What Your CPA Wants You to Know
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What Your CPA Wants You to Know
106. Tax Laws Are Changing: Here's What You Need to Know!
The big, beautiful tax bill brings welcome news for taxpayers with lower tax brackets being preserved, an increased standard deduction, and a higher child tax credit of $2,500 per child. Seniors will especially benefit from an additional $6,000 deduction per person regardless of whether they itemize or take the standard deduction.
• Lower tax brackets from the Tax Cut and Jobs Act will remain in place
• Standard deduction stays at $15,750 for single filers and $31,500 for married couples
• Child tax credit increased from $2,000 to $2,500 per child through 2028
• Seniors get an extra $6,000 deduction per person ($12,000 for married couples)
• Tips now excluded from income tax up to $25,000 annually
• Overtime is taxed only at your regular hourly rate, not at the higher overtime rate
• Auto loan interest deductible up to $10,000 for vehicles finished in the USA
• SALT deduction cap increased from $10,000 to $40,000 through 2029
• 100% bonus depreciation returns starting January 19, 2025, through 2028
• 1099 reporting threshold increased from $600 to $2,000 beginning in 2026
• Income limitations apply to many benefits: $150K for singles, $300K for married couples
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Now another one people have probably heard about is that, ever since he was running, trump said he was going to get rid of taxes on tips, and he has for the most part. You can exclude up to $25,000 a year in tips and overtime. Welcome to what your CPA Wants you To Know.
Speaker 2:Tax and accounting help can be expensive, so we've created this podcast to help guide you through it all and make you feel like you have a CPA in your back pocket.
Speaker 1:I'm Carson Sands.
Speaker 2:And I'm Taryn Sands.
Speaker 1:I'm a CPA with over 10 years of experience helping people start and grow their businesses.
Speaker 2:And I'm an MBA with a specialization in marketing and entrepreneurship. Taxes suck and we want to make sure you don't pay more than your fair share.
Speaker 1:We're here to share everything your CPA wants you to know in a fun and easy to understand way. Let's get started.
Speaker 2:Let's do it All right. We have some tax updates today that Carson is going to share with us, because I don't know all of them either. So we're learning together today. If you haven't heard about the big, beautiful bill, we're going to break it down for you today and let you know what you need to have on your radar for the upcoming tax year.
Speaker 1:It is big and parts of it definitely are beautiful, it's a big, beautiful bill.
Speaker 2:It sounds something very Texas.
Speaker 1:Really important. The big tax cuts are back for the most part, so that's the good news. But we're going to get into all the details of those.
Speaker 2:All right. What is the first thing on the new changes that people should be aware of?
Speaker 1:Okay, so the smaller or the lower tax brackets that came out with the Tax Cut and Jobs Act that is renewed, so the lower rates and everything that's here to stay.
Speaker 2:I think you're going to need to explain that a little bit more.
Speaker 1:Sure. So for a while the rates were 10%. Then the next bracket was 15%, 25% and so on like that. Most of those rates got a haircut, we'll say. I think the 10% one stayed the same. I can't remember They've changed them so many times, but whatever the case, now it's 10%, 12%, 22%, 24%. So all the tax brackets are at least a few percentage points lower than what they were. They were going to revert back to the old rates.
Speaker 2:Okay, so good, change there, we'll take it. What's next?
Speaker 1:Great change. The standard deduction is going to continue. They doubled that and it's continued to increase a little bit each year with inflation and it's increased again with inflation and but it was set to be cut back in half to where it used to be. Well, it's back where it was, so $15,750 if you're single, $31,500 if you're married. So that's really good news.
Speaker 2:All right.
Speaker 1:I mean it really is great because it means if you make, if you're married and you make $31,500 or less, you don't have to pay tax.
Speaker 2:Well, and it does make it a lot easier when you're filing your tax return. The higher the standard deduction is just makes it really simple for everyone, because most people aren't itemizing anymore with it being that high.
