it quickly
jumped up to 15, then up to 25,28, so forth and so on, until a
max of 39.6.
So after the Tax Cuts and JobsAct, we started at 10, but then
(04:36):
it only jumped up to 12, then itwent up to 22, and then so
forth and so on until it maxesat 37%.
So, if nothing passes, youwould see an immediate 2% to 3%
increase in your taxes, and thatis going to be thousands of
dollars for most folks.
Fortunately, both the House andthe Senate agree.
(04:58):
We want to keep the new taxbrackets, we don't want them to
revert to the old system and wewant to make them permanent.
So that is probably somethingthat has a very good chance of
coming out of the final version,because there seems to be a lot
of agreement on that.
Of course, nothing is writtenin stone until it's actually
signed.
Another big provision was thestandard deduction.
(05:21):
So if you remember, 10 yearsago, we had a much smaller
standard deduction.
We also had personal exemptionsback then that reduced your
taxable income.
Well, we got rid of thepersonal exemptions and we
doubled the standard deduction,and we've gotten used to that.
In 2025, the deduction is$15,000 for single and it's
(05:45):
$30,000 for a married couple.
If nothing passes, thatdeduction will get chopped in
half starting next year and thepersonal exemptions are not
coming back, so that would be ahuge blow to most folks.
The House bill wants to keep thestandard deduction at the
higher rate.
It also wants to boost it forthe next three years.
(06:09):
It wants to add an additional$1,000 if you're single and
$1,500 if you're married, andthis would last through 2028,
and then drop back to the ratethat is now adjusted for
inflation.
So not a bad deal.
And if you're a senior, you getan extra $4,000 on top of that.
(06:30):
So that's a pretty goodprovision of the House bill.
The Senate takes that andbuilds on it.
It says we're going to bump upthe standard deduction
immediately to $32,000, andwe're not going to let that
expire.
It's going to stay there andactually increase indexed for
inflation, and if you're asenior, you're going to get a
(06:51):
$6,000 bump up.
Now, some of these extras dophase out when you get into a
higher income, but for most MainStreet Americans, you're going
to be able to have the numbersthat we talked about.
So an increased standarddeduction does give you a
simpler return and allows you totake advantage of more tax
(07:11):
breaks.
Even if you don't own a homeand pay mortgage interest, even
if you live in a low propertytax state, even if you don't
have a lot of charitablecontributions, you can still get
that $32,000 standard deduction.
So that's something that we'recertainly hoping makes it into
the final version.
Another aspect of the bill hasto do with the child tax credit.
(07:35):
So before 2017, child taxcredit was $1,000 per child.
Tax Cuts and Jobs Act doubledthat to $2,000 per child.
We saw it bump up even higherduring COVID, but now it's back
down to its $2,000 limit.
Well, if nothing passes, itgoes back to $1,000.
(07:57):
That would be a big blow tofamilies who have a lot of
children.
If you have four children,that's a $4,000 difference and
remember, this is a tax credit.
So this is dollar for dollar inyour wallet.
This isn't a deduction.
This dollar for dollar reducesthe amount of tax you have to
pay.
So the house says they want toincrease the $2,000 up to 2,500,
(08:24):
and that would be for the nextfew years and after 2028, it
would drop back down to $2,000indexed for inflation.
The Senate bill says let'spermanently increase it to
$2,200 indexed for inflation.
So this is where the math getsa little tricky, but it feels
(08:46):
like it kind of comes out to thesame result for the most part.
Under the House bill, you wouldget a slightly higher bump, an
extra $300 per child, but onlyuntil 2028.
Then it would go back down to$2,000.
Under the Senate bill, youwould get $2,200 and it would
stay permanent.
So, whether this one, whetherthe House or the Senate bill
(09:09):
benefits you more has a lot todo with how old your kids are,
when you plan on having kids,but in the end they both seem to
be going in the right direction.
So families who have a lot ofchildren could really see a
meaningful impact on their taxreturn.
Let's talk about no tax on tipsand no tax on overtime.
