Main Street Business

#585 New Tax Bill Signed Into Law By President Trump - What’s In and What's Out?

• Mark J Kohler and Mat Sorensen

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In this special episode, Mat Sorensen breaks down President Trump’s newly signed tax legislation, known as the “Big Beautiful Bill," and what it means for your personal and business taxes. With sweeping changes taking effect in 2025, Mat outlines the most impactful provisions for individuals, small business owners, and real estate investors. 

0:00 - Introduction to The Big Beautiful Bill

5:14 - Individual Tax Breaks Explained

9:19 - State and Local Tax Deductions

15:34 - Senior, Tips, and Overtime Benefits

18:42 - Small Business Owner Benefits

19:39 - Next Steps and Bill Timeline

Speaker 1:

Welcome everyone to the Main Street Business Podcast. This is Matt Sorensen. In today's special episode, I'm going over the big, beautiful bill. This is President Trump's landmark legislation that was just signed into law on July 4th. Now in today's special episode, I go over the final bill, which was the Senate bill that later, a day or two later, passed in the House and was just signed into law by President Trump on July 4th. There's a lot of tax breaks in here for individuals and small business owners. I detail what is in and what's out in this final legislation, please enjoy. The Senate just passed the tax legislation. This is the big, beautiful bill we've been talking about. It's been all over the news, but it is now passed the Senate. It is already past the House. It'll be awaiting Trump's signature.

Speaker 1:

Now in today's video, I'm going to break down what's in the bill. I'm specifically focused on the tax deductions. There's a lot of other issues and things happening in the bill, not what I'm doing in today's video. I'm going to talk about the tax benefits and the tax perks in the bill for you as an individual or as a small business owner. Next, I'm going to go over the process and what to expect next. There's a couple steps that are going to be necessary along the way. There could be some derailments here. Likely this thing is going to sell through, but there are some issues that still need to be resolved. And then I'm going to go over what goes into effect in 2025. There are a number of provisions that go into effect in 2025, and there's other provisions that go into effect in 2026. So it's important you know what's going to matter on this year's tax return versus what's going to be mattering in the future.

Speaker 1:

Now I want to go over a couple of important notes at the beginning here. First, there was tax reform nine years ago. What happened tax reform nine years ago is there are a number of provisions that are set to expire. For example, lower individual rates, doubling of the standard deduction, qbi, small business deduction those things are all going away. This is the last year of those big tax breaks that came about nine years ago. However, this legislation is extending many of those, improving some of them, reducing others and adding things in All right, so we're going to be going over all of that. Now.

Speaker 1:

The key thing you need to know here is there was a prior house bill. It's very similar to this bill that just passed the Senate. But this bill that passed the Senate has had a number of changes just in the last few days alone. It passed this morning 51 to 50. Okay, the vice president, jd Vance, had to vote on this bill for it to pass the Senate, but it was passed and this is now going to be signed by President Trump. Now I'm going to go over some things that still need to happen. President Trump said he wants to sign this by the 4th of July, and even today he just said I'm not sure I'll be able to sign it by the 4th of July because there's still some procedural things and a vote that needs to happen in the house as well.

Speaker 1:

All right, let's break through the provisions that are going to go over and save you money as an individual first and I want to talk about any of you who are small business owners or real estate investors. There's a number of provisions that are super beneficial to you as well. But let's hit the individual ones, because those apply to everybody, and this is the Senate bill. What you've heard about the house bill, by the way, doesn't matter. The Senate bill is going to control. This. Thing's going to go right back to the House where they're going to have to vote on this. So the Senate bill is what's going to be critical here.

Speaker 1:

All right. First, individual rates. Individual rates are going down for everybody 2% to 3%. I don't care if you're low income, middle income, high income, tax bracket, your rate bracket. Your rate is going to be two to 3% less because of this bill.

Speaker 1:

Now, this provision is in effect in 2026. We already have the lower rates still for 2025 that are going to expire. Everyone's bumping up. Next year, for example, let's say you're in a 12% tax bracket right now. Next year, you're going to be in a 15% tax bracket. Your bracket's going up 3%. You make a hundred grand a year and you're in that bracket. That's going to cost you $3,000. Okay. So what's happening, though, is they're maintaining the lower rates, so you're going to get that in 2026, moving forward.

