July 15, 2025 • 39 mins
In this special solo episode, Melissa Joy, CFP®, CDFA, breaks down the newly passed One Big, Beautiful Bill Act—yes, that’s really the name!
Signed into law on July 4th, this sweeping piece of legislation (affectionately nicknamed “OB3”) will impact everything from your tax brackets to your charitable deductions, and much more in between.
Whether you’re a retiree, parent, small business owner, or high earner, Melissa walks through what’s changing, what’s staying, and what you need to know to navigate the financial road ahead.
⚖️ Key Topics Covered:
- 🧾 Tax Brackets & Deductions: 2017 rates are now made “permanent,” with small tweaks and no sunset provisions—yet.
- 👵🏽 Seniors Win Big: A new $6,000 deduction and reduced taxation on Social Security (but only for four years…for now).
- 👶🏽 Families with Kids: Increased child tax credit and the introduction of a new “Trump Account” for minors.
- 🏠 Homeowners & Itemizers: Mortgage interest deduction remains capped at $750K—but now includes mortgage insurance premiums.
- 💸 SALTs Revived: The state and local tax deduction cap is increased to $40,000 for many, offering potential relief for homeowners in high-tax states.
- 🍽️ Tipped & Hourly Workers: Temporary deductions for tips and overtime income, subject to income thresholds.
- 🚗 New Car Loan Deduction: But only for U.S.-assembled vehicles purchased after 2024 and under strict income limits.
- 🌱 Clean Energy Credits: Act fast—many are phasing out earlier than expected.
- 🏛️ Estate & AMT Revisions: Estate tax exemptions rise to $15M per person in 2026, and AMT thresholds shift downward.
- 👩🏽💼 Small Business Owners: Expanded access to deductions like Section 179, QBI (199A), family leave credits, and retirement plan incentives.
- 🎓 Student Loans & 529s: Parent PLUS loans capped; 529 plans expanded for apprenticeships, therapy, and some non-degree programs.
📬 Resources Mentioned:
The previous presentation by PEARL PLANNING was intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from PEARL PLANNING or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither PEARL PLANNING’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. PEARL PLANNING is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. A copy of PEARL PLANNING’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https:...
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome to the Women's Money Wisdom Podcast.
I'm Melissa Joy, a certifiedfinancial planner and the
founder of Pearl Planning.
My goal is to help youstreamline and organize your
finances, navigate big moneydecisions with confidence and be
strategic in order to grow yourwealth.
As a woman, you work hard foryour money and I'm here to help
(00:21):
you make the most of it.
Now let's get into the show.
Welcome back to the Women'sMoney Wisdom Podcast.
We are going to get needy andwe're going to talk, have a
(00:44):
conversation that I thinkaffects any of you who are US
citizens paying US taxes.
We're going to talk about theOne Big, beautiful Bill Act yes,
that is the name and I'm goingto tell you a lot of things that
you should be looking out for,just so you understand how you
could benefit or be affected bythe new legislation.
I'm mainly looking at moneymatters and I'm really focusing
(01:06):
mostly on tax changes, but I'llhave a few miscellaneous items
along the way.
But I hope you listen inbecause this is, you know, late
and breaking news.
The bill was just signed intolaw, july 4th, and I really
couldn't do as much pre-work ofjust like pre-recording a
podcast of what's coming,because the negotiations were
(01:28):
down to the wire as to whatwould be included in the bill,
and so you know, we really justdidn't even know until the bill
was signed into law.
We've got an actual piece oflegislation and this is going to
provide clarity likely for thenext four years, but at least
(01:49):
through midterm elections interms of what we've got and I
think it will last longer.
A lot of the bill is actuallyan extenuation of changes that
had occurred in 2017 through theTax Cuts and Jobs Act, and, as
I'm mentioning that name, let mejust start by talking a little
(02:09):
bit about what's in a name.
So there have been some keyfinancial pieces of legislation
over the last, let's say, 10years, and it's really helpful
for me to refer to them by name.
So, first of all, I mentionedthe new act's official name is
One Big, beautiful Bill Act, andI referred to it in the blog
(02:33):
post I recently wrote, whichwill be in show notes.
It was nine and a half pages inWord, so a long blog post that
has a lot of the details I'll bediscussing today as OBBB,
because I just need a shortername as I have to retype this
for years.
Looking back, the Tax Cuts andJobs Act, which was passed in
2017 and really went into actionin 2018 for the most part.
(02:56):
Sometimes I refer to that asthe TCJA.
And then we had the SECURE ActSECURE Act 2.0.
We also had the CARES Actduring COVID, and the Inflation
Reduction Act was kind of anescalation of the war, of like
saying how good our bill is,like we're going to fight
inflation.
That was a Biden piece of thelegislation and now I think
(03:17):
there's an escalation in thename war once again, with you
know kind of editorializing andsaying one big, beautiful bill,
I would recommend that we allstart calling it OB3.
I just think that has a nicering to it and then I have less
to type.
But anyway, let's get into theactual piece of legislation.
The first thing to consider isthat this new piece of
(03:41):
legislation, for the most part,really firms up the tax brackets
that were codified in 2017, butthen had what's called a sunset
, so they were not permanentlegislation.
So there were tax brackets thatwere lower than taxes had been.
Are a 10% rate, a 12% rate?
(04:03):
I should say a 12% rate, a 22%rate, a 24% rate, a 32% rate, 35
, and 37.
So those are the rates and theybecome permanent.
There's a little bit of awiggle in the lower brackets
with this new piece oflegislation, but I mean, it's
like you know, the 20s, hundredsof dollars for those people in
(04:26):
those brackets.
So anyway, these are codifiedand now they're called permanent
.
Now we know these aren'tpermanent.
I would be willing to bet thatin 10 or 15 years there's some
new tax regime or maybe a few,but there is no like triggering
mechanism so that these ratesare going to expire.
(04:47):
Life was set up in the Tax Cutsand Jobs Act, where everything
was pretty much set to kind ofroll away, for the most part at
the end of this year.
That's what created a sense ofurgency and action, partially in
terms of this bill.
And so now we're moving intopermanent, which really means
until things change, based onlegislation for now.
(05:09):
So we know, you know kind offor planning purposes, what we
can plan for until things change.
And then again the standarddeduction to there's a slightly
higher standard deduction comingin for the new legislation
starting in 2026, slightlyhigher, and then those will be
(05:31):
continued to be modified basedon inflation.
Okay, so moving along.
I'm going to keep movingquickly and you can reference my
blog, which also has referencesto other, more detailed
articles.
There's a new deduction forseniors, and this.
There was a campaign promise byPresident Trump that said that
(05:51):
there wouldn't be SocialSecurity for senior citizens,
and there's not an actual likeremoval of federal taxes from
Social Security in thislegislation.
That's not what's happened, butin current day previous law
about two-thirds of Americansdid not pay taxes on Social
Security and one-third ofAmericans paid taxes on 85% of
(06:16):
their Social Security income.
That's going to be reducedfurther with this new law.
Estimates say that about 91% ofAmericans will not pay taxes,
but there is phase out, and letme just explain how this is
going to work.
So, for Social Security, thereis a new deduction for senior
citizens, and so those arepeople ages 65 and later, and
(06:40):
for people who have attainedthose ages, you will get a
deduction on your taxes oh, Ineed to put this into my article
of about $6,000.
So I need to put that extradetail into the article Now.
Keep in mind, though and this issomething that hasn't been
necessarily highlighted is thatwhen you hit certain income
(07:03):
levels based on your modifiedadjusted gross income, often
referred to as MAGI and I don'tneed you to know the equation,
just know that there's an incomelevel you need to pay attention
to.
