Episode 26: Mastering Year End Small Business Taxes While Navigating the 'One Big Beautiful Bill'

Can you afford to ignore the game-changing tax shifts coming your way? This episode Eric goes solo to break down the seismic changes introduced by the "Big Beautiful Bill" that could transform your small business's financial strategy. He dives into the end of electric vehicle tax credits, the allure of permanent bonus depreciation, and the boosted credits for employer-provided childcare. He also clarifies how the IRS categorizes small businesses, revealing that many of you might be eligible for these benefits without even realizing it.

Proper tax filing has never been more crucial, and there's a playbook to guide you. Listen as Eric highlights the importance of meticulous record-keeping, particularly with the upcoming increase in the 1099 threshold, and how this impacts compliance. Learn how to maximize your tax benefits through effective strategies like bonus depreciation, and understand the importance of providing detailed financial reports to avoid IRS complications. Whether you're a seasoned entrepreneur or just starting your small business, these insights, paired with professional advice, will ensure you're fully equipped to navigate these changes and keep your small business thriving.

To learn more about Busy Bee accounting and services, or to simply connect with Eric or Melissa, find them at Busy Bee Advisors.

Transcript

00:00 - Eric Broughton (Host)
I know I've said this before and I know I'll say it again, but the tax system is rigged against you. Taking advantage of the changes is one way of using the system in your favor. There's nothing wrong with using the system to your favor. Other people are going to do it. Other people that wrote these laws knew that they were going to do it, that they were going to do it. So why don't you take advantage of the same thing that other major business owners have either lobbied and or politicked to get into these bills? Use them to your advantage. If the bigger businesses are using them, then you should be using them as well. 

00:48 - Melissa Broughton (Co-host)
Hello and welcome to the Real Buzz taking the sting out of taxes. 

00:52 - Eric Broughton (Host)
Brought to you by Busy Bee Advisors. 

00:55 - Melissa Broughton (Co-host)
I'm Melissa. 

00:56 - Eric Broughton (Host)
I'm Eric. 

00:57 - Melissa Broughton (Co-host)
He's my husband, she is my wife Together, we're your hosts for this informative and fun Podcast where we share forward-thinking strategies to help you get organized plan ahead and ultimately pay less in cash. 

01:16 - Eric Broughton (Host)
Hello everyone, welcome to another episode of the Real Buzz. You're going to notice that today it is just going to be me on the microphone. You may have missed me in some of the past episodes, so now I am back to do some episodes by myself. In regards to the Real Buzz, we're going to be talking about the one big beautiful bill and what it means for your business, what it means for your business to personal, and then the big beautiful bill in regards to what it means for you personally, and this is all in regards to the tax filings. All right, one of the first things I'm going to talk about and I want to make sure that we all have the same idea is some of the things in the big beautiful bill reference small business. So let me give you the definition of small business from the IRS Under the one big Beautiful Bill. 

02:05
The IRS defines a small business based upon various criteria, including annual revenue and the number of employees, which can vary by industry. Generally, a small business may have annual revenues ranging from $750,000 to $38.5 million, and the employee limits can range from $250,000 to $1,500,000, depending upon the specific industry standards set by the Small Business Administration. So, if you don't know if you're a small business. Look at that range. If you made $500,000, you're a small business. If you made $40, made 40, then you may still be a small business if your employee levels are falling in the industry average. So just kind of understand that when I say small business, I'm not talking about necessarily a small mom and pop shop, although that does apply. It could be someone that's doing sales nationally or internationally that's grossing $20 million annual. So let's talk about some of the things. I got this workup here that talks about all the things that are part of the Big Beautiful Bill. In regards to small business changes by itself. Let's talk about the first one, and this is also going to affect personal. So it's kind of a twofer. And this is also going to affect personal, so it's kind of a twofer. 

03:28
After september 30th of 2025, buyers and leases will no longer be eligible for the 7500 tax credit on new electric vehicles, the four thousand dollar credit on used evs and up to the forty thousand dollar credit on heavier vehicles. What does that mean for you? That means that then it kind of opens up the door of whether you not you want to then invest in a EV product because you either believe in it, you want it, however you feel about it, or you can still go buy something else that you want to have a heavy duty truck that's diesel powered, or a work truck that's gas, or a work truck that's electric, or a vehicle that's electric, or a vehicle that you use to show properties right, however you wish to fill that out. This gives you greater options in regards to that, and what I mean by greater options is it doesn't paint you into a corner of thinking that you have to have an EV vehicle to take advantage of the tax credits, because those no longer are there. 