Speaker 1:

Now the highest rate 39.6% that used to be the old high rate was reduced to 37. 37 will stay the highest bracket and the highest rate in the federal tax code. Now there was talk about President Trump saying he was willing to negotiate up to a 39.6% rate for those making 2 million or more. That never happened. The highest bracket is still sitting now at 37% and that's what passed the Senate. Now this is permanent and this is a critical point on these tax provisions. Most of these are permanent. Some of them are only good for three to four years. I'll be mentioning which is which share as we go through them. But the rate reduction 37% max rate, everyone else getting two to 3%, no matter what bracket you're in, that is permanent. It won't expire again. All right.

Speaker 1:

Next let's talk about the standard deduction. This is the second most important one that impacts every individual tax filer. The standard deduction is something you take on your tax turn where you say, hey, I'm not itemizing all of my deductions, I'm not taking charitable deductions, I'm not taking mortgage interest, I'm not taking state and local tax deduction. These are all higher income taxpayer deductions typically, or at least middle upper income tax deductions I'm not taking those, I just want to take the standard deduction. Income tax deductions I'm not taking those, I just want to take the standard deduction. Just give me a regular deduction so I don't have to track all that. Well, that is mostly something that middle income, lower income filers take as the standard deduction. Under the standard deduction right now, the Senate bill is $32,000 for married, $16,000 single. This starts in 2026. If that is not if this was not passed, though, by the way, this would be half that Okay. So that would be 16,000 married and, you know, an 8,000 single in 2026 without this passing. So this is again one of those things that's set to expire in tax year 2026, but the doubling of the standard deduction was maintained and again made permanent under the Senate's bill.

Speaker 1:

All right, child tax credit. This is one that varied significantly from the House bill that passed about a month ago. Under the child tax credit, what the Senate did is they said, $2,200 per child. There's a phase out for high income earners 400K married, 200k or more single where you start phasing out and that credit gets less and less as your income goes up. But if you're under those, you'll get the full credit, $2,200 per child, and this is going into effect right now. But what was going to happen is next year, in 2026, the current child tax credit is $2,000. That was going to get cut in half to $1,000 in 2026. But this will be $2,200 per child and this is also something being made permanent Now. In the House bill they were going to do $2,500 child tax credit per child, but that was only going to be for three years and then it was going to go down to 2000. So this 2200 per child under the Senate bill frankly is better overall.

Speaker 1:

For any of you with kids or thinking about having kids, this is a huge benefit because this is a tax credit. It's not a deduction that reduces your taxable income. Right? Let's say you make a hundred grand a year and you get that $32,000 standard deduction because you're married. You're only taxes. If you make $68,000, then you determine what your tax bracket is and all their deductions, and maybe you owe $2,000 in tax at the end of the day. Well, if you have the child tax credit of 2,200 bucks, that's going to wipe out all of your federal tax and you actually would get a refund. So the child tax credit is about the tax you pay. It's a huge benefit for any of you that have children or thinking about having kids and again, that $2,200 amount is being made permanent.

Speaker 1:

Okay, next one on the individual level was the state and local tax deduction. This one was massive. This one is one that was debated in the House and it could cause some issues here, as the House is going to have to pass the Senate bill here we're going to talk about next steps here. In a second, under the Senate bill, they said the state and local tax deduction is going to be $40,000. That is the max cap that you can take as a deduction for state and local tax. You paid and that is for five years. You will get that for five years, starting in 2020, starting in 2030, excuse me, that is going to go back down to $10,000. The current deduction amount you can take for state and local tax is $10,000.

Speaker 1:

Now this is a new thing that came about with tax reform back again nine years ago is, they said it was actually before this law nine years ago you could take an unlimited amount of state and local tax deduction. For example, let's say you make $200,000 a year, you live in the state of California. You pay $20,000 in state income tax to the state of California. Well, under the federal tax law, what you traditionally could have done before tax policy nine years ago is you would say hey, I paid $20,000 in state tax, federal government, I didn't make $200,000. 20 grand of it went to the state of California. I made 180. Tax me as if I made 180. And that makes sense, right? You don't actually get to keep that money. So how can the federal government tax you on money you never got to keep? You got to send to another government. So that was how the law was. There was no cap on how much state and local tax you can take.