If you're single, if you earnmore than $75,000 in this year's
when you report your taxes, orif you're in more than $150,000,
which, believe it or not, manyseniors do, because of both
(07:27):
pension income as well as theirrequired minimum distributions,
distributions from theirretirement accounts then they
can phase out of their abilityto contribute, and the full
phase out happens when you hit$125,000 of income for single or
$250,000 for joint.
So this isn't a full,one-for-one reduction in Social
(07:48):
Security taxes, but for manypeople who are claiming Social
Security, it will be asignificant reduction and will
make a big difference.
And then, furthermore, forthese people, you don't have to
be claiming Social Security toreceive the deduction.
So for those of you who mayconsider waiting until age 70,
that is not something where youdon't get a benefit because you
(08:12):
haven't claimed Social Security.
Now, also of note, this is partof this bill that is not
permanent.
It actually has a sunset.
So this will be enacted for thetime of President Trump's
presidency 2025, 2026, 2027,2028.
And then, unless there's newlegislation although there is
(08:33):
often new legislation that keepsthings going that have been put
into place unless there's newlegislation, then seniors taxes
will be going up after fouryears, so that's kind of a
triggering mechanism.
I'm sure it will be a campaignpromise or conversation.
And also the reason that thesethings often sunset is because
(08:54):
you're dealing with how do youpay for this legislation, and I
think everyone can agree thethings that are included in this
bill are not fully paid forwith cuts made elsewhere.
So it's a really expensive billwhen it comes to debt and
deficits and that's why oftencertain things are sunsetted.
Certainly that was why therewere sunsets in the past.
(09:16):
Okay, so there's also we'vecovered seniors but there's also
some considerations for thosewho have minor children.
The child tax credit is beingslightly increased to $2,200 per
child and the phase-out iscontinuing to be at a very high
amount between $400 for marriedfiling jointly or $200,000 if
(09:37):
not married filing jointly whereit starts to phase out.
So people who have morechildren are going to have an
impact of paying less in taxesand that is made permanent.
Also, there's a new type ofaccount.
These were initially being kindof floated as being called the
(09:57):
MAGA account, but that changedduring all the process of
negotiation and legislation andinstead we have a new account
called the Trump account.
So the Trump account is goingto be for minor children.
It kind of works like an IRAMoney can be put in before kids
are 18 and then it can be usedfor a variety of factors,
including school or starting abusiness, buying a house.
(10:20):
It gets taken out like an IRA,so it actually is income to kids
when it's taken out.
I'm not a huge fan of one moreaccount because, as a person who
has to have knowledge about allof these accounts, we've got a
lot of accounts and accountsthat have small amounts that you
can kind of put in, in thiscase, $5,000 per year, when we
already have 529 accounts andalso uniform trust to minor
(10:44):
accounts for kids.
You know that's just one moretype of account to keep track of
.
But if you are having childrenthis year and beyond this
account for a few years, thatjust like we're talking about
the senior accounts between 2025and 2028, will fund $1,000 per
child as what's being called apilot program for these new
(11:06):
Trump accounts.
So there's a couple things inthe bill.
Definitely for people who havechildren who are minors Moving
right along, there's a lot ofchanges to itemized and
miscellaneous deductions.
You know, I know we're gettingin the weeds here, and in the
past I've told you in otherconversations about taxes, a lot
(11:26):
of people do not itemizebecause when we kind of switched
over to this regime in 2018,you know, your standard
deduction is kind of what youget as a discount on your taxes
just right off the bat, just forbeing a taxpayer and filing
your taxes, and in order to getyour itemized deductions you
(11:47):
have to have more deductionsthan that standard deduction.
And so we've kind of madepermanent the standard
deductions.
But some rules are changing forthe itemized deductions.
So first of all, um, the PeaseAmendment, which reduced
eligibility for itemizing forhigher earners, is permanently
(12:08):
repealed.
That's a niche conversation,probably more for financial
planners than CPAs.
Also, some miscellaneousitemized deductions, including
fees for financial planners orpaying for tax preparation fees
on reimbursed expenses whenyou're an employee.
Those also are permanently gone.
(12:29):
They were set to come back inperhaps after the tax cuts and
jobs act sunsetted.
Now the biggie here on itemizeddeductions.
The reason that more people aregoing to be falling in is
twofold.
First of all, we've madepermanent now the mortgage
interest deduction at $750,000.
So the mortgage interestdeduction is capped.
(12:52):
It used to be kind of unlimitedand now there are more
restrictions.
So you can't just go and takeout a big home equity line to go
on a trip to Europe or pay foryour kid's college and deduct.
You have to either buy a houseor do home improvements.
But we did add mortgageinsurance premiums and, as you
(13:13):
know, as more and more peoplebuy houses after interest rates
have gone higher, then those whoqualify for these deductions
because you're paying more andmore interest on your mortgage
are going to be piling up andgoing to be getting you closer
to kind of the areas where youmay be able to deduct.
And to keep it fresh, thestandard deduction is $31,500 or
(13:39):
$1,550 if you're single,$31,500 if you're married and
then $23,625 if you're a head ofhousehold.
So if you're a single personand you own a home that you
bought more recently, you onlyhave to have mortgage interest.
That's more than $15,750, whichI know sounds like a ton of
money, but it's an amount ofmoney that many of you are
(14:01):
likely paying in interest for ahome, and then you know it's
fair game to itemize likelypaying an interest for a home.
And then you know it's fairgame to itemize.
And that one thing I would notewhen I ran these numbers.
So a lot of things in our taxlegislation nowadays are indexed
for inflation.
You know you get a biggerstandard deduction every year
based on inflation.
You get changes in other areas,like you can put more money
(14:25):
into your retirement accountsbased on inflation, but that
number is staying put for the$750,000.
And I ran back the numbers that$750,000 cap was put in in 2018
.
And if you inflated money from$750,000 in 2018, you would
actually have $959,700 in 2025.
(14:45):
While that inflation has beenso high when we used to be, you
know, comfortable with muchlower inflation.
But that you know kind ofbenefit and deduction is getting
smaller in terms of as thedollar, you know kind of
depreciates in value.
So that's definitely somethingto keep in mind.
Is it's kind of fleetingbecause it's not going to be
increasing, but they did add theability for you to add in if
(15:08):
you have MIP or mortgageinsurance premiums.
Those also can count, whichcouldn't count in the past.
Finally, for those of you whoare charitable givers, which is
something that I love it'snoteworthy that there's going to
be, first of all, in order toitemize.
You need, you know, often someother things in play unless
you're a really big charitablegiver.
But there's a new reduction inthe amount that you can deduct
(15:33):
based on a half percent ofadjusted gross income.
So if you had income of$100,000, the first $500 would
not be deductible on itemizing.
So just something to keep inmind.
But there's a biggie when itcomes to the ability to itemize.
It's a state and local taxdeduction.
So when you combine thatmortgage interest that you're
(15:53):
paying plus state and local taxdeduction for some taxpayers,
you're going to be floating backinto that place where you're
able to itemize.
The big deal here and this was alot of it's an expensive part
of the legislation.
It was a lot of like, you know,kind of at juggernauts within
the GOP as they were trying tofigure out how to pass this bill
is that you can deduct up to$40,000 in terms of your income
(16:19):
or your property taxes, yourstate and local taxes.
If you're somebody who doesn'thave a state income tax, your
state sales taxes may also countfor your return.
But again, if you made amillion dollars last year,
you're not getting that $40,000deduction.
Noteworthy, it used to be$10,000.
(16:40):
It used to be a $10,000 limit.
But now we're going to a regimewhere, if you made less than
$500,000 for a married family,or $250,000 if you're filing
single, then you're looking atthe opportunity to deduct up to
$40,000 of taxes.
And again you may be saying,well, I don't know how does
(17:00):
somebody pay that much in taxes?
But this does include propertytaxes, which are getting higher
and higher, and it also includesincome taxes.
So, depending on the state youlive in, it may or may not
benefit you.
