Speaker 1: Hi, I'm Stacey Hyde and I'm back for another episode
of Better Financial Health in 15 minutes or less, and today
I'd like to talk about the One Big Beautiful Bill Act.
Unless you've been under a rock , you know that it passed, and
what's been a little bit surprising to me is some of the
misconceptions around the bill, because it did do a lot, but
then there's some things that it didn't do.
You know tax-free Social Security.
That's not exactly what the bill did.
What it did was to provide an extra standard.
It's actually an extra deduction for anyone 65 years
and older of $6,000.
So for a married couple, that's an extra deduction of $12,000,
whether you itemize or whether you take the standard deduction,
and that's huge, although it does phase out if your income as
a couple is over $150,000.
And it completely phases out by the time your income hits $250.
So you really have a window there that you're looking at and
you don't even have to be taking Social Security to get
this.
So if you're still working or you've decided you're going to
delay your Social Security to $67, you still get this extra
standard deduction, which is pretty cool.
That's a big one.
The other is you can exclude income from tips from your
income, if your income is below certain levels, and those levels
are quite high.
So if you're a server or if you are a cosmetologist or do
something like that and you have tip income, your taxes are
likely going to be a lot lower.
One key thing to remember is that if you are a server and
your employer for large parties puts a mandatory tip on there,
that doesn't really count as a tip, because that wasn't
somebody choosing to add that.
So I think you're going to see a lot less of those get.
On the larger checks, there can be a lot of discretion because,
yes, you run the risk of not being tipped properly, but if
you don't, then it won't be tax-free like it would be
otherwise.
So that's a key point there.
One other one that comes up is the increase on what are known
as SALT taxes state and local government taxes.
So property taxes, state income taxes.
That was capped at $10,000.
It's now up to 40, unless you are a high income taxpayer, and
then it's still at 10.
The key thing here is the marriage penalty is still alive
and well.
A single person can take up to 40, but a married couple is also
limited to 40.
So that's a big planning consideration there.
So more people will be able to deduct their state and local
taxes, particularly if you pay property taxes and also live in
an income tax state, that's something to consider.
That is an itemized deduction, but if you live in a state where
you are paying a lot in taxes, this will really really if you
live in a state where you are paying a lot in taxes, this will
really really help you.
I know I've run some projections for some of our
clients, particularly our single clients, and it's made a huge
difference in their tax burden projected for 2025.
The other thing that's a little bit strange is that up to
$10,000 of car loan interest is deductible and to have that
level of car loan interest, that's a lot.
So a lot more people will be able to get some help if they're
needing to buy a new car.
But like most things you know mortgage interest and things
like that you still you're paying interest and a deduction
only offsets whatever percentage of that interest that coincides
with your tax rate.
So if you're in the 22% tax bracket, being able to deduct
that interest is only going to save you 22 cents on the dollar
of that interest.
So don't think, hey, it's deductible, I'm going to go out
and buy a car, although I'm sure the car salesman would love to
tell you that.
So those are kind of the key things.
The child tax credit has also gone up a little bit.
We're going to see more inflation indexing of this.
And also, starting next year, if you give to charity but don't
itemize, you're going to.
If you think back during COVID, people were able to deduct $300
or $600 from their tax return for charitable giving, even if
they didn't itemize.
Well, they brought back a version of that.
Starting next year it's $1,000 or $2,000, even if you don't
itemize to charity, which will be great.
The downside is is if you're very charitably inclined and you
give a lot of money away, starting next year, if you
itemize the first half percent of your AGI.
So if you made $100,000, the first $500 that you give away is
not going to be deductible, even if you itemize Now above
that amount, you can deduct it, but you're going to lose that
first half percent, which I think that was a revenue
generator for that.
That is not true of this year.
So if you are a big charitable giver, you may want to go ahead
and accelerate some charitable deductions into this year.
The key thing to remember is most of these um options do have
income caps on them.
So you want to really look at it and they're based on your
adjusted gross income, not your taxable income.
Your adjusted gross income is all of your income that comes in
.
So if you're on Social Security , it's the taxable portion of
your Social Security, it's your IRA distributions, it's your
pension, it's your salary Whatever it shows on your W-2 is
your taxable income.
So you want to pay real close attention to that because it
could have an impact.
That might be a reason if you're and some of these are
absolute like if you're over a certain amount, your state and
local taxes are capped at 10, not 40.
So it's real important that you fall where you expect to fall
if you are a higher income taxpayer.
Same thing with tips.
The tax-free portion of tips is $25,000.
There's also some starting next year's tax-free portion of
overtime, which is also going to help out a lot of people.
But the tax-free overtime is just it's not the base pay that
you get paid for those extra hours, it's that 50% or 100%
that you get paid for the extra hours and there's some income
caps on those as well.
But the crazy thing to remember is all these income caps are
different.
It would be so easy if everything was the same.
That said, if you make less than $100,000 as a single and
$200,000 is a couple, these are the rules.
No, the rules are different for every single item in these,
which is why I'm not going through and saying them.
We will include a link on our website to a good summary of
these so that if you want to look at them, you can and get
the see if different ones apply to you and if you need to pay
attention.
But just remember, most all of these are tied to adjusted gross
income, so that's your income before you take any deductions
away, and so that's the number that you want to look at and
potentially manage.
If you can make more pre-tax 401k contributions or if you're
older and can contribute to charity through your IRA as a
qualified charitable distribution, those kind of
things actually hold down your adjusted gross income.
A lot of things can pull down your taxable income, but that's
not going to help you qualify for some of these, for example,
the extra senior deduction.
So be mindful of that and I do think for most people they will
pay less in taxes next April and in the next three years next
April and in the next three years, but beyond that we will
see what happens.
And because they did say that the tax rates were permanent.
But the thing you have to remember about our tax system is
many things are permanent.
It means it's permanent for the next, probably through the end
of this administration, because then there'll be a new Congress,
there'll be a new president and they will have different goals
and priorities.
So I think the only thing we can plan on is change.
But that doesn't mean that you shouldn't spend a little bit of
time seeing whether any of these apply to you and if you can
save a little money by being proactive.
Thanks for tuning in.
This has been another episode of Better Financial Health in 15
Minutes or Less.