(09:30):
This was big on the campaigntrail.
Both political parties werecampaigning for this and it
seemed like a little bit of apie in the sky.
Promise I'll be honest with you.
A lot of us accountants werewondering how could you ever
actually implement no tax ontips, no tax on overtime?
This is what the House ofRepresentatives came up with In
(09:55):
their bill.
There would be no tax on tips,but the tips must be voluntary.
So tips that are added to yourbill or to your receipt at a
restaurant would not qualify.
You must have the option of notpaying it to make it voluntary.
If a worker was to receive thatkind of voluntary tip, they
(10:17):
could deduct it from theirtaxable income and there would
be no cap on the limit of tipsthat could be deducted.
But there would be a phase-outwhere, if you make over $160,000
a year, this benefit would goaway, and that would apply
whether you're single or married.
How about the Senate version?
(10:38):
Well, they also have no tax ontips, but they would cap that at
a maximum of $25,000 of tips.
So if you have more than that,then you're out of luck and
there would be phase out at$150,000 for single or $300,000
AGI for married.
How about no tax on overtime?
(11:02):
The house has that provisionwhere if you have overtime that
is separately stated on your W-2, so it's different than your
regular wages then you couldhave no tax on that amount and
that would be okay as long asyour AGI was less than that
(11:24):
$160,000 for all filers.
The Senate does not haveanything in its reconciliation
bill about no tax on overtime.
However, there is a separatebill that would cover that being
debated right now, but that isa long way from being passed.
Now what does that mean for youas a business owner?
(11:45):
Because you probably don't geta lot of tips or overtime when
you own your own business.
Overtime when you own your ownbusiness, it might be good for
your employees, especially ifyou're allowing your customers
to give them tips for doing ajob well done or if you want to
incentivize them to work morethan 40 hours a week.
However, there is a bit of apitfall here I want you to be
(12:06):
aware of.
The no tax on overtime in theHouse bill requires that
overtime be separately stated onthe W-2, which means your
payroll is going to change.
You're going to have to makesure that when you run your
payroll you separate regularwages from overtime wages.
Otherwise your employees wouldhave to pay taxes on everything
(12:30):
they make, so there could be abit of an admin burden there.
We should be ready to handlethat if this comes through.
All right, let's talk about themost controversial part of this
bill and the part that iscausing the most debate and
problems among the Congressmembers themselves, and that is
(12:51):
the state and local taxdeduction.
So the idea behind this is thatif you make $200,000 and you
live in a high-tax state, like Ido here in Illinois, and you
pay $10,000 to the state, thefederal government says well,
you shouldn't be taxed on a full$200,000 because you had to
(13:13):
give $10,000 to the state.
We'll let you write that off.
That was the way it had beenfor a long, long time.
Then comes the Tax Cuts andJobs Act and they said well, we
got to pay for some of theseother tax breaks that we're
giving.
Let's take away some of thisstate and local tax deduction,
(13:35):
some of this state and local taxdeduction.
So if you ever hear the acronymSALT, that stands for state and
local tax.
So it's okay, you can still dothis, you can still itemize, but
we're going to cap it at nomore than $10,000.
If you live in a low income taxstate or a no income tax state
like Florida and Texas,tennessee, this doesn't really
affect you.
You're not paying state incometax anyway.
(13:55):
But if you're in California,illinois, new York or other
places that have a state incometax, you're going to want to
write those off the best you can.
Now we've been getting aroundthis with pass-through entity
tax for all of you, partnershipsand S-Corps out there One of my
favorite tax strategies, and ifyou're not doing that you
(14:15):
should be.
Give me a call, we'll get thisset up for you.
But with the House bill theywould increase that cap from
$10,000 all the way up to$40,000, which would make
pass-through entity strategykind of irrelevant.
It would also put a specificlimit on the pass-through entity
(14:36):
strategy, so it's not quite asvaluable, but we'd still be
using it when we could.
Now the Senate they're a littlebit less aggressive.
This is where the controversycomes in.