That's why it was so popularfor coastal states that have
higher tax rates.
But this is legislation thatstays in place only until 2029.
(17:20):
And also big.
But once you hit half a millionof income married or $250,000
of income.
But once you hit half a millionof income married, or $250,000
of income if you're single thenyou start to phase out and you
go back down to a lower rangeuntil you hit $600,000 where
you're phased out.
So new regime, new rules.
They're temporary, they'll lastfor five years, ok, so now
(17:43):
there's a whole new set ofdeductions that kind of fit in.
They're being treated like thesenior deduction that I
mentioned earlier, which is alsobeing floated as a no tax on
Social Security, even thoughexactly no taxes, because you do
still pay your FICA taxes andperhaps state taxes when it
(18:14):
comes to tips.
But if you're a normal tippingpopulation so this is not
clearly identified in thelegislation but, like I can't
start reporting my income astips as a financial planner.
But if you're in a qualified,you know kind of job category
which is supposed to beclarified by the government in
(18:35):
short order, then you can deductup to $25,000, subject to
income limitations.
So if you are reporting incomethat's higher, you're not going
to have that opportunity$300,000 for married filing
jointly and $150,000 if it'ssingle.
(18:56):
And this will sunset if not,you know, if not kind of
re-triggered through legislationin 2028.
There's a lot to determine.
I'm sure some people will bemotivated to kind of shuffle
their income into tips.
But you've got to be able todisseminate on, for example,
your pay stub, what part isregular income and what part is
tips.
(19:16):
If I were a server I'd bechecking with my restaurant to
see if they have the ability tokind of break these things out.
Also, you know you still do oweFICA taxes.
So if things are going underthe table, you know that's, you
know something to think aboutwhere you're not getting that
deduction but you're also notreporting the income.
(19:38):
So moving along.
Also, no taxes on overtime, andagain, this isn't for everybody
, so it needs to be kind ofstandard overtime.
So if you're not in a class oflabor that receives overtime,
it's not counting for you.
You can't recharacterize yourincome to you know be overtime.
(19:58):
Also, though, there are incomelimits, so things start to phase
out for $300,000 if you'remarried, $150,000 if you're a
single filer, and fully phasesout at $550,000 and $275,000.
And the max deduction is$25,000.
And so this legislation too,it's temporary.
(20:20):
It's during Trump's term, soit'll be there until 2028.
I should say I'm primarilyfocusing on married filing
jointly, single filers and alsoheads of household.
If you're married filingseparately, then there's a lot
of limitations to what you cando with some of this legislation
.
So just keep that in mind.
(20:41):
You're kind of your ownseparate class, but there's
fewer people that file that way,so I'm not primarily focusing
on it.
So if you do not itemize but youare charitably inclined, great
news you will be able to take adeduction if you're paying money
to charities in 2025 and beyondthe amount of actually.
(21:03):
This doesn't start.
It is not in effect until nextyear, so I should say 2026.
The amount of deduction will be$2,000 if you're married,
filing jointly, and $1,000 foreverybody else, so there's a
little extra incentive to becharitable.
I should note, if you're doingqualified charitable
distributions, those don't count.
You get your tax breakelsewhere.
(21:25):
Now there's also new deductionfor car loan interest and again,
just as I've been talking aboutbefore, this is only for people
who are making under certainincome limits.
It starts to phase out at$200,000 married and $100,000
for single, and then fullyphases out at $250,000 and
$150,000.
(21:46):
And there's a lot of rules onhere in terms of what types of
auto loans.
First of all, you can't havebought a car in the past
previous, prior to 2025, and youget a deduction on your car
loan interest and, by the way,this is interest, not the full
payment.
Second, it needs to be a newcar.
It can't be a lease.
(22:15):
It also needs to have finalassembly in the United States.
So I'm sure dealerships will benoting when these are car loans
are eligible.
And keep in mind, if you'remaking half a million dollars,
you're not going to be eligiblefor this new tax break, but it
is beneficial as the price ofloans goes higher and higher.
And keep in mind, for this setof four loans plus the senior
loan, you don't need to itemize.
(22:36):
These are their own separateset that have a set of rules
that aren't about itemizing.
They're their own kind ofseparate sets of deductions, and
it'll be interesting to see howthey're going to kind of change
the tax forms, I'm assuming, inorder to do this.
Okay, so what else is in thelegislation?
Well, many of you may haveparticipated in getting clean
(22:58):
energy credits If you, you know,had an electric vehicle and put
plugins in your house, you gotsolar panels or you bought an
electric or energy efficientvehicle, and all of these are
moving up in terms of theirphase out.
2032 was a year that was kindof earmarked for a lot of phase
(23:18):
out of clean energy credits, butthose are all accelerating and
they're accelerating anywherebetween 2025, 2026, 2027.
Just know, if you were planningto get one of these types of
credits, you need to act soon insome cases, as soon as next
month, and in my blog I havemore details about when things
(23:39):
are changing, but not a lot ofincentives in terms of the taxes
, in order to make you know kindof investments in clean energy,
types of changes when it comesto your vehicle or your home.
Now here's some considerationsthat are primarily for the
highest net worth individualsand very high earners.
(24:01):
We're talking north of half amillion dollars.
First, the alternative, minimumtax, which is a pesky tax that
you have to pay if you make more.
It's basically kind of a testwhen you're in a high income
bracket, but before the Tax Cutsand Jobs Act was affecting more
and more people because itwasn't really linked to
inflation.
Well, that is staying at higherlevels, but it's kind of going
(24:26):
back down to where we started in2018 legislation.
So the more intrusive AMT isgoing to hit you when you have
income over a million dollarsfor married filing jointly, or
half a million for singles.
It had been creeping up becauseof inflation adjustment, but it
was scheduled to sunsetinflation adjustment, but it was
(24:48):
scheduled to sunset so it'sgoing to come down, if you were
planning this year, from $1.2million $1.25 for married down
to $1 million and from $626single down to half a million.
So this is something to keep inmind if you're in that top, top
bracket.
The people that get impacted bythis very frequently are if you
maybe worked for a startup andhad incentivized stock options
(25:10):
and the company hit it big.
We've worked with clients likethis.
You can get trapped in the AMTbased on that.
You know extraordinaryopportunity or windfall pretty
easily.
So that's the time we seealternative minimum tax most
frequently.
Another area that is really nowonly touching the highest net
(25:33):
worth people is estate taxes.
So when I started my career in1998, more than 25 years ago at
this point the estate tax wouldhit anyone over $625,000 in
terms of their estate.
So the estate tax was real andfrequent.
But nowadays we're looking atan estate tax exemption that's
(25:54):
at $13.99 million and that's perperson.
So if you're a married coupleyou can double that because
there's portability between thetwo.
A lot of people who are in theestate planning realm or CPAs or
financial planners really werefocused, depending on who won
the election, hey, the estatetax rate could sunset and go
back down in the like five tosix million dollar range.
(26:17):
I was a little more skepticalthan that.
It just isn't something thatpeople understand or really are
highly focused on.
So it seemed to be an upwardand an upward trend.
But now we're going evenfurther up.
So we're there's not going tobe a sunset.
It's not reverting back to,like I said, the five to seven
million dollar range per person.
Now in 2026, we're going to getabout a seven percent bump and
(26:39):
it's going to be 1515 millionper individual if it's a married
couple.
So you're really not hittingthe estate tax realm until the
second death in a married couplewith an estate of more than $30
million and so during years.
With this much higher estate taxexemption, there are
(27:00):
considerations for giftinggenerationally or out of your
taxable estate that only applyto the highest net worth
individuals.
But some of you may belistening.
We definitely know families whoare in this range where higher
level estate planning to avoidestate taxes would be
appropriate.
There's also a bunch ofconsiderations for business
(27:22):
owners, but some of these mayaffect you if you're also
working in a small business.