04:22
The next thing that I want to talk about in regards to the small business changes for the Big Beautiful Bill is that if you do a child care credit for your business employer-provided child care credit it actually increases, and there are numbers that it increases by, and I would definitely preface this by saying please talk to your professional to get the numbers in specific. I'm not going to dive into that one too much and I'm not going to dive into the employer credit for paid family medical leave. Other than that, if you do provide that, please talk to your tax person to make sure that they are capturing that credit for you, all right. So those two things talk to your tax person, make sure that they're capturing the credit for you, or making sure that it even applies to you. Now we move down to business interest. They made a change on that effective in 2025, the adjustable taxable income cap on deductible business interest. Look, if that applies to you, talk to your tax person. For the purposes of this conversation, I'm just going to move on, because there is one massive thing that's coming up next. By the way, I have this listed in a alphabetical or timeline aspect based upon the tax code section that it affects. 

05:38
So, bonus depreciation. Oh my goodness, bonus depreciation was massive when it first hit. Now it's here to stay. It is permanent. Bonus depreciation becomes permanent. 

05:52
What can you do with bonus depreciation? It really depends upon what you buy. If you buy a heavy-duty vehicle for your construction company or your moving company or whatever the industry that you're in, if you buy a heavy-duty vehicle and let's say you pay $80,000 for it and you do it all alone, okay, we've set up the scene. The IRS only cares about the fact that you have an asset that's worth $80,000. You then get to depreciate it. You can do 100%. So if you spent 80, you get to depreciate the entirety of it $80,000. Now, going forward, you can't depreciate any more against it because it's already been depreciated to the max. It's 100%. That's fantastic, but you still got that loan. Well, as a business, you can still write off that interest. You can't write off the principal payment, but you can still write off that interest. So getting a loan to buy something is still a smart business move. Spending someone else's money to give you a massive tax benefit and an ongoing business deduction is a win-win situation for you. So don't be afraid, as a business owner, to use other people's money to make expansive moves or equipment upgrades within your business upgrades within your business. 

07:03
This is not just vehicles, right, this bonus depreciation review it because it can have other benefits in other areas and aspects of your business. With that being said, the 100% depreciation means that you don't have a regular turnover in your vehicles. Why? Because if you get rid of the vehicle before its lifetime is expired, according to the IRS, then you have to pay back some of that depreciation. You have to recapture it. So the idea of getting new trucks every two years becomes something that then maybe you don't do. Maybe you buy a truck and you use that truck for seven years. Well, choose wisely into the manufacturer that you choose to buy from. Maybe it is a good idea to get the long-term warranties in regards to it. 

07:57
So pay attention to what you're buying. Make good, smart business decisions in regards to that, because the bonus depreciation is huge. Does it mean that you don't want to lease vehicles anymore? No, I think that's a business-related decision. If you want to lease a vehicle, you're a real estate agent and you want to lease a vehicle because you want to keep up and change out every two years. With the Mercedes of your choice, or the Range Rover or the BMW, you could still do that and have the business pay for that vehicle, following the codes in regards to leasing a vehicle, and then, every two years, you get another vehicle. You release the vehicle that you have on lease and you get another one. That means you're able to change out every two years. 

08:39
If you're buying, it becomes a different scenario because if you're going to take advantage of the 100% depreciation, then you also then want to keep that asset and run out the clock. So keep that in mind that when you are getting new equipment for your business and you are thinking about the 100% depreciation, because it used to be when you got a recommendation from your tax professional hey, how do I reduce my taxes? And they say, well, go out and buy a truck for your business, okay. So that means you then went and got a loan for $80-some-odd thousand dollars and you were only able to depreciate a percentage of it and then the rest of the percentage got depreciated over the next couple of years upwards of the next five or seven years. That's not bad. It was the rules at the time, but now those rules have changed. So you may want to look at how you are buying your equipment and how you are proceeding with in your asset development for your company, based upon whether or not you want to do the bonus depreciation, standard depreciation and or leasing right. So take a look at it, crunch the numbers, see what's in your best interest, based upon what you want to do with those assets. Another thing that got changed for your small business is that for C-corporations and I know not a lot of my listeners have C-corporations but it increased the charitable contribution floor up to 10%, and so you know once again, corporations are encouraged to contribute money to nonprofits and pick a nonprofit that you want to support and go with that provide as a C corporation. 