There's a lot more senatorsfrom states with no income tax,
so this is not something that'simportant to them.
So they say we want to keep thecurrent cap at $10,000.
(14:58):
And if you don't like how muchyou're paying in state tax, well
then you should go tell yourstate representative to stop
taxing you so much.
Good luck with that.
So this is where there's a lotof fighting, and there are
members of both the House andthe Senate who have said that
they will not vote for this billunless they can get their way
on this.
So we'll have to see how thisworks out.
(15:19):
I'm not super worried about itbecause as long as we still have
the pass-through entity taxdeduction, that's going to help
a lot of you S-corp ownersaround this.
But I would love to see a full$40,000.
Actually, I'd love to see nocap at all, but $40,000 is
pretty good for mostmiddle-income folks.
So we'll have to keep an eye onthis one.
(15:41):
This could get interesting.
All right, let's talk aboutstuff that is specific to
business.
One of the best parts of the TaxCuts and Jobs Act was 100%
bonus depreciation.
Now I won't bore you withaccelerated depreciation in
Section 179 and Maycars, butbasically 100% bonus
(16:03):
depreciation allowed businessowners to fully deduct the cost
of vehicles and equipment in thefirst year.
So this was huge.
You buy yourself a new truckfor work, you buy yourself a new
sprayer or some new scaffolding.
Instead of having to wait five,seven years to write this off,
you are knocking it out in yearone.
(16:23):
Now this was set to phase outand it has been.
It went from 100% down to 80%,down to 60% and now we're
looking at 40% bonusdepreciation in 2025.
Both the House and the Senateversions of the bill would bring
back 100% bonus depreciationretroactive to January of 2025.
(16:47):
So this is huge.
It means if you boughtequipment in this year or you're
going to buy equipment in thisyear and maybe you need to have
a conversation with your taxprofessional to see you know in
November or December do we wantto buy something, that means you
can write the entire thing offand get that deduction up front.
Now the difference between theHouse and the Senate is the
(17:09):
House bill would bring this back, but only through December 31st
2029.
Then it would go away again.
The Senate bill would make thispermanent and we don't have to
do this song and dance againevery five years.
So this is huge for companiesthat have a lot of big capital
investments.
So painting businesses maybenot so much, but you've
(17:32):
definitely got vehicles as a bigone and sprayers and ladders
and scaffolding, so this is onethat you can benefit from, and
you might have some other thingsgoing on in your life involving
real estate or other businesseswhere you definitely want to
benefit from this.
All right.
Finally, we've got the qualifiedbusiness income deduction.
(17:54):
This is a beauty for smallbusinesses.
This allows you to write off20% of your business income from
your federal taxable income.
This is an above-the-linededuction, so if you make
$100,000 in your paintingbusiness, you are only going to
(18:16):
pay taxes on $80,000 of that.
Big boon to those who areself-employed and have small
business.
This was one of the best partsof the Tax Cuts and Jobs Act.
I think I might have said thatabout some of these other ones
too, but they're all really good.
We want them to stick around.
Unfortunately, this would goaway at the end of 2025, which
(18:36):
would mean a huge tax increasefor self-employed folks folks.
So the house provides that thiswould stick around and it also
increases it to 23% through theend of 2029.
And then we get to do this allover again.
It also would simplify thephase-in rules for the wage and
(18:58):
investment limitations.
In plain English, once youstart getting to certain levels,
your QBI deduction is limitedbased on how much you pay out to
your employees and wages or howmuch you reinvest in the
economy.
So that way, if you're gettinga big tax break, you're also
putting money back into thesystem.
(19:19):
This would help simplify thatand make it available to more
folks who make more money.
So those are good things.
The Senate version also keepsthe QBI deduction.
It does not increase it.
It keeps it at 20% where it isnow, but it makes it permanent.
No more song and dance afterfive years.
It is what it is and we cancount on it.
(19:41):
What it is and we can count onit.
It would also provide a minimumdeduction of $400 for very
small businesses who don't havea lot of profit yet.