Speaker 1:

Well, in 2017, last version of tax reform, they said we'll only let you take up to a $10,000 deduction for your state and local tax. Well, a lot of higher income taxpayers, particularly those and even upper middle income taxpayers, particularly those in high tax states, got kind of screwed on this because they're like why now I make again? Let's say you're in California 200K a year, paying 20K in tax. Under the law right now, you only get to take a $10,000 deduction, but you didn't get to keep that. So you're paying tax on 190, but you really only made 180. So this is what the state and local tax deduction is. This is why there's so much disagreement on it is those that have to pay it feel very frustrated because they're paying tax on money they had to send to another government agency. Those that don't have to pay it don't freaking care about it, or those in no state tax, like income tax states like Texas and Florida, particularly the senators from there. They don't care about this. They're like that's some other state's problem and residents and citizens of those states.

Speaker 1:

So this one has become political. In the House bill it was going to be this $40,000 cap on the deduction, which is raising it from 10, what it is now. So this is an improvement from what it is now, but in the house bill they were going to make it permanent. In the Senate bill they're like uh, in 2030, it's going back down to 10. And that is actually what passed. So we will see what happens. The house has got to revote on this bill. This could be a contentious issue. There's a number of house Democrats or, excuse me, house Republicans, who said they will not support it because of this. So we're going to see there's going to be a lot of whipping and there's going to be a lot of the Republican party's going to have to come together in the house. We'll talk about that here in a sec. But again, $40,000 state and local tax deduction through 2029. And then in 2030, it's going back down to the $10,000 cap.

Speaker 1:

All right, the senior deduction Okay. Remember Trump was out there saying no tax on social security. Well, he didn't deliver on that. But he did come up with something, which is the $6,000 deduction that seniors get. Those that are 65 or older get the $6,000 additional deduction on top of the standard deduction, on top of the existing senior deduction that's already there, that they already get. They're going to get another $6,000 on top of that. Now, this is only available through 25, through 2028. So that's, I guess, four tax years there and there's income phase-outs for those making $75,000 or more a year or those 150K or more a year married. Now, if you are a married couple, you would each be able to take that $6,000 deduction if you are both over the age of 65. So there was something given there to seniors. There was no tax on social security but, frankly, those that are 65 or older are eligible for social security. It is something that they were given an additional deduction and they will get tax savings because of that additional deduction. All right, other stuff promised on the campaign trail.

Speaker 1:

What's in the final bill? No tax on tips. Again, this is the Senate bill 25 K deduction, um on tips here. Um, up to 150 K single, 300 K married. You start phasing out If you make more than that. This is, again, something that is only available for 25 to 28. So you get four years where you get to take that, but it goes into effect for 2025. So any of you making tips in tax your 25, you'll be able to deduct up to $25,000 of your tips.

Speaker 1:

Now, an important note on this rule is tips must be voluntary. Okay, I'm already getting the questions from business owners. Should I just change my pricing and say this is a tip, so I've taken in the income? No, the tip must be voluntary. It must be the type of work or line of business where you're with an employee or an independent contractor where it's customary to be tipped in that industry. So you can't get creative with this and start saying my income is tips. That's not gonna work.

Speaker 1:

No-transcript maximum deduction 25K. But again does have some phase outs for high income earners. Okay, no tax on overtime 12,500 single, 25,000 married, where you get a deduct and have income exempt from overtime pay. So or excuse me from tax if it is overtime. This again has high income phase outs for making more than 150K single, 300 K a year or more married. Um, and it is only available for tax years 2025. So if we're going to affect for this tax year and through 2028.

Speaker 1:

Okay, so those are some of the stuff that Trump talked about on the campaign trail, many other Republicans as well. That is what was delivered, um, which is pretty good. I think those, those are, uh, pretty good deductions. And again, they're not something for high income earners. Okay, this is not a wealthy thing. I hear so much news and buzz out there. This is, you know, ripping off the middle class and this is something for the wealthy.