Speaker 1:Right. So another good one is not only is the child credit still increased, it's actually further increased. So they had doubled it from $1,000 per kid to per kid to 2000. Well, now it's up to $2,500, and that's going to last till at least the end of 2028.
Speaker 2:Awesome.
Speaker 1:So that's $2,500 per kid. Another great one seniors get an extra $6,000 deduction. You might hear some people saying they get an extra $6,000 standard deduction, but it's actually even better than that, because standard deduction usually is only for people that are not itemizing. So if your itemized deductions are higher, you don't get the benefit of the standard deduction. You have to pick one or the other. Well, this is a different deduction. So even if you're, you know you have a lot of tithes, charitable contributions, real estate taxes all of the itemized deductions and they're higher than the normal standard, you still get this extra $6,000 on top of that, either way, whether you take the standard or the itemized deductions, and that's per person. So if you're a married couple, you're getting $12,000 extra.
Speaker 1:So now we're saying that if you take the standard of $31,500 and you have another $12,000 on top of that, you have a married couple that's over 65 that doesn't even have to pay tax as long as they make $43,500 or less.
Speaker 2:Okay. So that's definitely going to help seniors with their trying to retire people getting social security and still having to pay property taxes and things like that. That will actually really help a lot.
Speaker 1:It will. Yes, that will help a lot. Okay, so that's the main thing from the Tax Cut and Jobs Act and similar type things that carried over. Now, another one people have probably heard about is that ever since he was running, trump said he was going to get rid of taxes on tips, and he has for the most part. You can exclude up to $25,000 a year in tips and overtime, so the way that works for the tips is real simple. If you make $25,000 in tips, you don't have to pay income taxes on it at all.
Speaker 2:I like it.
Speaker 1:The overtime is a little bit more complicated. Let's say that you got 50 hours and so you got 10 hours of overtime that week. It's not that those 10 hours aren't taxed at all, they're just taxed as if you had made your normal rate. So let's say you make $20 an hour, You'll get taxed for those 10 hours as if you had made your normal rate. So let's say you make $20 an hour, you'll get taxed for those 10 hours as if you made $20 an hour, even though you were getting $30 an hour for time and half. So that extra $10 an hour times those 10 hours, that $100 for that week or whatever, you won't have to pay tax on that. Not quite as exciting as it seems, but I mean it's really good because people are having trouble getting workers and this is maybe a way that hey, your people that are good workers, maybe they want to make some extra money and they're not going to pay through the nose for taxes on it.
Speaker 2:It is a little complicated, I feel like, as a lot of things are, but it definitely helps save taxes.
Speaker 1:And the good news is it's probably going to be on the employers to figure out. So if you're doing that over time, I don't think you're going to have to worry about figuring out even what that is. It will just be something that's factored in. I think they should have that as part of the payroll forms and maybe even itemized out on a separate line on your W-2. That's the hope, but all of that paperwork isn't out yet.
Speaker 2:And another great one.
Speaker 1:you can deduct up to $10,000 per year in auto loan interest. Now there's some rules that the vehicle has to be finished in the United States, so it applies to most of your American made cars, your American brands Ford, Chevy, GMC. I'm sure most of those vehicles will qualify. But even some of the foreign brands, like Toyota, finishes their trucks in Texas or Tennessee usually, and I think even builds them completely there, so trucks like that would also qualify. So yeah, and since interest rates are through the roof, that could really help.
Speaker 2:I think that's an exciting one, but maybe it will confuse some people, because vehicles and how you can deduct them do. But will this be just like itemizing, just like your home mortgage interest, or how are they going to let you do that?
Speaker 1:Yes, this one specifically. It's similar to your mortgage interest, your real estate taxes. The total of that auto loan interest and your mortgage interest and your real estate taxes and your charitable contributions all will need to be higher than the standard deduction and if they are well, then you'll take that itemized deduction instead.
