Main Street Business

#581 Breaking News - Senate Tax Bill Text Released

• Mark J Kohler and Mat Sorensen

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Breaking News - Senate Tax Bill Text Released. With both the House and Senate versions now on the table, which proposal offers bigger tax cuts? Which one could save you more money? I’m breaking down the differences between the House and Senate proposals and what’s changing and how it will affect you.

Intro & Why This Tax Bill Matters

00:00 - 00:02:25

Expiring Tax Provisions in 2026

00:02:25 - 00:03:32

Standard Deduction & Income Tax Rates

00:03:32 - 00:09:07

Child Tax Credit Breakdown

00:09:07 - 00:10:59

State and Local Tax (SALT) Deduction Debate

00:10:59 - 00:15:13

No Tax on Tips & Overtime Explained

00:15:13 - 00:20:14

Small Business Tax Breaks (QBI & Bonus Depreciation)

00:24:02 - 00:29:27

House vs. Senate: Final Comparison

00:29:27 - 00:30:25

Speaker 1:

Hey, this is Matt Sorensen with the Main Street Business Podcast. I want to share an update on the big, beautiful bill. What's happening in Congress? The House bill passed a few weeks ago by one vote and now the Senate bill is out. I'm going to go over the differences between the two bill, where there's benefits, pros and cons between the House and Senate. What the current status of the bill is. They're planning to have this signed by July 4th. We'll see. Please enjoy my update. We'll see. Please enjoy my update.

Speaker 1:

Well, the Senate has released their tax bill this week and there is a lot of provisions in this that differ from the House bill. This is a critical piece of tax legislation. Make no mistake, if nothing passes, everyone will be paying more in taxes in 2026. I'm going to break down the individual tax breaks. I'm going to go through seven different tax breaks, how they differ in the Senate versus the House bill. The House bill is better, make no mistake. By the time we get through this, one of the major conclusions you're going to see is that the House bill is better than the Senate bill. So it's not great news, but the Senate bill is better than nothing. But also, we're going to go through the small business deductions. So I'm going to go through some critical business deductions that affect you as a small business owner.

Speaker 1:

Big corporations I'm not going to address that in the bill Spending issues and other. I'm not going over that. I'm talking about tax cuts that affect you next year on your tax return. And make no mistake, this is not about wealthy individuals. This is not about big business. All this news you're hearing politically, I'm not talking about it. I'm talking about what's going to affect everyday Americans making a hundred grand, 200 grand a year. How does this affect you on your tax return? If nothing passes, you will be paying two to $5,000 more in taxes in 2026 than you're paying right now. So this bill is critical. It's going to affect you and it's going to be significant. All right Now.

Speaker 1:

The first thing I want to make sure everyone understands is when Trump was first in office, they passed tax reform that went into effect in 2016, 2017. However, most of those provisions sunset this is the last year those provisions are in effect. So what that means is, if nothing passes, all the tax hikes are going to go into effect, all these tax cuts go away. So you're going to have higher individual rates. You're not going to have a large child tax credit. You're going to have higher individual rates. You're not going to have a large child tax credit. You're going to have a loss of standard deduction. There's so many things that everyday Americans are going to lose if nothing passes. So this bill is really important.

Speaker 1:

Now let's dig into the individual items. First, I'm going to go through seven. We're going to go through the standard deductions. We're going to go through the income tax rates. We're going to go through the income tax rates. We're going to go through the child tax credit for those of you with kids. We're going to go through the state and local tax deduction. This is one that's screwing up the bill, quite frankly. I'll get into the politics on that. We're going to get into no tax on tips, no tax on overtime. There's differences in almost every one of these sections on what the House is doing and worse is what the Senate is doing.

Speaker 1:

After that, I'm going to get into the small business deductions. We're going to talk about QBI. This is the 20% deduction you get right now on your business income. If you're a small business owner, you make 200 grand. You're only taxed if you make 160K. It is huge. That goes away next year if nothing passes. The House and Senate have different versions on this. We're also going to get into bonus depreciation. This is a massive benefit to small business owners who are growing their business, buying equipment. It's going to be gone next year or it's only going to be 20% instead of 100%. I'm going to dig into that because, again, the House and Senate can't get their crap together and they are different on this. And there's some other things I want to mention here the deduction for seniors, also different between the House and Senate. The state tax exemption also. That one's actually the same, but it's going to be a big change if nothing passes, all right.