Speaker 1:

Wealthy people pay a lot of tax. They're going to benefit from this policy, but a lot of these things phase out. You don't get them If you're a high income earner. A lot of these provisions we just talked about from the child tax, credit, state and local tax deduction, the senior deduction, the no tax on tips, the no tax on overtime those all phase out for high income earners, okay. So I'm a little skeptical on some of that commentary. Yes, the high income earners are going to save on this too, and they do pay more tax, so effectively, they will save more individually than someone making less money. But a lot of these benefits don't even apply to them. Just going to be the rates, frankly, that would be applying to the higher income earners. That's about it. But we already have those rates right now. You would otherwise be imposing a tax on the higher income earners. Okay, don't want to get political. I think I just waved into that, all right.

Speaker 1:

Last thing on the individual level. This really applies to estates. So we've been going from income tax let's talk about estate tax. When you die, there's an estate tax. The federal government basically takes half of your assets above the exemption amount. So there's a certain amount that you get to pass on to the next generation, your kids, your loved ones after you pass away. That is not subject to estate tax at the federal level. That was set to expire and get cut in half again starting in 2026.

Speaker 1:

But this was made permanent 15 million for single individuals, 30 million for a married couple where they can double up on it. That is permanent. If you have that size of an estate let's say you're a married couple 30 million or less estate, nothing will be subject to a state tax. You can pass that business, that family property, the family farm, whatever it may be, or whatever assets they are down to the kids without having to sell them, and your heirs can inherit that with no tax. Anything over that will be still subject to estate tax. So the super wealthy are still going to be subject to that estate tax, of course, which in that tax, is almost 50% that it would be subject to. But this was made permanent as well. This estate tax for the last 20 years, frankly, has been bouncing around for five-year renewals, four years, 10 years, and people trying to plan their estates for the next 10, 20, 30 years have really struggled with where the hell is the exemption going to be. Well, they did us a favor here. They made it permanent $15 million, which you can double up if you're married, up to $30 million, and that is permanent.

Speaker 1:

All right, let's get over to the small business savings here. These are awesome and there's some really good ones in here that I was happy to see that stayed through in the final bill. The first one is QBI qualified business income. If you're a small business owner and you're making 200K a year, let's say, you get to take a 20% deduction on your income. So, for example, in the 200K of income there, you get a $40,000 deduction on your income. So, for example, in the 200K of income there, you get a $40,000 deduction on your income. So your only tax is if you made $160,000. That is the current law right now. This is the small business QBI deduction and whether you're an LLC, an S corporation, you can use this and take it. And we've seen a lot of our clients in my law firm, kko Slurs where, by the way, we do tax planning all the time for clients across the country small business owners but we've seen this used quite a bit. This is one of the most popular, most well-used, putting more money back in small business owners' pockets than any other deduction out there. So I'm pleased to see that it was made permanent in the bill and it is at the 20% Now. The House bill that came out earlier was at 23%. Okay, I wish that the Senate would have got in on the 23%, but they they came out of the gate and stuck to it 20% for the QBI deduction, but they made it permanent. Again. This was set to expire and go away next year, so huge win there for small business owners.

Speaker 1:

Next one for small business owners 199A, also known as bonus depreciation. This is a provision that says, hey, if you want to go buy some new equipment in your business or you want to buy a vehicle in your business, we'll let you expense the whole cost of that in year one. Traditionally, when you buy equipment or other assets in your business, you have to expense it over time. So, for example, if you bought a piece of equipment that lasts for five years, that was a hundred thousand dollars. The IRS would say, even though you paid a hundred grand for it, now we only let you expense 20,000 this year, and then you do 20,000 next year and the next year until over the next five years you've expensed out the whole a hundred thousand dollars. Well, for someone trying to grow and scale a business add equipment inventory, trying to grow with employees that's tough to do, right? Because you're spending that money and you're not getting the tax deduction back.

Speaker 1:

So under bonus depreciation, it allows you to take a hundred percent write-off on certain qualifying. This could be equipment and qualifying vehicles and that is also made permanent in the code and is in effect for 2025. So, um, this was set to go away next year. By the way, it was going down to basically, you can only take a max depreciation of 20% under this bonus depreciation rule for this year. Right now it's a max of 40%, but we're going back to a hundred percent starting in 2025. And this one is being made permanent in the tax code as well. This is used by a lot of small business owners to help them grow. It allows them to expense these things more easily as they're growing and scaling the business. This grow it allows them to expense these things more easily as they're growing and scaling the business. This could also apply to real estate investors. You're doing a cost segregation or other things. The bonus depreciation could be helping you as well.