So that would be very nice forthose of us who are maybe
freelancing or have side gigs,who maybe haven't built our big
business yet.
We can at least get a certainminimum deduction, kind of like
(20:03):
a reward for contributing backinto the economy.
If this was to go away, itwould be terrible.
Many small business ownerswould face an immediate 20%
effective income increaseovernight, because you're no
longer being able to write thatoff.
So this is something that wedefinitely want to see.
Stick around, all right.
(20:25):
So we talked about sevendifferent aspects of HR 1 or the
big beautiful bill.
What is the reality here?
Well, the reality is we'retalking about politics, and
there is a lot more going onhere than just tax cuts.
We've got other spending, we'vegot immigration, we've got
energy.
Politics is fraught with a lotof different viewpoints and,
(20:48):
especially nowadays, we don'tknow how things are going to go.
So what we do know is that weneed something, because we don't
want to go back to before, tothe way things were before.
Tax law changes rarely happen inisolation, so, regardless of
your political opinions, there'sprobably going to be some
things that we have to hold ournose on, and keeping in mind
(21:11):
that what's proposed and whatactually gets passed is often
miles apart.
So what should you do now,right?
Should we panic?
No, you should stay calm, butstay informed, right?
Being well-informed is beingprepared.
So 2025 is a very important yearfor tax planning.
(21:31):
Don't wait until it's too late.
Don't wait until the end of theyear and please do not wait
until 2026 to start taking thisseriously, because once the year
is over, many of theseopportunities will be closed.
So talk to your taxprofessional, let them know what
you're thinking, have them keepyou up to date on the proposed
(21:53):
changes and then be ready tomake certain moves, especially
if that 100% bonus depreciationcomes back.
That's going to benefit yourbusiness and help you pay the
least amount of tax as possible.
If you have questions about this, or if you just want to let me
know what your favorite parts ofthe proposed bill are or the
parts that you don't like, youcan go to our Facebook group.
(22:16):
It's called Grow your PaintingBusiness.
Just search for it there onFacebook.
We'll be happy to let you inand you can join the discussion
there.
We would love to hear from youand we'd love to hear any
possible future episodes of thepodcast that you'd like to hear.
But until then, thank you forlistening to this special
episode and I hope you have agreat day.
(22:37):
We will see you on the nextepisode.
Welcome to the Profitable Painter Podcast.
The mission of this podcast issimple to help you navigate the
financial and tax aspects ofstarting, running and scaling a
professional painting business,from the brushes and ladders to
the spreadsheets and balancesheets.
We've got you covered.
But before we dive in, a quickword of caution While we strive
to provide accurate andup-to-date financial and tax
(00:20):
information, nothing you hear onthis podcast should be
considered as financial advicespecifically for you or your
business.
We're Hi.
This is Richard Dunton.
Speaker 2 (00:44):
I'm an enrolled agent and the advising director for
Profitable Painter CPA, andtoday is a special episode of
the Profitable Painter podcast.
We are going to talk aboutHouse Resolution no 1, better
known as the One Big BeautifulBill, what it means for you as a
small business owner, and howthis bill is going to change as
(01:06):
it makes its way through theSenate.
Now, this is a very politicallycharged bill and there is a lot
in there.
We're just going to focus onthe tax implications for small
business owners.
We're also going to look atwhat happens if this bill does
not pass.
What is that going to mean foryou?
If this bill does not pass,what is that going to mean for
you?
And we'll talk about what youshould be doing right now to
(01:27):
prepare for 2025.
So let's go ahead and jump intoit.
If you haven't heard about twoweeks ago, the House did pass HR
1 by a narrow margin.
It was one vote that allowedthis to move through, and now
the bill is with the Senate.
This to move through, and nowthe bill is with the Senate.
The Senate is making its owntweaks and adjustments and they
(01:48):
will have a vote on theirversion pretty soon.
So a lot can happen between nowand then, and a lot is
certainly going to change beforeand if it hits the desk of the
president to be signed into law.