So there's a section.
179 involves accelerateddepreciation for small
businesses.
This is now permanent deduction, which can be significant for
businesses that are basicallydepreciating their equipment
(27:46):
right away instead of doing itover time, for an immediate tax
break.
And same for something thatworks in conjunction with 179,
which is called a bonusdepreciation if you kind of
spill over your limits on the179.
I'm not going to spend moretime on that, but know that this
is just making it a little biteasier for small business owners
to get deductions.
(28:07):
More significantly, in the worldof venture capital and startups
, there's something called QSBS,which is Qualified Small
Business Stock, which can makeit extremely lucrative in terms
of taxes and what you get tokeep when you sell a startup or
kind of a growth-orientedbusiness.
This is in law in order toencourage people to start
(28:31):
businesses that will be growthyfor America, and we're getting
even bigger in terms of theamount of assets that could be
in this type of stock, from $50million to $75 million with a
phase-in that happens quickerfor the time you have that stock
.
Again, this is super niche andsmall, but if you're someone
that this would be appropriatefor, it's a big, big deal in
(28:52):
terms of the tax savings.
So I don't want to fail tomention it.
More broadly, though, almostany business owner, depending on
their income and their type ofbusiness, may be eligible or
many are eligible for theSection 199A, which is also
known as the Qualified BusinessIncome Deduction.
(29:12):
This often we see for smallbusiness owners, even if you
just have a small LLC, and thatis becoming permanently extended
and includes inflation indexing, so it will continue to grow
higher and depending on whattype of business you're in, and
then some miscellaneousadditional things that may
(29:33):
impact business owners but alsoemployees of small businesses,
include a permanent incentive toprovide family and medical
leave for paid family leave taxcredit.
This was something that I'membarrassed to say I wasn't even
aware of as a small businessowner.
At our firm we have paid familyleave.
We had two maternity leaveslast year, we're going to have
(29:55):
one this year and there'sactually a credit for your taxes
for that up to 25% of thatleave if it's part of your
policy before the employeeleaves, and it's been expanded
to also include paying forshort-term disability insurance
premiums to also make that a wayto be eligible.
So this is great news and ifyou're a small business that has
(30:17):
this, let your owner know ifthey're offering it.
Let your owner know if they'reoffering it and you might.
If you're trying to negotiatefor maternity leave for everyone
or fraternity, you mightmention that this is an
opportunity for your smallbusiness owner employer.
Also, employers can permanentlypay $5,250 per year toward
employee student loans withoutincluding it in their income as
(30:40):
a benefit.
There's excess business lossLimitations have been made
permanent.
There's a workaround for thatstate and local tax deduction
for people who are businessowners, called the pass-through
entity tax, where you canactually pay some of your state
and local taxes through yourbusiness.
So this is something to keep inmind.
(31:01):
And there's also incentives forcharitable giving and child
care incentives, as well asstartup credits for establishing
a retirement plan, if you're ina business that doesn't have
one, are increased and madepermanent, which is great news.
So here's some additionalchanges that may impact your
money, which I'm sure we'll betalking about over time.
(31:22):
I know I have put in a lot, buthere's my last few bullet points
.
This, during this legislation,is definitely going to increase,
as I mentioned, debt anddeficits.
One of the things that is putsdebt front and center is the
debt ceiling, which needs to berenegotiated and increased
legislatively periodically.
Renegotiated and increasedlegislatively periodically.
This is anticipated that itwould, because the debt ceiling
(31:53):
was also increased to now $5trillion.
This is anticipated to not bean issue until 2028.
Medicaid and food stamps are,snap benefits are being reduced,
there's increased workrequirements and there's also
increased verification processthat may be more difficult to
navigate and manage when youthink about.
Well, who's that going toimpact?
It's not directly cutting outseniors who use Medicaid for
(32:16):
long-term care and nursing needswhen they run out of assets.
But certainly it's diminishingkind of the system and the
services that's going to beproviding that and certainly
we're most concerned abouthealth care networks in more
rural areas.
And you know, as there arethose charitable incentives
sprinkled throughout the plans,I know I've made extra donations
(32:40):
to food banks because federalgrants and funding for local
food insecurity are significantand used across the country in
all 50 states.
529s great news have more usesand more flexibility.
Now you can use 529s forapprenticeships, tutoring
therapy for certain disabilities, for some homeschooling, and
(33:02):
you can use 529s forapprenticeships, tutoring
therapy for certain disabilities, for some homeschooling, and
you can pay back up to $15,000of student loan principal
repayment per beneficiary.
Now I will say like if you'vegot money in 529s, instead of
paying towards student loans,the best bet is to not take the
student loans to begin with andwrite the tuition checks through
the 529s.
But this is good news.
(33:22):
The 529 accounts continue to beextremely flexible.
To use an example, becoming aCFP is typically a certificate
program, although there are alsodegree programs for it.
So with these new rules youcould use your 529 account to
get your professionalcredentials for something like
the Cert financial plannerdesignation.
(33:46):
There's also, though, changes tostudent loans that are going to
make it increasingly difficultto pay for college.
Parent PLUS loans are going tobe capped, with a $20,000 annual
limit and up to $65,000 perstudent.
Parent PLUS loans we don't likeanyway, but there's also just
like not a lot of good ways,especially as interest rates
have gone higher, to pay forcollege loans.
We don't like anyway, butthere's also just like not a lot
of good ways, especially asinterest rates have gone higher,
to pay for college if you don'thave the funds or the cash flow
(34:07):
.
So this is becomingincreasingly difficult.
Those changes are going to takeeffect next summer, and also
Pell Grants are going to be thisis good news are going to be
expanded for non-degree programs, but grad PLUS are going to be
expanded for non-degree programs, but grad plus loans are going
away altogether as of nextsummer.
Health savings accountcontribution limits are
(34:30):
increasing and more ofAffordable Care Act plans are
now eligible, includingcatastrophic plans as well as
bronze plans, and then there arenew reporting and compliance
requirements for those that owndigital assets and
cryptocurrencies.
As I look at the aggregate ofthis law, I first know I use
software so for my clients I canupload your 2024 tax return,
(34:53):
talk to you about what yourtaxes are going to be this year
in terms of your income and thenshow you before and after
before the legislation and after.
And the differences in taxesare anywhere from the hundreds
of dollars to, in some cases,many thousands of dollars,
especially getting into thoseitemized deductions for
(35:14):
mid-range income people.
But there's a lot ofopportunities, including like
having more clarity on planning,using those senior provisions.
Also, you know, usingdeductions if you fall into the
subsets that may be appropriate.
There's clarity in terms of theestate tax limit for high net
worth individuals.
Major shifts going on withinthis legislation on the
(35:37):
education and funding landscape.
I didn't touch on it, butendowments of large universities
, universities with more than3,000 students are going to have
a tax on investments,investment returns.
So it's not a tax on the entireendowment, it's on the returns
of the endowment.
The new Trump accounts arecoming.
That's something that is a TBD.
(35:59):
They're not really going to beout until next year and I
suggest that it's going to beinteresting to see how it's
administered and what financialinstitutions are going to be
offering them.
But there's also a lot of phaseouts when you get to higher
incomes, and so planning yourincome, especially with those
phase outs in the state andlocal tax reduction, is going to
(36:20):
be really important, especiallyif you're someone who's, you
know, kind of close to, let'ssay, a half a million dollar
range.
If you go from half a millionto 600,000 in income, you could
have to report $130,000 more inincome, so that's a big deal.
We love the new charitableoptions and opportunities and
(36:43):
also know that for some of youwho are planning for some clean
energy credits, those are goingaway.
But, bottom line, if you arethinking about financial advice,
if you work with a financialplanner, it is critical, mission
critical and one of the mostimportant things that I see to
keep taxes in mind.