Speaker 1:

All right, last but not least, on the provisions here and then I want to get into the process here what to expect, and then talk about some things here for 25, tax year 2025 and 2026. You should be doing and thinking about Opportunity zones. Opportunity zones were this thing that came about again in the last form of tax policy. That said, hey, you can sell any asset for a gain a business, stock, real estate and as long as you reinvest that money into a qualifying opportunity zone, it could be a real estate project or a business in that qualifying opportunity zone. You pay no tax and, in fact, there's additional tax relief if you sell and make money out of that asset as well. So a lot of great tax efficiency and tax incentives for opportunity zones. Those are back in the bill and being revitalized. It was a very successful program for economic development and bringing back certain areas that faced blight and had other issues. So that's back in the bill and back in the tax code, I should say, and it was also made permanent in the bill.

Speaker 1:

All right, now here's where we're going next. What's happening next is this bill is going to the House. Speaker Johnson in the House, their House is going to go vote on this. We'll see how quickly this goes. The Senate seems to think, oh, they're going to be done with this in a day or two. The House themselves is like we got some people pissed off over here on some of the changes and there's a lot of issues here in this bill.

Speaker 1:

There's stuff in this bill I didn't talk about. There's spending cuts here. There's deficit stuff happening in the bill. I know that's an issue and important to many people here. I'm just here telling you where the tax savings are in the bill and that also affects individuals and small business owners. By the way, big business, they already got their cake nine years ago. All right, the top corporate tax rate for large companies went from 35 down to 21 percent and that was made permanent nine years ago. All of the individual tax breaks and small business tax breaks are set to expire this year, and so this bill is about reinventing and making permanent, I should say, those individual breaks and the small business tax breaks, because corporate America already got the tax breaks made permanent nine years ago. So that's a positive thing about the bill and one of the things I like about it.

Speaker 1:

I know there's other reasons to hate on this from a deficit and some of the spending cuts and certain government programs you might care about and that are important to many people. So I'm not discounting that. But what's going to happen next is the House needs to vote on this. Their goal is to have President Trump sign this by the 4th of July. I mentioned at the top of this that President Trump has said he's not sure if it's actually going to happen by the 4th, but I would expect this to be wrapped up within the next week. Now a lot of this stuff matters to you in tax year 2025. Many of these provisions, from child tax credits to no tax on tips, overtime, the senior deduction a lot of this stuff is going into effect bonus depreciation right now in tax year 2025. So this is going to affect your tax planning.

Speaker 1:

One thing I want to make sure everybody understands is no matter what the tax is, you need to be engaged in your tax planning. The most engaged clients that we have as a lawyer at KQS Lawyers are the ones that save the most. They care the most about it. We spend so much time working and making money. Let's make sure we keep as much of it as possible and are implementing the right strategies to save us on our tax return and a lot of times that just takes an analysis of what's going on. So in my law firm, kqs Lawyers, we do a comprehensive tax and business consult for our clients. It only costs a couple thousand dollars. We look at your prior year tax return, we diagram out your business and asset protection structure, we look at the tax inefficiencies you may have where you're overpaying, and we look at opportunities for you to save, no matter what's going on with tax legislation. So whether you're using us or a CPA or other tax lawyer, please get engaged on this. If you care about how much taxes you're paying. The best way to be proactive about that and to pay less is to take action and go get some competent advice on ways you can save, because you can use the tax code in your favor or it can be used against you. So just make sure you're informed on that, and our law from KKOSource would be happy to help.

Speaker 1:

Now, please make sure you're subscribed to the channel. I'm going to be giving you updates. We're going to see what happens with the house. It's likely they are to pass this. They already passed a very, very similar version of this bill before it went to the Senate, but because there are some differences here, it's got to jump back to the house. Speaker Johnson's conference passed. There's a lot of chatter going on right now in Congress over whether that's going to happen, and I'll be letting you, of course, know once President Trump signs it into law. Also, on my channel, I'm always talking about ways to save on taxes, protect your assets, build wealth using self-directed retirement accounts. Please make sure you're subscribed. I'll see you next time.

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