But why do we even need to havethis kind of tax reform right
now, in 2025?
This all goes back to the TaxCuts and Jobs Act of 2017.
(02:11):
Now, this was the largest taxreform that this country has
seen since 1986, under PresidentRonald Reagan, and it
drastically changed how you andI, and even big corporations,
pay their taxes.
There were a lot of benefitsfor everybody all around, but
there was one big key differencebetween the benefits that big
(02:34):
corporations received and thebenefits that small businesses
and individuals received, andthat is the corporate tax cuts
were permanent, they were lockedin, but the tax cuts that you
(03:07):
and I received, those were setto expire after 10 years, and
now here we are at the bill, asthey wanted to, 10 years down
the road.
And so now today's Congress hasthat difficult responsibility
of deciding what has worked,what do they want to keep in and
what do they want to change,and, as you can imagine, there's
a lot of different opinions andideas of what we should
maintain and what we shouldjettison.
Now, why is it so importantthat we have something?
If nothing passes, theneverything reverts back to
(03:32):
before the Tax Cuts and Jobs Act, and that is going to mean an
immediate overnight increase inyour taxes.
So, for whatever flaws thesebills have and, believe me,
they're not perfect we don't goback to the pre-2017 tax system.
So let's talk about whatspecific areas are going to
affect you as a small businessowner.
(03:54):
We'll talk about the Houseversion, we'll talk about the
Senate version and we'll talkabout what happens if nothing
passes, so that you can be readyfor anything that might come
down the pipe.
All right.
Number one is the income taxbrackets themselves.
We still have seven differenttax brackets, but they are
significantly lower than the taxbrackets we had before the Tax
(04:16):
Cuts and Jobs Act.
So both versions started at 10%, but before 2017, it quickly
jumped up to 15, then up to 25,28, so forth and so on, until a
max of 39.6.
So after the Tax Cuts and JobsAct, we started at 10, but then
(04:36):
it only jumped up to 12, then itwent up to 22, and then so
forth and so on until it maxesat 37%.
So, if nothing passes, youwould see an immediate 2% to 3%
increase in your taxes, and thatis going to be thousands of
dollars for most folks.
Fortunately, both the House andthe Senate agree.
(04:58):
We want to keep the new taxbrackets, we don't want them to
revert to the old system and wewant to make them permanent.
So that is probably somethingthat has a very good chance of
coming out of the final version,because there seems to be a lot
of agreement on that.
Of course, nothing is writtenin stone until it's actually
signed.
Another big provision was thestandard deduction.
(05:21):
So if you remember, 10 yearsago, we had a much smaller
standard deduction.
We also had personal exemptionsback then that reduced your
taxable income.
Well, we got rid of thepersonal exemptions and we
doubled the standard deduction,and we've gotten used to that.
In 2025, the deduction is$15,000 for single and it's
(05:45):
$30,000 for a married couple.
If nothing passes, thatdeduction will get chopped in
half starting next year and thepersonal exemptions are not
coming back, so that would be ahuge blow to most folks.
The House bill wants to keep thestandard deduction at the
higher rate.
It also wants to boost it forthe next three years.
(06:09):
It wants to add an additional$1,000 if you're single and
$1,500 if you're married, andthis would last through 2028,
and then drop back to the ratethat is now adjusted for
inflation.
So not a bad deal.
And if you're a senior, you getan extra $4,000 on top of that.
(06:30):
So that's a pretty goodprovision of the House bill.
The Senate takes that andbuilds on it.
It says we're going to bump upthe standard deduction
immediately to $32,000, andwe're not going to let that
expire.
It's going to stay there andactually increase indexed for
inflation, and if you're asenior, you're going to get a
(06:51):
$6,000 bump up.
Now, some of these extras dophase out when you get into a
higher income, but for most MainStreet Americans, you're going
to be able to have the numbersthat we talked about.
So an increased standarddeduction does give you a
simpler return and allows you totake advantage of more tax
(07:11):
breaks.