Speaker 1:

So let's dig into the individual ones and let's talk about the standard deduction. This is one that affects everybody. Everyone has this issue of whether to file the standard deduction. What the standard deduction is is it's a deduction you get to automatically take on your tax return. You don't have to track all your charitable contributions if If you have any mortgage interest, if you have it, you just say, hey, I'm taking the standard deduction. Now, again, go back 10 years. This standard deduction wasn't very valuable. It was doubled back in 2017. And right now that's going to go back and get cut in half.

Speaker 1:

So right now, the standard deduction in 2026, if nothing passes is going to be $8,000 for individuals, $16,000 for married couples. Now, if the bill passes the House and Senate are actually similar on this one. This is one of the few that they're actually lined up pretty similar on is going to go to $32,000 if you're married and about $16,000 if you're single. What that means is let's say you make $100,000 a year you're married. What that means is let's say you make 100K a year you're married, you get to take a $32,000 deduction. You're only taxed if you made $68,000. That's pretty freaking awesome. That is a massive deduction. It means you only pay taxes if you made $68,000. So if nothing passes, that's going to go to $16,000 next year. Again, you make $100,000. You're going to be taxed as if you made eighty four. All right, what that means is you have more taxable income. You will be sending more money to the federal government in taxes.

Speaker 1:

Now, between the House and Senate bill, the only difference here is the Senate wants to make that permanent. They're saying we are going to make this permanent. This is the one thing I think the Senate bill is better than the House is this doubling of the standard deduction and making it permanent starting in 2026. The House bill is saying we are going to make it actually go up to $32,000 through 2028, and then it goes to $30,000 starting in 2026. So not too big of a difference. The Senate gives you an extra bump. That's permanent. The House bill gives you an extra bump up to the 32, then back to 30 in 2026. But both of those are pretty similar and bottom line is we're going to get higher standard deductions, which is really something that everyday Americans file.

Speaker 1:

This is not a wealthy person thing. Wealthy people don't take the standard deduction. Wealthy people itemize, they track all their charitable contributions. They take the mortgage interest deduction. They take state and local income tax deduction. We're going to come back here in a second. They don't take the standard deduction. So losing this valuable doubling the standard deduction is going to hurt middle-income Americans. So critical point there. But the bill is very much similar here. The only difference here, again on the Senate side, is they give a permanent increase up to the 32K instead of 30K on merit and it's, like you know, 16 versus 15 singles. So not too big of a difference.

Speaker 1:

All right, let's talk about the income tax brackets, this one's massive right, the brackets that we have where you pay tax depends on the income level you have the higher income bracket you end. The higher income you have the higher tax bracket you're in. Right now, the highest bracket is 37%, sitting in 2025. Next year it's going to go up to 39.6%. The middle income brackets, for example. Let's say you're currently in a 12% bracket. That's going to go to 15% next year if nothing passes. So everyone's bracket is going to go up between 2% to 4% next year. If nothing passes, so everyone's bracket's going to go up between two to 4% next year. If tax relief isn't passed Now in the house bill and this is the same what they're doing between the house and Senate they're saying, hey, let's make these tax brackets permanent, these lower rates, so that the max is 37%, the lowest rate is 10%.

Speaker 1:

Now, one of the things we had heard from Trump about a month or two ago is he was willing to keep the 39.6 bracket for the highest income earners and saying, well, let's reduce the brackets for everyone else, but still keep 39.6 on the highest bracket for the highest income earners. And I think he was going to target that those making 2 million or more. Right now, that highest bracket is like 400 K or so. Now that is not in the bill, that was not in the house bill, that's not in the Senate bill. Maybe this is going to be a negotiating chip that comes back later into play to get this thing passed, but right now the house and Senate are doing making these rates permanent. The lower rate, which will be the highest rate, will be 37%. Everyone sees a 2% to 4% reduction if this bill passes and this is going to be made permanent.