10:27
The next thing is kind of a little bit more of a I don't know less than exciting one, but it's about R&D expenditures. If you're a small business, the new rule changes as of 2025 means that you can immediately deduct domestic R&D costs in the year that it occurred or, if elected, you can amortize it over no less than 60 months, so five years. But it also allows small businesses to elect to retroactively expense for 22, 23, and 24. What does that mean? So if you had R&D credits that you received and there was R&D expenditures that you amortized, you're then allowed to go back into those years and amend, and that potentially has a drastic effect on your tax filing. Remember, you have up to three years to file an amendment on something. So your 2022 taxes if you filed them as a business, if you filed them on March 15th of 2023, that means you have until March 15th of 2026. So for 2022, you're in a little bit of a tight window. 23, you got some time. 24, you also got some time. And if you're in 25, take advantage of the change. 

11:47
If you do R&D related things. There's a modification to do an election to expense certain business assets. There are certain qualified properties that you can purchase that are up to a million dollars that may be expensed, and the reduction was phased out if the asset was worth 2.5 million or more. That has changed. Now the expense limit increases from one mil to 2.5 million and the phase down threshold is 4 million. So if you're looking at getting some type of asset for your manufacturing company and the cost of that item is $2 million, you're in a much better position now to make the decision to spend that money, and the reason why is because you can take advantage of the money spent in the year that you spend it Now. You may still have to depreciate over time, but have your tax professional take a look at that asset to make sure that you are properly depreciating it for maximum advantage for your business. 

12:50
Qbi Qualified Business Income Deduction has come up in a couple of my conversations with clients and the Big Beautiful Bill has effectively made QBI permanent and it extends the deduction of up to 20%. So 20% of the qualified income from a pass-through business REITs, cooperatives, publicly traded partnerships increases upwards to 20%. It was going to expire December 31st of this year, but now it's continuing out into 26 and it's becoming permanent and there are increases on the phase out based upon your filing modified adjusted gross. So if your gross income as a married filing jointly as $145,000, gross income as a married filing jointly as $145,000, you could still take advantage and maximize on the QBI that's coming to you from your S corporation. I know once again you got to run these numbers by your professional. Have your professional work with you to make sure that you are capturing what is effective for that. There was a change in regards to employer-provided meals. That there was a change in regards to employer provided meals, on-site meals, company operated dining facilities. That doesn't really affect a lot of my clients so I'm not going to dive into that. But if you have a facility and you provide meals, make sure that your tax person is looking into that to make sure that you're capturing everything that you can. Business losses the business loss rules that are current are now being made permanent and effective of 2027. And just make sure that you're keeping track of your previous filings Because if you have losses that are carrying forward, you need to make sure that you're tracking that information because it does have an effect on your personal filings as an S corporation. 

14:38
There are a lot of things in regards to the big beautiful bill for small businesses, but you still get to take advantage of all many of the things that I've talked about on previous episodes. Just because they make all of these changes doesn't mean that things that strategies that you already have in place or you may think about putting in place, they're still there, those are still viable and they're effective. Right, you do not have to excessively pay in regards to taxes. You should only be paying what you are legally obliged to be paying. I know I've said this before and I know I'll say it again, but the tax system is rigged against you. Taking advantage of the changes is one way of using the system in your favor is one way of using the system in your favor. There's nothing wrong with using the system to your favor. Other people are going to do it. Other people that wrote these laws knew that they were going to do it. So why don't you take advantage of the same thing that other major business owners have either lobbied and or politicked to get into these bills? Use them to your advantage. If the bigger businesses are using them, then you should be using them as well. The biggest focus that I would take away on is the is is in first is the bonus depreciation. That's just. That's just wonderful. I can't necessarily talk about that enough in a positive fashion, but I'm not going to drone on and on because there's a couple of other things that I want to get to. 

16:04
In regards to record keeping for your company, it is important that you follow the rules for 1099 miscellaneous and NEC non-employee compensation. Currently, businesses in 2025 have to issue a 1099 for any payment $600 or more made in the course of a trade or business Trade. What do you mean? Look, if you're the kind of person that is okay with running your business, where someone says, okay, well, if you do work for me, I'll give you 10 baskets of apples instead of paying you cash, that's considered trade, right. So just kind of remember that it's difficult because you don't always know who you need to be paying and that means you need to get W-9s. 