Even if you don't own a homeand pay mortgage interest, even
if you live in a low propertytax state, even if you don't
have a lot of charitablecontributions, you can still get
that $32,000 standard deduction.
So that's something that we'recertainly hoping makes it into
the final version.
Another aspect of the bill hasto do with the child tax credit.
(07:35):
So before 2017, child taxcredit was $1,000 per child.
Tax Cuts and Jobs Act doubledthat to $2,000 per child.
We saw it bump up even higherduring COVID, but now it's back
down to its $2,000 limit.
Well, if nothing passes, itgoes back to $1,000.
(07:57):
That would be a big blow tofamilies who have a lot of
children.
If you have four children,that's a $4,000 difference and
remember, this is a tax credit.
So this is dollar for dollar inyour wallet.
This isn't a deduction.
This dollar for dollar reducesthe amount of tax you have to
pay.
So the house says they want toincrease the $2,000 up to 2,500,
(08:24):
and that would be for the nextfew years and after 2028, it
would drop back down to $2,000indexed for inflation.
The Senate bill says let'spermanently increase it to
$2,200 indexed for inflation.
So this is where the math getsa little tricky, but it feels
(08:46):
like it kind of comes out to thesame result for the most part.
Under the House bill, you wouldget a slightly higher bump, an
extra $300 per child, but onlyuntil 2028.
Then it would go back down to$2,000.
Under the Senate bill, youwould get $2,200 and it would
stay permanent.
So, whether this one, whetherthe House or the Senate bill
(09:09):
benefits you more has a lot todo with how old your kids are,
when you plan on having kids,but in the end they both seem to
be going in the right direction.
So families who have a lot ofchildren could really see a
meaningful impact on their taxreturn.
Let's talk about no tax on tipsand no tax on overtime.
(09:30):
This was big on the campaigntrail.
Both political parties werecampaigning for this and it
seemed like a little bit of apie in the sky.
Promise I'll be honest with you.
A lot of us accountants werewondering how could you ever
actually implement no tax ontips, no tax on overtime?
This is what the House ofRepresentatives came up with In
(09:55):
their bill.
There would be no tax on tips,but the tips must be voluntary.
So tips that are added to yourbill or to your receipt at a
restaurant would not qualify.
You must have the option of notpaying it to make it voluntary.
If a worker was to receive thatkind of voluntary tip, they
(10:17):
could deduct it from theirtaxable income and there would
be no cap on the limit of tipsthat could be deducted.
But there would be a phase-outwhere, if you make over $160,000
a year, this benefit would goaway, and that would apply
whether you're single or married.
How about the Senate version?
(10:38):
Well, they also have no tax ontips, but they would cap that at
a maximum of $25,000 of tips.
So if you have more than that,then you're out of luck and
there would be phase out at$150,000 for single or $300,000
AGI for married.
How about no tax on overtime?
(11:02):
The house has that provisionwhere if you have overtime that
is separately stated on your W-2, so it's different than your
regular wages then you couldhave no tax on that amount and
that would be okay as long asyour AGI was less than that
(11:24):
$160,000 for all filers.
The Senate does not haveanything in its reconciliation
bill about no tax on overtime.
However, there is a separatebill that would cover that being
debated right now, but that isa long way from being passed.
Now what does that mean for youas a business owner?
(11:45):
Because you probably don't geta lot of tips or overtime when
you own your own business.
Overtime when you own your ownbusiness, it might be good for
your employees, especially ifyou're allowing your customers
to give them tips for doing ajob well done or if you want to
incentivize them to work morethan 40 hours a week.
However, there is a bit of apitfall here I want you to be
(12:06):
aware of.
The no tax on overtime in theHouse bill requires that
overtime be separately stated onthe W-2, which means your
payroll is going to change.
You're going to have to makesure that when you run your
payroll you separate regularwages from overtime wages.
Otherwise your employees wouldhave to pay taxes on everything
(12:30):
they make, so there could be abit of an admin burden there.
We should be ready to handlethat if this comes through.