If you're not working withsomeone who takes taxes into
(37:04):
consideration, it may be time tohave a conversation with
someone else.
And if you ever have questionsor want to contact me about this
, do let me know.
And if you're looking for moreresources, we have a blog coming
up.
I'm going to be doing a webinarwhich goes over similar
information, but with picturesas well, as you know, kind of a
powerpoint to show you and guideyou a little more visually, and
(37:27):
we'll also be doing an economicupdate soon.
After we have all of thesedetails out for obbb or ob3,
then we will pivot to talkingabout the investment and
economic landscape for the year.
So if you're interested inreceiving those, you can go to
my website at pearlplancom andsubscribe to our newsletter.
(37:49):
With that, thanks for listeningto this meaty episode.
I hope you can hear that I gotmy geek on to tell you about
some of the things that arechanging.
I do love the details, but Ialso just love helping people
individually take advantage ofwhatever opportunities
legislation brings and plan forthe risks that it also brings.
(38:10):
So this is, you know, pivotpoints and change are where a
financial planner shines, and Ihope you appreciated my geeky
conversation.
Until next week, thank you forjoining us.
You, you, you.
Welcome to the Women's Money Wisdom Podcast.
I'm Melissa Joy, a certifiedfinancial planner and the
founder of Pearl Planning.
My goal is to help youstreamline and organize your
finances, navigate big moneydecisions with confidence and be
strategic in order to grow yourwealth.
As a woman, you work hard foryour money and I'm here to help
(00:21):
you make the most of it.
Now let's get into the show.
Welcome back to the Women'sMoney Wisdom Podcast.
We are going to get needy andwe're going to talk, have a
(00:44):
conversation that I thinkaffects any of you who are US
citizens paying US taxes.
We're going to talk about theOne Big, beautiful Bill Act yes,
that is the name and I'm goingto tell you a lot of things that
you should be looking out for,just so you understand how you
could benefit or be affected bythe new legislation.
I'm mainly looking at moneymatters and I'm really focusing
(01:06):
mostly on tax changes, but I'llhave a few miscellaneous items
along the way.
But I hope you listen inbecause this is, you know, late
and breaking news.
The bill was just signed intolaw, july 4th, and I really
couldn't do as much pre-work ofjust like pre-recording a
podcast of what's coming,because the negotiations were
(01:28):
down to the wire as to whatwould be included in the bill,
and so you know, we really justdidn't even know until the bill
was signed into law.
We've got an actual piece oflegislation and this is going to
provide clarity likely for thenext four years, but at least
(01:49):
through midterm elections interms of what we've got and I
think it will last longer.
A lot of the bill is actuallyan extenuation of changes that
had occurred in 2017 through theTax Cuts and Jobs Act, and, as
I'm mentioning that name, let mejust start by talking a little
(02:09):
bit about what's in a name.
So there have been some keyfinancial pieces of legislation
over the last, let's say, 10years, and it's really helpful
for me to refer to them by name.
So, first of all, I mentionedthe new act's official name is
One Big, beautiful Bill Act, andI referred to it in the blog
(02:33):
post I recently wrote, whichwill be in show notes.
It was nine and a half pages inWord, so a long blog post that
has a lot of the details I'll bediscussing today as OBBB,
because I just need a shortername as I have to retype this
for years.
Looking back, the Tax Cuts andJobs Act, which was passed in
2017 and really went into actionin 2018 for the most part.
(02:56):
Sometimes I refer to that asthe TCJA.
And then we had the SECURE ActSECURE Act 2.0.
We also had the CARES Actduring COVID, and the Inflation
Reduction Act was kind of anescalation of the war, of like
saying how good our bill is,like we're going to fight
inflation.
That was a Biden piece of thelegislation and now I think
(03:17):
there's an escalation in thename war once again, with you
know kind of editorializing andsaying one big, beautiful bill,
I would recommend that we allstart calling it OB3.
I just think that has a nicering to it and then I have less
to type.
But anyway, let's get into theactual piece of legislation.
The first thing to consider isthat this new piece of
(03:41):
legislation, for the most part,really firms up the tax brackets
that were codified in 2017, butthen had what's called a sunset
, so they were not permanentlegislation.
So there were tax brackets thatwere lower than taxes had been.
Are a 10% rate, a 12% rate?
(04:03):
I should say a 12% rate, a 22%rate, a 24% rate, a 32% rate, 35
, and 37.
So those are the rates and theybecome permanent.
There's a little bit of awiggle in the lower brackets
with this new piece oflegislation, but I mean, it's
like you know, the 20s, hundredsof dollars for those people in
(04:26):
those brackets.
So anyway, these are codifiedand now they're called permanent
.
Now we know these aren'tpermanent.
I would be willing to bet thatin 10 or 15 years there's some
new tax regime or maybe a few,but there is no like triggering
mechanism so that these ratesare going to expire.
(04:47):
Life was set up in the Tax Cutsand Jobs Act, where everything
was pretty much set to kind ofroll away, for the most part at
the end of this year.
That's what created a sense ofurgency and action, partially in
terms of this bill.
And so now we're moving intopermanent, which really means
until things change, based onlegislation for now.
(05:09):
So we know, you know kind offor planning purposes, what we
can plan for until things change.
And then again the standarddeduction to there's a slightly
higher standard deduction comingin for the new legislation
starting in 2026, slightlyhigher, and then those will be
(05:31):
continued to be modified basedon inflation.
Okay, so moving along.
I'm going to keep movingquickly and you can reference my
blog, which also has referencesto other, more detailed
articles.
There's a new deduction forseniors, and this.
There was a campaign promise byPresident Trump that said that
(05:51):
there wouldn't be SocialSecurity for senior citizens,
and there's not an actual likeremoval of federal taxes from
Social Security in thislegislation.
That's not what's happened, butin current day previous law
about two-thirds of Americansdid not pay taxes on Social
Security and one-third ofAmericans paid taxes on 85% of
(06:16):
their Social Security income.
That's going to be reducedfurther with this new law.
Estimates say that about 91% ofAmericans will not pay taxes,
but there is phase out, and letme just explain how this is
going to work.
So, for Social Security, thereis a new deduction for senior
citizens, and so those arepeople ages 65 and later, and
(06:40):
for people who have attainedthose ages, you will get a
deduction on your taxes oh, Ineed to put this into my article
of about $6,000.
So I need to put that extradetail into the article Now.
Keep in mind, though and this issomething that hasn't been
necessarily highlighted is thatwhen you hit certain income
(07:03):
levels based on your modifiedadjusted gross income, often
referred to as MAGI and I don'tneed you to know the equation,
just know that there's an incomelevel you need to pay attention
to.
If you're single, if you earnmore than $75,000 in this year's
when you report your taxes, orif you're in more than $150,000,
which, believe it or not, manyseniors do, because of both
(07:27):
pension income as well as theirrequired minimum distributions,
distributions from theirretirement accounts then they
can phase out of their abilityto contribute, and the full
phase out happens when you hit$125,000 of income for single or
$250,000 for joint.
So this isn't a full,one-for-one reduction in Social
(07:48):
Security taxes, but for manypeople who are claiming Social
Security, it will be asignificant reduction and will
make a big difference.
And then, furthermore, forthese people, you don't have to
be claiming Social Security toreceive the deduction.
So for those of you who mayconsider waiting until age 70,
that is not something where youdon't get a benefit because you
(08:12):
haven't claimed Social Security.
Now, also of note, this is partof this bill that is not
permanent.
It actually has a sunset.
So this will be enacted for thetime of President Trump's
presidency 2025, 2026, 2027,2028.
And then, unless there's newlegislation although there is
(08:33):
often new legislation that keepsthings going that have been put
into place unless there's newlegislation, then seniors taxes
will be going up after fouryears, so that's kind of a
triggering mechanism.
I'm sure it will be a campaignpromise or conversation.