16:55
W-9s need to be filled out by your vendors that you're paying money to Now. You don't do that with Coca-Cola. You don't do that with Amazon. You don't do that with large corporations, because you know they're corporations. You don't issue 1099s to corporations. You issue 1099s to Bob the Plumber. Bob the Plumber has his own small business. He's a sole proprietor or maybe even an LLC, but he gets a 1099 from you. Maybe even an LLC, but he gets a 1099 from you. And if you paid him $605 to fix something, you need to issue him a 1099. 

17:30
That's a lot of record keeping, but I believe that the 1099 structure that is not necessarily enforced by the IRS is potentially going to be enforced, and here's the reason why Effective in 2026 and going forward, that amount of $600 increases to $2,000. Now the number of transactions that are $600 and above is exponentially greater than the number of transactions that are $2,000 and above. That means that there's a lot less in regards to volume of transactions that the IRS would have to look at in terms of making sure that your company is being compliant. That also means that the computer systems can narrow down their focus and if you're a business that's not issuing 1099s to your vendors that require them, you, based off of their answers on a W-9, then you could potentially be putting yourself in harm's way of penalties, fines and interest. 

18:21
So I recommend that if you do business with someone you want to get a W-9. You also want to have a W-9 pre-filled out and signed off for your own business, and you should be giving a W-9 to other people as well, because you don't want to receive 1099s unnecessarily. If you're an S corporation, other businesses should not be giving you a 1099 miscellaneous or a 1099 NEC. They should not be giving that to you. You should also not be giving to other people that have corporations whether it's an S-Corp or a C-Corp a 1099. Narrow down the need by making sure that you get a W-9. 

19:02
What's the best way of getting a W-9? When they give you the invoice, I need a 1090. I need a W-9 to go with this. Oh, okay, yeah, I'll have my office send that over to you right now. Why? Because they want to get paid. You're not withholding funds all willy-nilly. You're not saying that you're not going to pay them. You're saying that you're going to pay them, but you need to make sure that you have paperwork from them that indicates whether or not you've got to give them a 1099. That's protecting yourself. So I think there's going to be more focus sometime down the road on the 1099 structure with the IRS and Department of Treasury. This is my personal opinion, but I think that it's an area that the federal government then could look at. 

19:43
People that are receiving monies through 1099s and not reporting it on their income right, that's kind of what they want. You have to report your income, but if you got $1,000 to fix someone's fence and they don't give you a 1099 and they don't report it as a business or as an individual, then how does the IRS know that you got that $1,000? They don't, so then most people don't report it. That's not legal. Protect yourself, protect your business, do things the right way. 

20:18
Don't cut corners. When the corner, if it gets cut and you get caught, can result in you losing money. It's not worth it. It's not worth it to cut corners to save yourself a little bit of time or a little bit of record keeping, just to prevent you from having to send out a 1099 to someone. 1099s to fill them out and to send them into the IRS is silly simple. It's literally a half a dozen boxes on a form that you put some information in and you submit a copy to the IRS and you submit a copy to state agency and you submit a copy to the person that's receiving it. That's generally the order. 

20:58
The reason why I think 1099s are going to become more of a thing is specifically because they raise that threshold. That's an indicator to me that they are going to be looking at the 1099 structure with more scrutiny within the next, you know, four years or so. I would say four years or less 1099s and the issuance of 1099s is going to become more of an issue. Be ahead of the curve. Don't get caught on the back end doing it in advance. Get W-9s from the people that you do work with, because once you get one, then, unless they have an organizational structure change, you don't need a new one. So you collect it in 2025 and it's good as long as you do business with them. You don't have to ask for it again. But you have it right. You have it for your records. You know whether or not you need to give them a 1099. 

21:46
The other 1099 that's kind of one of those things that a lot of people don't necessarily look at is the 1099K. So third-party platforms must issue a form 1099K for payments that they processed that exceeded $2,500 for goods or services. Any of the platforms credit card platforms, stripe, paypal, any of those Amazon if you're doing work with them and they're the ones that are processing payments. They will. It's not the money that goes to your account, it's the ones that are processing payments. They will. It's not the money that goes to your account, it's the money that you generated, right? 