All right, let's talk about themost controversial part of this
bill and the part that iscausing the most debate and
problems among the Congressmembers themselves, and that is
(12:51):
the state and local taxdeduction.
So the idea behind this is thatif you make $200,000 and you
live in a high-tax state, like Ido here in Illinois, and you
pay $10,000 to the state, thefederal government says well,
you shouldn't be taxed on a full$200,000 because you had to
(13:13):
give $10,000 to the state.
We'll let you write that off.
That was the way it had beenfor a long, long time.
Then comes the Tax Cuts andJobs Act and they said well, we
got to pay for some of theseother tax breaks that we're
giving.
Let's take away some of thisstate and local tax deduction,
(13:35):
some of this state and local taxdeduction.
So if you ever hear the acronymSALT, that stands for state and
local tax.
So it's okay, you can still dothis, you can still itemize, but
we're going to cap it at nomore than $10,000.
If you live in a low income taxstate or a no income tax state
like Florida and Texas,tennessee, this doesn't really
affect you.
You're not paying state incometax anyway.
(13:55):
But if you're in California,illinois, new York or other
places that have a state incometax, you're going to want to
write those off the best you can.
Now we've been getting aroundthis with pass-through entity
tax for all of you, partnershipsand S-Corps out there One of my
favorite tax strategies, and ifyou're not doing that you
(14:15):
should be.
Give me a call, we'll get thisset up for you.
But with the House bill theywould increase that cap from
$10,000 all the way up to$40,000, which would make
pass-through entity strategykind of irrelevant.
It would also put a specificlimit on the pass-through entity
(14:36):
strategy, so it's not quite asvaluable, but we'd still be
using it when we could.
Now the Senate they're a littlebit less aggressive.
This is where the controversycomes in.
There's a lot more senatorsfrom states with no income tax,
so this is not something that'simportant to them.
So they say we want to keep thecurrent cap at $10,000.
(14:58):
And if you don't like how muchyou're paying in state tax, well
then you should go tell yourstate representative to stop
taxing you so much.
Good luck with that.
So this is where there's a lotof fighting, and there are
members of both the House andthe Senate who have said that
they will not vote for this billunless they can get their way
on this.
So we'll have to see how thisworks out.
(15:19):
I'm not super worried about itbecause as long as we still have
the pass-through entity taxdeduction, that's going to help
a lot of you S-corp ownersaround this.
But I would love to see a full$40,000.
Actually, I'd love to see nocap at all, but $40,000 is
pretty good for mostmiddle-income folks.
So we'll have to keep an eye onthis one.
(15:41):
This could get interesting.
All right, let's talk aboutstuff that is specific to
business.
One of the best parts of the TaxCuts and Jobs Act was 100%
bonus depreciation.
Now I won't bore you withaccelerated depreciation in
Section 179 and Maycars, butbasically 100% bonus
(16:03):
depreciation allowed businessowners to fully deduct the cost
of vehicles and equipment in thefirst year.
So this was huge.
You buy yourself a new truckfor work, you buy yourself a new
sprayer or some new scaffolding.
Instead of having to wait five,seven years to write this off,
you are knocking it out in yearone.
(16:23):
Now this was set to phase outand it has been.
It went from 100% down to 80%,down to 60% and now we're
looking at 40% bonusdepreciation in 2025.
Both the House and the Senateversions of the bill would bring
back 100% bonus depreciationretroactive to January of 2025.
(16:47):
So this is huge.
It means if you boughtequipment in this year or you're
going to buy equipment in thisyear and maybe you need to have
a conversation with your taxprofessional to see you know in
November or December do we wantto buy something, that means you
can write the entire thing offand get that deduction up front.
Now the difference between theHouse and the Senate is the
(17:09):
House bill would bring this back, but only through December 31st
2029.
Then it would go away again.
The Senate bill would make thispermanent and we don't have to
do this song and dance againevery five years.
So this is huge for companiesthat have a lot of big capital
investments.