And also the reason that thesethings often sunset is because
(08:54):
you're dealing with how do youpay for this legislation, and I
think everyone can agree thethings that are included in this
bill are not fully paid forwith cuts made elsewhere.
So it's a really expensive billwhen it comes to debt and
deficits and that's why oftencertain things are sunsetted.
Certainly that was why therewere sunsets in the past.
(09:16):
Okay, so there's also we'vecovered seniors but there's also
some considerations for thosewho have minor children.
The child tax credit is beingslightly increased to $2,200 per
child and the phase-out iscontinuing to be at a very high
amount between $400 for marriedfiling jointly or $200,000 if
(09:37):
not married filing jointly whereit starts to phase out.
So people who have morechildren are going to have an
impact of paying less in taxesand that is made permanent.
Also, there's a new type ofaccount.
These were initially being kindof floated as being called the
(09:57):
MAGA account, but that changedduring all the process of
negotiation and legislation andinstead we have a new account
called the Trump account.
So the Trump account is goingto be for minor children.
It kind of works like an IRAMoney can be put in before kids
are 18 and then it can be usedfor a variety of factors,
including school or starting abusiness, buying a house.
(10:20):
It gets taken out like an IRA,so it actually is income to kids
when it's taken out.
I'm not a huge fan of one moreaccount because, as a person who
has to have knowledge about allof these accounts, we've got a
lot of accounts and accountsthat have small amounts that you
can kind of put in, in thiscase, $5,000 per year, when we
already have 529 accounts andalso uniform trust to minor
(10:44):
accounts for kids.
You know that's just one moretype of account to keep track of
.
But if you are having childrenthis year and beyond this
account for a few years, thatjust like we're talking about
the senior accounts between 2025and 2028, will fund $1,000 per
child as what's being called apilot program for these new
(11:06):
Trump accounts.
So there's a couple things inthe bill.
Definitely for people who havechildren who are minors Moving
right along, there's a lot ofchanges to itemized and
miscellaneous deductions.
You know, I know we're gettingin the weeds here, and in the
past I've told you in otherconversations about taxes, a lot
(11:26):
of people do not itemizebecause when we kind of switched
over to this regime in 2018,you know, your standard
deduction is kind of what youget as a discount on your taxes
just right off the bat, just forbeing a taxpayer and filing
your taxes, and in order to getyour itemized deductions you
(11:47):
have to have more deductionsthan that standard deduction.
And so we've kind of madepermanent the standard
deductions.
But some rules are changing forthe itemized deductions.
So first of all, um, the PeaseAmendment, which reduced
eligibility for itemizing forhigher earners, is permanently
(12:08):
repealed.
That's a niche conversation,probably more for financial
planners than CPAs.
Also, some miscellaneousitemized deductions, including
fees for financial planners orpaying for tax preparation fees
on reimbursed expenses whenyou're an employee.
Those also are permanently gone.
(12:29):
They were set to come back inperhaps after the tax cuts and
jobs act sunsetted.
Now the biggie here on itemizeddeductions.
The reason that more people aregoing to be falling in is
twofold.
First of all, we've madepermanent now the mortgage
interest deduction at $750,000.
So the mortgage interestdeduction is capped.
(12:52):
It used to be kind of unlimitedand now there are more
restrictions.
So you can't just go and takeout a big home equity line to go
on a trip to Europe or pay foryour kid's college and deduct.
You have to either buy a houseor do home improvements.
But we did add mortgageinsurance premiums and, as you
(13:13):
know, as more and more peoplebuy houses after interest rates
have gone higher, then those whoqualify for these deductions
because you're paying more andmore interest on your mortgage
are going to be piling up andgoing to be getting you closer
to kind of the areas where youmay be able to deduct.
And to keep it fresh, thestandard deduction is $31,500 or
(13:39):
$1,550 if you're single,$31,500 if you're married and
then $23,625 if you're a head ofhousehold.
So if you're a single personand you own a home that you
bought more recently, you onlyhave to have mortgage interest.
That's more than $15,750, whichI know sounds like a ton of
money, but it's an amount ofmoney that many of you are
(14:01):
likely paying in interest for ahome, and then you know it's
fair game to itemize likelypaying an interest for a home.
And then you know it's fairgame to itemize.
And that one thing I would notewhen I ran these numbers.
So a lot of things in our taxlegislation nowadays are indexed
for inflation.
You know you get a biggerstandard deduction every year
based on inflation.
You get changes in other areas,like you can put more money
(14:25):
into your retirement accountsbased on inflation, but that
number is staying put for the$750,000.
And I ran back the numbers that$750,000 cap was put in in 2018
.
And if you inflated money from$750,000 in 2018, you would
actually have $959,700 in 2025.
(14:45):
While that inflation has beenso high when we used to be, you
know, comfortable with muchlower inflation.
But that you know kind ofbenefit and deduction is getting
smaller in terms of as thedollar, you know kind of
depreciates in value.
So that's definitely somethingto keep in mind.
Is it's kind of fleetingbecause it's not going to be
increasing, but they did add theability for you to add in if
(15:08):
you have MIP or mortgageinsurance premiums.
Those also can count, whichcouldn't count in the past.
Finally, for those of you whoare charitable givers, which is
something that I love it'snoteworthy that there's going to
be, first of all, in order toitemize.
You need, you know, often someother things in play unless
you're a really big charitablegiver.
But there's a new reduction inthe amount that you can deduct
(15:33):
based on a half percent ofadjusted gross income.
So if you had income of$100,000, the first $500 would
not be deductible on itemizing.
So just something to keep inmind.
But there's a biggie when itcomes to the ability to itemize.
It's a state and local taxdeduction.
So when you combine thatmortgage interest that you're
(15:53):
paying plus state and local taxdeduction for some taxpayers,
you're going to be floating backinto that place where you're
able to itemize.
The big deal here and this was alot of it's an expensive part
of the legislation.
It was a lot of like, you know,kind of at juggernauts within
the GOP as they were trying tofigure out how to pass this bill
is that you can deduct up to$40,000 in terms of your income
(16:19):
or your property taxes, yourstate and local taxes.
If you're somebody who doesn'thave a state income tax, your
state sales taxes may also countfor your return.
But again, if you made amillion dollars last year,
you're not getting that $40,000deduction.
Noteworthy, it used to be$10,000.
(16:40):
It used to be a $10,000 limit.
But now we're going to a regimewhere, if you made less than
$500,000 for a married family,or $250,000 if you're filing
single, then you're looking atthe opportunity to deduct up to
$40,000 of taxes.
And again you may be saying,well, I don't know how does
(17:00):
somebody pay that much in taxes?
But this does include propertytaxes, which are getting higher
and higher, and it also includesincome taxes.
So, depending on the state youlive in, it may or may not
benefit you.
That's why it was so popularfor coastal states that have
higher tax rates.
But this is legislation thatstays in place only until 2029.
(17:20):
And also big.
But once you hit half a millionof income married or $250,000
of income.
But once you hit half a millionof income married, or $250,000
of income if you're single thenyou start to phase out and you
go back down to a lower rangeuntil you hit $600,000 where
you're phased out.
So new regime, new rules.
They're temporary, they'll lastfor five years, ok, so now
(17:43):
there's a whole new set ofdeductions that kind of fit in.
They're being treated like thesenior deduction that I
mentioned earlier, which is alsobeing floated as a no tax on
Social Security, even thoughexactly no taxes, because you do
still pay your FICA taxes andperhaps state taxes when it
(18:14):
comes to tips.
But if you're a normal tippingpopulation so this is not
clearly identified in thelegislation but, like I can't
start reporting my income astips as a financial planner.
But if you're in a qualified,you know kind of job category
which is supposed to beclarified by the government in
(18:35):
short order, then you can deductup to $25,000, subject to
income limitations.