Speaker 1:

The problem, what happened 10 years ago is in the last tax policy that was revolutionary. Corporate America got permanent tax breaks and all the individual breaks the ones that are on the chopping block right now, that are set to expire next year, and why we're even talking about this. They had a 10-year sunset clause and said, hey, after 10 years, these go away. What the Republicans are doing right now in the House and Senate bill and what Trump's been arguing for, is make the individual breaks permanent. Let's get them permanent, which is what they're doing on the doubling of the standard deduction and what both bills also do on the income tax breaks lowering the rates. Again, the highest rate will be 37%. Now, if you're making a hundred K a year, again this one provision here alone let's say you're making a hundred to 200 K a year that's going to save you two to $4,000 a year in taxes. Just this one provision alone you're picking up another couple thousand dollars on the standard deduction item. I mean this is we're talking a lot of money in federal income tax to everyday working Americans. This is bigger than any stimulus bill you ever get, or check you'll get, from the government. This is you keeping more money instead of sending it to the IRS. All right.

Speaker 1:

Next one Big is the child tax credit. For any of you with kids or planning to have kids, this is significant. There's some differences, though, in the bill. Right now, you get a $2,000 child tax credit per child that you have. Now, this is a credit, not a deduction. Okay, deduction reduces your taxable income. Right, you make $100K and you get a $2,000 reduction. You're only taxed if you make $98,000.

Speaker 1:

A tax credit is a credit against the tax you owe. So, for example, when you run all your numbers on your taxes and they say all right, you owe $6,000 this year, but you're like, but I got two kids, they're like great. You have a $4,000 tax deduction or, excuse me, a $4,000 tax credit. You only pay tax on the 2000 left because you get to take the credit against the tax owed. So tax credits are very valuable. They're way more valuable than deductions. Now, in 2026, if nothing passes, the child tax credit gets cut in half. It's only going to be a thousand dollars per child.

Speaker 1:

In the house bill they increased it to $2,500 per child through 2028. And then it's $2,000 a year and it's indexed for inflation after 2028. So what they're saying here basically is for the next few years we're going to give you $2,500 per kid on the child tax credit, but then it's going to go down to $2,000. Not down to $1,000, but down to $2,000. In the Senate bill they did something entirely different. Of course. They said we're just doing $2,200 per kid for the child tax credit, we're not letting you go up to 2,500, but we're not going to put it at 2,000 after 2028. They just said 2,200 right out of the gate. So if you're looking at this bill and you're thinking of your household and kids, basically if you got like older teenagers, the house bill is better for you because 2,500 bucks a year for the next few years you're going to get more bang for your buck. If you've got younger kids, the $2,200, but over time being the same, you're going to be benefiting from the Senate bill. Not too much of a difference there. Basically, those with kids win either way big time between the House or the Senate bill. But I think the Senate bill comes out ahead here on the child tax credit.

Speaker 1:

All right, let's go to state and local tax deduction. This is the one that has a ton of politics involved in it. What the state and local tax deduction is is the federal government says hey, if you paid tax to the state, you get to pay a deduction to us. Or, excuse me, you get a deduction on your federal taxes based on what you paid to the state. So for example, let's say you made 200000 a year and you paid $20,000 to the state of California because you're a California resident. They say well, that doesn't make sense. You have to pay tax on $200,000. You didn't make $200,000. You only made $180,000 because you had to send $20,000 of that to the state of California. So traditionally the federal government has given you a deduction of taxes you pay to state and local governments and they say we don't tax that money because you didn't get it. You had to send it to your state or local taxing authority.

Speaker 1:

Well, back when tax reform is passed, to pass all these tax cuts, they said we need to raise taxes in some areas. So they said we will only let you take a $10,000 deduction on your state and local tax. And that's what passed back and went into effect in 2017. Now that $10,000 cap on how much you can take as a deduction for state and local tax, that goes away entirely in 2026. And we go back to the old rule no cap. Now, if you think about this, those who live in high income tax states California, new Jersey, new York, massachusetts I mean states that have a lot of high state tax this is punitive to them. Okay, this 10,000 cap hurts them. Frankly, they want no cap, they want nothing to pass on this specific provision because when 2026 hits, the cap goes away entirely and they can take a deduction for all of their state and local tax.