Speaker 2:So it really is going to be only applying to people that are close to itemizing, but if you're in the market for a new vehicle, it definitely incentivizes people to buy US cars and it could help.
Speaker 1:Right, well, and we did have a time period where they doubled the standard deduction, where the number of people using the itemized deductions went way down. But we're starting to see that creep back up because mortgage interest rates have gone up a lot and between people paying 20, 30,000 a year in mortgage interest and their real estate taxes, and then you add this extra $10,000 a year in auto loan interest, you might start seeing a lot more people itemizing.
Speaker 2:Yeah, it definitely helps, for sure.
Speaker 1:Now those are limited. Both the tips and the auto loan interest are limited to people that make under 150K if you're single or 300K if you're married.
Speaker 2:Okay. Well then that's a big thing to note. For sure is that there's always a cap. So if you don't get that, if you make over those threshold, correct, Right.
Speaker 1:Right and because it's meant to help people that aren't on the top of the income food chain. You know it's. You know your waiters and your drivers and your people like that. They're typically not making a ton of money. And we're saying look, I mean this money that people are tipping you. That's a gift. There's no reason that the government needs to get a piece of that.
Speaker 2:I would just say that people using the auto loan interest wouldn't be those people, because you're only using that if you item interest on your home and you're paying a lot of property taxes, which just means you're probably a higher income, and so then to phase that out, it's kind of that kind of sucks.
Speaker 1:Yeah, yeah, okay, be honest, how's your bookkeeping going?
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Speaker 2:We have all the fine details and episodes 101 and 102 of this podcast if you want to check it out, or just email us at carson, at sansconet.
Speaker 1:Now back to the show. Okay, so the next thing is that, beginning in 2026, you won't have to send people 1099s if you're a business owner, unless they make $2,000 or more.
Speaker 2:Okay, I like that. That's awesome.
Speaker 1:That does make things a little bit easier, because $600 in this day and age that's almost nothing. That's like one day's work for some people. Yeah.
Speaker 2:And it's a lot of work to do on the business owner just for the $600. So to bump it up, it definitely will take away some work. Yeah.
Speaker 1:It helps people a lot. We have have people that you know. Maybe they hire someone for the day just to hold the ladder, because they're, I don't know, like a roof appraiser or something like that, and then you know they're having to pay them or send them a 1099. It's a lot of extra paperwork, so this will help a lot.
Speaker 2:All right, what's?
Speaker 1:next. So the next big thing is apparently the SALT deduction. They call it. It's just the state and local tax deduction. It's another one of the itemized deductions. That cap has been increased to 40,000. That was one of the few things of the Tax Cuts and Jobs Act that didn't help people. They made it to where you can only deduct up to $10,000 a year in either state income taxes or your real estate taxes or whatever local state tax you're deducting. Sales tax is also included in that and for some people that was a big hit because real estate taxes in Texas, for example, are really high and they're way over $10,000. So we're not getting to deduct that full amount. Now that deduction is increased to $40,000, that will help a lot of people and I think that will bring back itemized deductions for a lot of people. Between the constantly increasing appraisal values of the properties, the constantly increasing tax rates on the properties, the increase in the mortgage interest and this auto loan interest deduction, I think we might see a lot of people above that $31,000 standard deduction.
Speaker 2:Okay, yeah, that definitely helps. That's quite a bit. So it went from 10,000 to 40,000.
Speaker 1:Yes, only through 2029, but that will help a lot for a while.
Speaker 2:Nothing's ever permanent. It's like only for a few years, and then, of course, all of these things change, which makes it so fun.
Speaker 1:Right. So we do have some additional limitations to those for itemized deductions if you're a high earner. I won't get into the details of how that's calculated because it's going to be really boring. But just know that if you're a high earner, a lot of these new perks for itemized deductions they might not help you out that much.
Speaker 2:And the last big change that came out that we're going to talk about today is one of our favorites, actually, and it has to do with bonus depreciation.