So if you are reporting incomethat's higher, you're not going
to have that opportunity$300,000 for married filing
jointly and $150,000 if it'ssingle.
(18:56):
And this will sunset if not,you know, if not kind of
re-triggered through legislationin 2028.
There's a lot to determine.
I'm sure some people will bemotivated to kind of shuffle
their income into tips.
But you've got to be able todisseminate on, for example,
your pay stub, what part isregular income and what part is
tips.
(19:16):
If I were a server I'd bechecking with my restaurant to
see if they have the ability tokind of break these things out.
Also, you know you still do oweFICA taxes.
So if things are going underthe table, you know that's, you
know something to think aboutwhere you're not getting that
deduction but you're also notreporting the income.
(19:38):
So moving along.
Also, no taxes on overtime, andagain, this isn't for everybody
, so it needs to be kind ofstandard overtime.
So if you're not in a class oflabor that receives overtime,
it's not counting for you.
You can't recharacterize yourincome to you know be overtime.
(19:58):
Also, though, there are incomelimits, so things start to phase
out for $300,000 if you'remarried, $150,000 if you're a
single filer, and fully phasesout at $550,000 and $275,000.
And the max deduction is$25,000.
And so this legislation too,it's temporary.
(20:20):
It's during Trump's term, soit'll be there until 2028.
I should say I'm primarilyfocusing on married filing
jointly, single filers and alsoheads of household.
If you're married filingseparately, then there's a lot
of limitations to what you cando with some of this legislation
.
So just keep that in mind.
(20:41):
You're kind of your ownseparate class, but there's
fewer people that file that way,so I'm not primarily focusing
on it.
So if you do not itemize but youare charitably inclined, great
news you will be able to take adeduction if you're paying money
to charities in 2025 and beyondthe amount of actually.
(21:03):
This doesn't start.
It is not in effect until nextyear, so I should say 2026.
The amount of deduction will be$2,000 if you're married,
filing jointly, and $1,000 foreverybody else, so there's a
little extra incentive to becharitable.
I should note, if you're doingqualified charitable
distributions, those don't count.
You get your tax breakelsewhere.
(21:25):
Now there's also new deductionfor car loan interest and again,
just as I've been talking aboutbefore, this is only for people
who are making under certainincome limits.
It starts to phase out at$200,000 married and $100,000
for single, and then fullyphases out at $250,000 and
$150,000.
(21:46):
And there's a lot of rules onhere in terms of what types of
auto loans.
First of all, you can't havebought a car in the past
previous, prior to 2025, and youget a deduction on your car
loan interest and, by the way,this is interest, not the full
payment.
Second, it needs to be a newcar.
It can't be a lease.
(22:15):
It also needs to have finalassembly in the United States.
So I'm sure dealerships will benoting when these are car loans
are eligible.
And keep in mind, if you'remaking half a million dollars,
you're not going to be eligiblefor this new tax break, but it
is beneficial as the price ofloans goes higher and higher.
And keep in mind, for this setof four loans plus the senior
loan, you don't need to itemize.
(22:36):
These are their own separateset that have a set of rules
that aren't about itemizing.
They're their own kind ofseparate sets of deductions, and
it'll be interesting to see howthey're going to kind of change
the tax forms, I'm assuming, inorder to do this.
Okay, so what else is in thelegislation?
Well, many of you may haveparticipated in getting clean
(22:58):
energy credits If you, you know,had an electric vehicle and put
plugins in your house, you gotsolar panels or you bought an
electric or energy efficientvehicle, and all of these are
moving up in terms of theirphase out.
2032 was a year that was kindof earmarked for a lot of phase
(23:18):
out of clean energy credits, butthose are all accelerating and
they're accelerating anywherebetween 2025, 2026, 2027.
Just know, if you were planningto get one of these types of
credits, you need to act soon insome cases, as soon as next
month, and in my blog I havemore details about when things
(23:39):
are changing, but not a lot ofincentives in terms of the taxes
, in order to make you know kindof investments in clean energy,
types of changes when it comesto your vehicle or your home.
Now here's some considerationsthat are primarily for the
highest net worth individualsand very high earners.
(24:01):
We're talking north of half amillion dollars.
First, the alternative, minimumtax, which is a pesky tax that
you have to pay if you make more.
It's basically kind of a testwhen you're in a high income
bracket, but before the Tax Cutsand Jobs Act was affecting more
and more people because itwasn't really linked to
inflation.
Well, that is staying at higherlevels, but it's kind of going
(24:26):
back down to where we started in2018 legislation.
So the more intrusive AMT isgoing to hit you when you have
income over a million dollarsfor married filing jointly, or
half a million for singles.
It had been creeping up becauseof inflation adjustment, but it
was scheduled to sunsetinflation adjustment, but it was
(24:48):
scheduled to sunset so it'sgoing to come down, if you were
planning this year, from $1.2million $1.25 for married down
to $1 million and from $626single down to half a million.
So this is something to keep inmind if you're in that top, top
bracket.
The people that get impacted bythis very frequently are if you
maybe worked for a startup andhad incentivized stock options
(25:10):
and the company hit it big.
We've worked with clients likethis.
You can get trapped in the AMTbased on that.
You know extraordinaryopportunity or windfall pretty
easily.
So that's the time we seealternative minimum tax most
frequently.
Another area that is really nowonly touching the highest net
(25:33):
worth people is estate taxes.
So when I started my career in1998, more than 25 years ago at
this point the estate tax wouldhit anyone over $625,000 in
terms of their estate.
So the estate tax was real andfrequent.
But nowadays we're looking atan estate tax exemption that's
(25:54):
at $13.99 million and that's perperson.
So if you're a married coupleyou can double that because
there's portability between thetwo.
A lot of people who are in theestate planning realm or CPAs or
financial planners really werefocused, depending on who won
the election, hey, the estatetax rate could sunset and go
back down in the like five tosix million dollar range.
(26:17):
I was a little more skepticalthan that.
It just isn't something thatpeople understand or really are
highly focused on.
So it seemed to be an upwardand an upward trend.
But now we're going evenfurther up.
So we're there's not going tobe a sunset.
It's not reverting back to,like I said, the five to seven
million dollar range per person.
Now in 2026, we're going to getabout a seven percent bump and
(26:39):
it's going to be 1515 millionper individual if it's a married
couple.
So you're really not hittingthe estate tax realm until the
second death in a married couplewith an estate of more than $30
million and so during years.
With this much higher estate taxexemption, there are
(27:00):
considerations for giftinggenerationally or out of your
taxable estate that only applyto the highest net worth
individuals.
But some of you may belistening.
We definitely know families whoare in this range where higher
level estate planning to avoidestate taxes would be
appropriate.
There's also a bunch ofconsiderations for business
(27:22):
owners, but some of these mayaffect you if you're also
working in a small business.
So there's a section.
179 involves accelerateddepreciation for small
businesses.
This is now permanent deduction, which can be significant for
businesses that are basicallydepreciating their equipment
(27:46):
right away instead of doing itover time, for an immediate tax
break.
And same for something thatworks in conjunction with 179,
which is called a bonusdepreciation if you kind of
spill over your limits on the179.
I'm not going to spend moretime on that, but know that this
is just making it a little biteasier for small business owners
to get deductions.
(28:07):
More significantly, in the worldof venture capital and startups
, there's something called QSBS,which is Qualified Small
Business Stock, which can makeit extremely lucrative in terms
of taxes and what you get tokeep when you sell a startup or
kind of a growth-orientedbusiness.
This is in law in order toencourage people to start
(28:31):
businesses that will be growthyfor America, and we're getting
even bigger in terms of theamount of assets that could be
in this type of stock, from $50million to $75 million with a
phase-in that happens quickerfor the time you have that stock
.
Again, this is super niche andsmall, but if you're someone
that this would be appropriatefor, it's a big, big deal in
(28:52):
terms of the tax savings.