Speaker 1:

Now what the House did in the bill is they said, well, we're not going to get rid of this cap, but $10,000 isn't enough. So the House said we're going to move up to a deduction of $40,000. So your cap on state and local tax under the House bill is $40,000. So again go back to the example. You're making 200K a year in the state of California, you have $20,000 in state and local tax, you've paid, you're under the cap of 40K. So you get to take a 20,000 deduction. The federal government only taxes. If you made 180K. In the Senate bill they basically said we're sticking to the $10,000 cap.

Speaker 1:

Now, if you think about the politics of this, why did the bill come out that way? Well, most senators and this is all politics are from states that have low state income tax, that are Republican, right, the senators from California, the senators from New Jersey, the senators from New York are all Democrats. They don't have a say in this bill and, frankly, they're not that excited about tax reform for the most part. And so in the Senate you've got senators that are Republicans from states like Texas, florida, states that have no state income tax. This is not a critical issue for their residents as much. But when you go over to the House, there's a lot of House Republicans from California, there's a lot of House Republicans from New Jersey. They've all banded together and said, hey, we're passing nothing in this bill unless we get a deal on state and local tax, and so they can hold out in the House and force this issue. So there's some politics to this and this is one of the major issues that is causing disputes between the House and the Senate and that could, frankly, screw up this bill entirely, because they cannot get on the same page on this.

Speaker 1:

The first three items I mentioned there the standard deduction, income tax rates going down, the child tax credit the Republicans between the House and the Senate are all on the same page on that. There's not much difference there. You hit this one. There's a lot of disagreement on how this should be handled because of the politics on it and because of the House Republicans from high income tax states who want a higher deduction on this. So again, the House is at a 40K max, the Senate wants a 10K max on your state and local tax deduction and basically what the Senate Republicans are saying is go back to your state and tell them they shouldn't be taxing you as much. I mean, that's kind of what they're saying right now. So there might be an impasse there. There's going to be some other items here I'm going to go over that have some disagreement, but this is the number one item that Republicans cannot get on the same page on, and this one item could screw up the bill, because there's about 20 or so House Republicans and remember this House bill where they negotiated that 40k max. They passed by one vote in the House of Representatives. The Senate hasn't even voted on this yet, but they got razor thin margins in the Senate as well. Now the Senate leadership has said we're open to negotiating on this. $10,000 is a starting point. They didn't want to go to 40.,000. Maybe it ends at $20,000 or $30,000 where they negotiate on this in the final bill between the two chambers in Congress.

Speaker 1:

All right now let's go to some of the other deductions, some of the stuff that Trump talked about and other Republicans on the campaign trail. No tax on tips and no tax on overtime. Now, right now. This is one of the provisions that has nothing in the law. You pay tax on your tips. Now, right now. This is one of the provisions that has nothing in the law. You pay tax on your tips. You pay tax on your overtime. This is not something they're trying to fix. You just pay tax on overtime. You pay tax on tips under the house bill.

Speaker 1:

What the House Republicans said is no tax on tips. They did not cap it at all. But there is a phase-out for income. When you make about $160K or more per year Now this is per worker that's getting tipped income. If you're making more than about $160K per year, you're what's called a highly compensated employee under the tax rules. You don't get to take this deduction Now. The tips must be voluntary. You don't get to take this deduction Now. The tips must be voluntary. That's one of the provisions in the code that says it must be a tipped worker that you're in a profession or a line of service where tips are customary and tips are voluntary. So, for example, when you're going to check out and they force you to pay a tip for something they would have to pay taxes on that, the tip must be voluntary. There must be an option to not have to pay a tip for something they would have to pay taxes on that. The tip must be voluntary. There must be an option to not have to pay a tip. Otherwise they're saying you're just increasing prices and calling it a tip and try not to pay tax on that portion of income. All right, so no cap on that, but again there's an income phase out at 160K a year on no tax on tips. Now in the Senate bill they put a cap on this and they said the no tax on tips is up to $25,000. So if you get paid $40,000 in tips, they're like you only get to take up to 25,000 of that as a deduction. The other 15,000 in tips of the 40,000, you have to pay tax on. Okay. So they put a cap on it in the Senate bill.