Speaker 1:Bonus depreciation that thing that happened for a few years, where you got to deduct 100% of the big assets that you purchased, instead of depreciating them for over five to seven years. Well, now you get to do that again.
Speaker 2:So that's going to help people a lot.
Speaker 1:So the 100% bonus depreciation is back for 2025 and it starts January 19th. So I'm sorry if you bought something January 1st to January 18th anytime in that window, but the reason they did that date is because this is when they started talking about bringing it back. It took them until, I think, july to finally get the bill signed into law, but it was at least talked about that. Hey, we think we might have 100% bonus back, so it's at least feasible that you bought something intending for it to be 100% deducted. If you bought it before that, then you know that wasn't even supposed to be a thing, so they're not letting you take it.
Speaker 2:That's really weird, but they never cease to amaze me. So just you know handful of days and you're screwed, but the rest of the year you're good.
Speaker 1:Right. So that will help a lot of people because, you know, section 179 has always been there, ever since the bonus depreciation started getting phased out over the last few years. But Section 179 has a lot of limits. Either if you buy too much property or you have too much revenue, or if you have multiple businesses with Section 179 assets purchased, or just if you have a loss, bonus depreciation is allowed to be used even if you already have a loss and it sends you even further negative. Section 179 cannot bring your business profits below zero. So that's part of the problem.
Speaker 1:This will also help a lot of people that are ready to trade in a vehicle that they already took 100% bonus depreciation on. And we were seeing a lot of those people facing a situation where they might have to pay tax when they trade in that vehicle because it's fully depreciated, but they buy a new one and they only get to do 40% depreciation on that one because the bonus depreciation has decreased so much. Well, now it's back to a hundred. So you trade that vehicle in, sure, you have a gain for the trade-in value, but you have so much depreciation on a new vehicle, which probably costs more than the old one, that it's going to offset the gain and then some, so you're going to come out ahead from a tax perspective.
Speaker 2:Well and I know that we have an episode all about that we're rewarding people If you're trading vehicles out a lot. They were getting into some trouble with taxes, but it's back. So how long is it back for?
Speaker 1:So, like many of these other benefits, that one only lasts until December 31st 2028.
Speaker 2:Okay, well, previously they were phasing out bonus depreciation. It wasn't completely phased out yet, so this is a nice little change there.
Speaker 1:Definitely.
Speaker 2:You know it might not be around forever, but at least we have it for a few more years.
Speaker 1:Well, when we get to the end of that window, of course like we were in 2022, we'll be advising people hey, we're about to lose bonus depreciation. This might be a good year to buy something, if you're planning to buy something anyway. As always, it's not a good idea to go buy stuff just to save on taxes and park it in your parking lot. That doesn't help you.
Speaker 2:Right, just time your purchases.
Speaker 1:But if you were going to buy something anyway and you time it to where it falls into the right window, well then that does make sense.
Speaker 2:Absolutely so. That's the big ones that we were going to cover today. What do people do to be preparing themselves for these changes, or is there anything that they need to do right now? Any advice?
Speaker 1:So if you're a tip earner, then you might adjust your W-4 withholding because a big chunk of your income won't be subject to income taxes anymore, so you won't really need that withholding. If you're planning to buy something, hopefully you bought it after January 19th, but it's really too late to change that. Yeah, you probably want to buy your equipment and your vehicles before 2028, but that's so far away. I don't really think that's a call to action so much. But do keep that in mind and don't plan on these lasting forever, so they most of them expire in 2029 or at the end of 2028.
Speaker 2:We always have to have these like updates. We had one a few weeks ago, but everything is always changing, so make sure that you subscribe to this podcast. We will make sure that you know what you need to know so that you don't miss anything like this and, as always, thank you for listening. If you found this helpful, please share it with a friend.
Speaker 1:So until next time. Thank you for listening to.
Speaker 2:What your CPA Wants you To Know. Podcast podcast.
Speaker 1:This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional Bye.