So I don't want to fail tomention it.
More broadly, though, almostany business owner, depending on
their income and their type ofbusiness, may be eligible or
many are eligible for theSection 199A, which is also
known as the Qualified BusinessIncome Deduction.
(29:12):
This often we see for smallbusiness owners, even if you
just have a small LLC, and thatis becoming permanently extended
and includes inflation indexing, so it will continue to grow
higher and depending on whattype of business you're in, and
then some miscellaneousadditional things that may
(29:33):
impact business owners but alsoemployees of small businesses,
include a permanent incentive toprovide family and medical
leave for paid family leave taxcredit.
This was something that I'membarrassed to say I wasn't even
aware of as a small businessowner.
At our firm we have paid familyleave.
We had two maternity leaveslast year, we're going to have
(29:55):
one this year and there'sactually a credit for your taxes
for that up to 25% of thatleave if it's part of your
policy before the employeeleaves, and it's been expanded
to also include paying forshort-term disability insurance
premiums to also make that a wayto be eligible.
So this is great news and ifyou're a small business that has
(30:17):
this, let your owner know ifthey're offering it.
Let your owner know if they'reoffering it and you might.
If you're trying to negotiatefor maternity leave for everyone
or fraternity, you mightmention that this is an
opportunity for your smallbusiness owner employer.
Also, employers can permanentlypay $5,250 per year toward
employee student loans withoutincluding it in their income as
(30:40):
a benefit.
There's excess business lossLimitations have been made
permanent.
There's a workaround for thatstate and local tax deduction
for people who are businessowners, called the pass-through
entity tax, where you canactually pay some of your state
and local taxes through yourbusiness.
So this is something to keep inmind.
(31:01):
And there's also incentives forcharitable giving and child
care incentives, as well asstartup credits for establishing
a retirement plan, if you're ina business that doesn't have
one, are increased and madepermanent, which is great news.
So here's some additionalchanges that may impact your
money, which I'm sure we'll betalking about over time.
(31:22):
I know I have put in a lot, buthere's my last few bullet points
.
This, during this legislation,is definitely going to increase,
as I mentioned, debt anddeficits.
One of the things that is putsdebt front and center is the
debt ceiling, which needs to berenegotiated and increased
legislatively periodically.
Renegotiated and increasedlegislatively periodically.
This is anticipated that itwould, because the debt ceiling
(31:53):
was also increased to now $5trillion.
This is anticipated to not bean issue until 2028.
Medicaid and food stamps are,snap benefits are being reduced,
there's increased workrequirements and there's also
increased verification processthat may be more difficult to
navigate and manage when youthink about.
Well, who's that going toimpact?
It's not directly cutting outseniors who use Medicaid for
(32:16):
long-term care and nursing needswhen they run out of assets.
But certainly it's diminishingkind of the system and the
services that's going to beproviding that and certainly
we're most concerned abouthealth care networks in more
rural areas.
And you know, as there arethose charitable incentives
sprinkled throughout the plans,I know I've made extra donations
(32:40):
to food banks because federalgrants and funding for local
food insecurity are significantand used across the country in
all 50 states.
529s great news have more usesand more flexibility.
Now you can use 529s forapprenticeships, tutoring
therapy for certain disabilities, for some homeschooling, and
(33:02):
you can use 529s forapprenticeships, tutoring
therapy for certain disabilities, for some homeschooling, and
you can pay back up to $15,000of student loan principal
repayment per beneficiary.
Now I will say like if you'vegot money in 529s, instead of
paying towards student loans,the best bet is to not take the
student loans to begin with andwrite the tuition checks through
the 529s.
But this is good news.
(33:22):
The 529 accounts continue to beextremely flexible.
To use an example, becoming aCFP is typically a certificate
program, although there are alsodegree programs for it.
So with these new rules youcould use your 529 account to
get your professionalcredentials for something like
the Cert financial plannerdesignation.
(33:46):
There's also, though, changes tostudent loans that are going to
make it increasingly difficultto pay for college.
Parent PLUS loans are going tobe capped, with a $20,000 annual
limit and up to $65,000 perstudent.
Parent PLUS loans we don't likeanyway, but there's also just
like not a lot of good ways,especially as interest rates
have gone higher, to pay forcollege loans.
We don't like anyway, butthere's also just like not a lot
of good ways, especially asinterest rates have gone higher,
to pay for college if you don'thave the funds or the cash flow
(34:07):
.
So this is becomingincreasingly difficult.
Those changes are going to takeeffect next summer, and also
Pell Grants are going to be thisis good news are going to be
expanded for non-degree programs, but grad PLUS are going to be
expanded for non-degree programs, but grad plus loans are going
away altogether as of nextsummer.
Health savings accountcontribution limits are
(34:30):
increasing and more ofAffordable Care Act plans are
now eligible, includingcatastrophic plans as well as
bronze plans, and then there arenew reporting and compliance
requirements for those that owndigital assets and
cryptocurrencies.
As I look at the aggregate ofthis law, I first know I use
software so for my clients I canupload your 2024 tax return,
(34:53):
talk to you about what yourtaxes are going to be this year
in terms of your income and thenshow you before and after
before the legislation and after.
And the differences in taxesare anywhere from the hundreds
of dollars to, in some cases,many thousands of dollars,
especially getting into thoseitemized deductions for
(35:14):
mid-range income people.
But there's a lot ofopportunities, including like
having more clarity on planning,using those senior provisions.
Also, you know, usingdeductions if you fall into the
subsets that may be appropriate.
There's clarity in terms of theestate tax limit for high net
worth individuals.
Major shifts going on withinthis legislation on the
(35:37):
education and funding landscape.
I didn't touch on it, butendowments of large universities
, universities with more than3,000 students are going to have
a tax on investments,investment returns.
So it's not a tax on the entireendowment, it's on the returns
of the endowment.
The new Trump accounts arecoming.
That's something that is a TBD.
(35:59):
They're not really going to beout until next year and I
suggest that it's going to beinteresting to see how it's
administered and what financialinstitutions are going to be
offering them.
But there's also a lot of phaseouts when you get to higher
incomes, and so planning yourincome, especially with those
phase outs in the state andlocal tax reduction, is going to
(36:20):
be really important, especiallyif you're someone who's, you
know, kind of close to, let'ssay, a half a million dollar
range.
If you go from half a millionto 600,000 in income, you could
have to report $130,000 more inincome, so that's a big deal.
We love the new charitableoptions and opportunities and
(36:43):
also know that for some of youwho are planning for some clean
energy credits, those are goingaway.
But, bottom line, if you arethinking about financial advice,
if you work with a financialplanner, it is critical, mission
critical and one of the mostimportant things that I see to
keep taxes in mind.
If you're not working withsomeone who takes taxes into
(37:04):
consideration, it may be time tohave a conversation with
someone else.
And if you ever have questionsor want to contact me about this
, do let me know.
And if you're looking for moreresources, we have a blog coming
up.
I'm going to be doing a webinarwhich goes over similar
information, but with picturesas well, as you know, kind of a
powerpoint to show you and guideyou a little more visually, and
(37:27):
we'll also be doing an economicupdate soon.
After we have all of thesedetails out for obbb or ob3,
then we will pivot to talkingabout the investment and
economic landscape for the year.
So if you're interested inreceiving those, you can go to
my website at pearlplancom andsubscribe to our newsletter.
(37:49):
With that, thanks for listeningto this meaty episode.
I hope you can hear that I gotmy geek on to tell you about
some of the things that arechanging.
I do love the details, but Ialso just love helping people
individually take advantage ofwhatever opportunities
legislation brings and plan forthe risks that it also brings.
(38:10):
So this is, you know, pivotpoints and change are where a
financial planner shines, and Ihope you appreciated my geeky
conversation.
Until next week, thank you forjoining us.
You, you, you.
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