Speaker 1:

Now in the Senate bill they basically they didn't go with 160,000 per worker. That's getting that income. They just said 150 K if you're single phase out. 300 K if you're married phase out. So a little different on that. But essentially in both the house and Senate bill they say if you're kind of a higher income worker, make it more than 150 K a year. Again, 300 K for those married. Under the Senate bill this phases out and you don't even get to use it. Also, the distinction here in the Senate bill is it's up to a max of $25K. You do not get this deduction at a higher rate.

Speaker 1:

So the House bill is better on this because they do not have a cap on the amount of tips that you get and it's $160,000 per worker. That's getting this tipped income instead of $150,000 single. So I think the House bill wins out on no tax on tips. Now, in both of those bills this is not a permanent provision. This will only go from 2025 to 2028. So this will have to be renewed later in Congress. We are getting at least four years of tax relief for no tax on tips, either the House or the Senate version.

Speaker 1:

Again, just a little different approach on how they're dealing with it, and high-income earners aren't going to be able to use this. All right, let's go to no tax on overtime next. Again, there's no provision. Right now you pay tax on your overtime, just like you do on any other income. In the House bill, again, they did not put a cap on this, but they said in the House bill you phase out at 150,000 of income, a single, 300,000, married. All right, so no cap, an unlimited amount. But again, if you're a high income earner, you start phasing out and you don't get to use this. Now, frankly, most people are salaried that are making those those amounts of income 150 to 300 K. 150 that's for single, 300 K filing joint. Most of those workers are salaried people. So you don't get overtime, so I don't know that that's too big of an issue. There might be some higher paid hourly workers that are hitting those income limits or they have a spouse that makes a lot more. You're not going to get the benefit of this. You will phase out, all right. In the Senate bill they came back and they instituted a cap again. That's basically a theme that the Senate bill has versus the House.

Speaker 1:

On tips and overtime, as they said, we're capping this. We're also putting a high income phase out on it, but we're putting a cap on it. So in the no overtime, no tax on overtime there's a cap that is 25K again and phases out also 150,000, 300,000 annual income, single versus married. So if you're someone making a hundred K a year and you're getting some overtime pay, this is going to be a big benefit to you. You will get a deduction on this. The tips again as well. Under the Senate bill, again, it maxes out at 25 K. No cap on the house bill on either of these, all right. So that's no tax on tips and overtime.

Speaker 1:

Another one that's been popular that's came up is the older Americans. If you remember, trump on the campaign trail was saying no tax on social security. Well, what he basically came down with is we're not going to do it that way. We're just going to say you get a deduction if you're an older American, 65 or older, on your income and in the House bill they said it's a $4,000 income exemption or tax exemption. The Senate is $6,000. So the Senate's giving a little bit higher amount for older Americans on their taxes. That's going to reduce their tax burden. Both of these only go through 2028 as well.

Speaker 1:

So a lot of this new stuff, the campaign stuff no tax on tips, no tax on overtime, no tax on Social Security which just kind of became this like tax reduction, I should say, is what they're calling. It is $4,000 in the House, $6,000 again in the Senate, but these go away in 2028. These are not permanent provisions. Everything else reduction on the rates, the doubling of the standard deduction, the child tax credit, the state and local tax deduction those provisions they're going for permanency on. They don't want to come back and have to rehash these issues, which is good for taxpayers. We don't want to have to be going through this every cycle of when Republicans change or Democrats are in power and wondering who's going to renew these provisions and who's not All right.

Speaker 1:

Other on the individual side. Just a couple more things. Then we're going to get to small business, the estate tax exemption. Right now, when you die, you have approximately about a $15 million, $30 million $50 million single, $30 million married, where that can pass on to your family. No estate tax, no inheritance tax at the federal level. Next year, in 2026, though, that gets sunsetted the doubling of that and it goes down to $7 million if you're single, $14 million if you are married.