So painting businesses maybenot so much, but you've
(17:32):
definitely got vehicles as a bigone and sprayers and ladders
and scaffolding, so this is onethat you can benefit from, and
you might have some other thingsgoing on in your life involving
real estate or other businesseswhere you definitely want to
benefit from this.
All right.
Finally, we've got the qualifiedbusiness income deduction.
(17:54):
This is a beauty for smallbusinesses.
This allows you to write off20% of your business income from
your federal taxable income.
This is an above-the-linededuction, so if you make
$100,000 in your paintingbusiness, you are only going to
(18:16):
pay taxes on $80,000 of that.
Big boon to those who areself-employed and have small
business.
This was one of the best partsof the Tax Cuts and Jobs Act.
I think I might have said thatabout some of these other ones
too, but they're all really good.
We want them to stick around.
Unfortunately, this would goaway at the end of 2025, which
(18:36):
would mean a huge tax increasefor self-employed folks folks.
So the house provides that thiswould stick around and it also
increases it to 23% through theend of 2029.
And then we get to do this allover again.
It also would simplify thephase-in rules for the wage and
(18:58):
investment limitations.
In plain English, once youstart getting to certain levels,
your QBI deduction is limitedbased on how much you pay out to
your employees and wages or howmuch you reinvest in the
economy.
So that way, if you're gettinga big tax break, you're also
putting money back into thesystem.
(19:19):
This would help simplify thatand make it available to more
folks who make more money.
So those are good things.
The Senate version also keepsthe QBI deduction.
It does not increase it.
It keeps it at 20% where it isnow, but it makes it permanent.
No more song and dance afterfive years.
It is what it is and we cancount on it.
(19:41):
What it is and we can count onit.
It would also provide a minimumdeduction of $400 for very
small businesses who don't havea lot of profit yet.
So that would be very nice forthose of us who are maybe
freelancing or have side gigs,who maybe haven't built our big
business yet.
We can at least get a certainminimum deduction, kind of like
(20:03):
a reward for contributing backinto the economy.
If this was to go away, itwould be terrible.
Many small business ownerswould face an immediate 20%
effective income increaseovernight, because you're no
longer being able to write thatoff.
So this is something that wedefinitely want to see.
Stick around, all right.
(20:25):
So we talked about sevendifferent aspects of HR 1 or the
big beautiful bill.
What is the reality here?
Well, the reality is we'retalking about politics, and
there is a lot more going onhere than just tax cuts.
We've got other spending, we'vegot immigration, we've got
energy.
Politics is fraught with a lotof different viewpoints and,
(20:48):
especially nowadays, we don'tknow how things are going to go.
So what we do know is that weneed something, because we don't
want to go back to before, tothe way things were before.
Tax law changes rarely happen inisolation, so, regardless of
your political opinions, there'sprobably going to be some
things that we have to hold ournose on, and keeping in mind
(21:11):
that what's proposed and whatactually gets passed is often
miles apart.
So what should you do now,right?
Should we panic?
No, you should stay calm, butstay informed, right?
Being well-informed is beingprepared.
So 2025 is a very important yearfor tax planning.
(21:31):
Don't wait until it's too late.
Don't wait until the end of theyear and please do not wait
until 2026 to start taking thisseriously, because once the year
is over, many of theseopportunities will be closed.
So talk to your taxprofessional, let them know what
you're thinking, have them keepyou up to date on the proposed
(21:53):
changes and then be ready tomake certain moves, especially
if that 100% bonus depreciationcomes back.
That's going to benefit yourbusiness and help you pay the
least amount of tax as possible.
If you have questions about this, or if you just want to let me
know what your favorite parts ofthe proposed bill are or the
parts that you don't like, youcan go to our Facebook group.
(22:16):
It's called Grow your PaintingBusiness.
Just search for it there onFacebook.
We'll be happy to let you inand you can join the discussion
there.
We would love to hear from youand we'd love to hear any
possible future episodes of thepodcast that you'd like to hear.
But until then, thank you forlistening to this special
episode and I hope you have agreat day.
(22:37):
We will see you on the nextepisode.
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