Speaker 1:

In the bill they are going back to keep this doubling of the estate tax exemption. So it'll be $15 million single, $ 30 million married. This is the same in the House and in the Senate and it will be made permanent. This is a critical one for those that have had small businesses, the family farm, that have tried to build and grow wealth over their lifetime, want to pass it down to their kids, want them to keep that business or the family farm or whatever, without having to sell it. And it's also something uh, if you think of the politics in, this is generally the argument is I was taxed when I made it with income tax, I was taxed when I held it as property tax, and now I'm taxed when I pass it on to my loved ones, when I pass away. It just doesn't seem fair to a lot of people. Again, politics on that and your opinion on it, uh. But giving a exemption up to 30 married, $15 million single is where the House and Senate are targeting this, and that will be made permanent under both of their provisions that they have proposed. All right.

Speaker 1:

Now, remember, the House bill has already passed. That's the good news. It passed by only one vote, the Senate bill. What has been released is what came out of the Senate Finance Committee, that's, who writes tax policy for the Senate, and the Senate has not voted on this yet. There's already some bickering and there's already some senators that said they're not going to vote for this, that they're against it. They're, frankly trying to negotiate some stuff, so we'll see. It seems like the Senate believes they can get this passed, but if they pass two competing versions of the bill which is what they're on track to do then they have to go into reconciliation between the two and it gets messy. The goal that the House Republicans and the House Senate had on Trump's mandate was to get a bill that President Trump could sign by the 4th of July. Now the House said they could get a bill passed by Memorial Day and everyone laughed at them and they did it. So I don't know. We'll see if the Senate can get this together here in the next few days. We may see a vote as early as next week on this and then. But then again, if they pass a competing version here, they're going to have to go reconciliation because they have to have passed similar bills in order for it to go to the president for signature.

Speaker 1:

Ok, let's hit the small business provisions here. These are really big. The first one, which is my favorite, is QBI. Again, go back to 2017, new tax policy goes into effect. There was a new provision that small business owners got called qualified business income. This is the QBI deduction, and what that provision says is you get a 20% deduction on your small business income. Again, let's say you're a small business owner, you're making 200K a year. You get a 20% deduction on your small business income. Again, let's say you're a small business owner, you're making 200K a year. You get a 20% deduction on your income. That means your only tax is if you made $160,000. That is a huge win. If you're in a 30% tax bracket. Think of paying 30% on that 40,000 you would have otherwise had to claim as income. I mean, what is that? That's a $12,000 saving in taxes right there alone. So QBI was pretty significant when it passed and it's really the big benefit that small business owners got.

Speaker 1:

Corporate America went from a 35% in the big corporations 35% tax bracket down to 21 made permanent. They got a 16 or 14% reduction in their tax made permanent. They got a 16 or, excuse me, a 14% reduction in their tax rate made permanent. And then small business was like well, what do we get? We're taxed at individual rates which are the max rate now is 37, could go to 39. We don't get a 21% rate. And so the provision that small business got was this QBI 20% deduction, which was pretty awesome. I take QBI. Most of our clients in my law firm, kko Sawyers our small business owners. They're taking the QBI deduction every year and it's saving them tens of thousands of dollars.

Speaker 1:

Now, under the house bill, they said we are going to make QBI permanent because it's set to go away in 2026. It just disappears entirely. The house bill said we're going to make it permanent and it's not only going to be 20%, we're going to make it 23%. So again, 200k 23% deduction, you get a $46,000 deduction under the House bill. Now the Senate says let's also make it permanent, but we're sticking at 20%, we're not going up to 23. We're just going to keep the same thing that we have. It's going to be 20%. So the House bill wins out on this one and this is why I think, when you add it all up, the House bill is actually better Higher child tax credit, higher QBI deductions for small business owners. Everything else kind of works out the same between the two, frankly, but the House bill is better. Definitely, qbi is one where it is significantly better by giving you an extra 3% on your qualifying business income. But the Senate bill is still good because we still can keep QBI and both of them are permanent. Both of these provisions will make QBI permanent, whether it's at 23% or 20%, all right.

Speaker 1:

Next provision that affects small business owners is bonus depreciation. So bonus depreciation was something that was again instituted again back in 2017. It is, and it was, a hundred percent deduction at first, where it said hey, if you go buy new equipment in your business or a vehicle in your business, let's say you spent $50,000 on that. On new piece of equipment or the vehicle, you can take a hundred thousand dollar deduction on it immediately. It's called bonus depreciation. Typically when you buy equipment or a vehicle in your business you don't get to take 100% write-off for it in year one. You expense it over time and each type of property whether it's some pieces of equipment or a car they say, well, that's going to last you five years, seven years, 10 years let's say it's 10-year equipment, for example, $50,000. They'll say, well, you take $5,000 a year over 10 years to deduct it. Well, that's not that great, you'd rather have a deduction now than take it in pieces over 10 years. So the bonus depreciation said you get to take a write-off 100% in year one, no matter the lifetime of that property. And there's some rules to this, but I'm generalizing it here. So under the house bill they said we are going to go back to 100% bonus depreciation and it is going to go through 2029. Okay, so they it's not going to be permanent, but we're going to give you 100% bonus depreciation and it doesn't phase down, it's going to go through 2029.

Speaker 1:

Now, starting in 2026, the bonus depreciation rules go to a 20% bonus depreciation. You can do not a hundred percent, it's better than nothing. But the current state of the tax code is bonus depreciation you can do not 100%, it's better than nothing. But the current state of the tax code is bonus depreciation has already kind of been whittled down. It was first passed at 100%. It went down 20% every couple of years. So right now the bonus depreciation actually for 2025 that you get to take is 40%. Ok. So let's say you bought again a $50,000 piece of equipment. You get to take a 40% deduction on that. You don't get to take is 40%. Okay. So let's say you bought again a $50,000 piece of equipment. You get to take a 40% deduction on that. You don't get to take a hundred percent, but you can take 40% in the first year, all right.

Speaker 1:

So the house bill is going to say bonus depreciation is back, but it's not permanent. It's through 2029. This allows you to take larger expenses as you're growing your business, buying equipment, vehicles that you use in the business. In the Senate bill, bonus depreciation is back at 100%, starting in 2025. Again, that's what the House bill does too. This goes into effect for 2025, but it will be made permanent. Now this is one area where the Senate bill is superior to the House bill is the bonus. Depreciation is permanent, so there's some give and take between the two. I still think the House bill is better at the end. It doesn't have caps on tax on overtime and tips. Qbi is 23% higher child tax credit for the first few years 2,500. But there's definitely pros and cons between the two. Either way, though, the House and Senate bill are essentially 90% the same, and whether you're for one or the other, they're far better than nothing passing coming 2026.

Speaker 1:

Because nothing passing coming in 2026, you're going to pay a couple thousand more in federal income tax if you're making 100K or more 200K. We're talking $4,000 to $6,000, depending on whether you have kids or not, and this could be significantly more. I'm just talking about everyday working Americans. Then you take the small business owners. I mean you just see the difference here on QBI, a 20% deduction. That's massive. You're a small business owner making a million dollars a year. You're only taxed if you made 800. That is huge. Think of $200,000 of income at your 37% bracket. We're talking $70,000 of federal income tax that you're going to pay more. Instead of that, putting back that money into your business, growing it, employing more people growing, serving more customers, so this is a big deal.

Speaker 1:

Now where we're at right now, the Senate Finance Committee has put out this bill. It's still got to be voted on. The Senate is still working through this and negotiating these provisions. The House is actively engaged in this. Speaker Johnson has already been trying to negotiate on this because they know that the Senate version is different in a number of key areas. State and local tax area is the one where you see some House Republicans already banding together. They've already said they're not going to vote for the bill if it has a 10,000 and they will hold out on the entire thing and sabotage the entire bill. They're willing to like crash you know the car here to get what they want. So we'll see where this goes. I'm going to be providing updates, so please be subscribed. I'm Matt Sorensen. We'll see you next time.

Speaker 2:

And thank you everyone for listening. A quick disclaimer and reminder this presentation does not constitute an attorney or CPA client relationship and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions.

Speaker 1:

We also want to make sure you know this is not investment advice or financial advice. We're just trying to give you education, ideas and strategies you can take to your professionals or conduct your own research on. We'll see you next time, thank you, thank you.

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Mark J. Kohler

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