22:19
So if you had a thousand dollars sale through PayPal and minus their fees and everything else, and let's say this is a terrible number, but let's say, $800 hits your bank account, well, in your QuickBooks it's only noting $800. No, it's a thousand dollars. And then you add a $200 processing. So when they submit that 1099, that is your gross, that's your true gross income that they processed on your behalf. But the money that hits your bank account is already money that's minus their expenses. So you need to be aware of that. You need to make sure that you're getting 1099Ks, because that will give you an opportunity to double check, based upon your invoices, what your total gross will be, because your total gross on your P&L through QuickBooks, for example, is based upon the bank feed. Well, the bank feed is just showing the deposit that came in from PayPal, not the actual full sale value Full sale value minus PayPal's fees. So the 1099k threshold is effectively changing and it's going to be retroactive back to 2022. This is, I think, a little bit of a CYA for the processors that aren't necessarily keeping up with the low threshold demand of $2,500 because it's just got moved up to $20,000 and 200 transactions. 

23:42
For those of you that do online sales, that formula may seem familiar because online sales, if you pay sales tax in a state, it's because, as an online seller, you met the thresholds. Those thresholds are generally tracked by who does your payment processing. So if your payment process let's say, you sell a product for $50 and you made $1,000 in sales right, so that's $50,000, but you made 1,000 sales Many states have it written in that you either meet a monetarial threshold or a transaction threshold, and or both. So be aware of that. I mean, if you've got a processor that's doing payment processing for you and they're charging you a fee client pays with a credit card, you process it through your processor and it's for $1,000, but the amount that got deposited into your account is $800. You still have to report the $1,000. You also get to deduct that $200 in processing fees. So make sure that you're paying attention to that as a business owner. 

24:50
I've seen a couple of business owners kind of get in trouble with the IRS because they went purely. They gave only data to their tax preparer based upon what the profit and loss statement said from QuickBooks. But that's not true number and so you need to provide more information to your tax person, not less, because then that tax person should and could be able to point out areas where you could do some strategies and or at least report true numbers. Right, because 1099s, 1098s, they all go to the IRS. So let's say, for instance, you did sales for your online business and you had 1.5 gross, but because of your QuickBooks report, you only report 1.3. All the IRS sees is that PayPal charged and generated 1.5 million in gross sales for you, but on your tax return you're reporting 1.2. That'll get you in trouble Because they have a third party reporting something on your behalf. 

26:01
That means they have something to compare it against. So that 1099 amount needs to match what's in your income. Now if you also do cash in your business and let's say you do PayPal for 1.5 million in processing gross, but then you also do cash of 600,000. That is, and your QuickBooks is recording that those cash and stuff like that that means that your 1099 is going to be reporting a less value than what's on your return, that's fine. They may ask you to prove that out, but that's fine. It's when you under-report, based upon data that they're receiving from another party. That'll get you in trouble and you do not want that trouble, right? You're in the business to sell a service, sell a product and make money, and make money. You're not in the business to then get in trouble with the federal or state authorities. That then will end up costing you that hard-earned money that you gained. So stay away from that. 

27:04
In regards to other small business changes in the Big Beautiful Bill, there are some, but there are a lot of areas that the Big Beautiful Bill for small businesses. The changes were in very specific areas. That doesn't have an effect on the general business population. I'm not going to dive into examples because I think that's a little bit of a waste of my time and your time, but the focus should be on what in the Big Beautiful Bill is to the benefit of your business. 

27:34
The first one, the top one, the winner bonus depreciation. Take advantage of that bonus depreciation. Oh my, take advantage of the bonus depreciation. I will say it for a third time for those that need to hear it three times. To remember bonus depreciation Because one of the number one things that tax preparers will tell you when you ask them during tax season, how can I reduce my taxes, buy a vehicle. They don't really get into as to the logistics of it, they just say it why? Because it's an easy one to say. Everybody pretty much knows about it, but the thing is that's you then spending money to then reduce what you're going to pay in taxes and it's never a dollar for dollar situation. Bonus depreciation becomes a dollar for dollar win. You spend 80, you get to write off 80. I don't know how much better it gets than that. Well, I mean, I guess if you spent 80 and you got to write off 100, that would be fantastic, but it's not that. If you spend 80, you get to write off 80. Take advantage of it. So the bonus depreciation is in it at number one. That's the big winner. 

28:45
The second place one for me is the qualifying factors of the 1099 miscellaneous and NEC. I always inform my clients that they should be having a vendor list outside of what is in QuickBooks Although QuickBooks is a good option for having 1099 tracking and reporting, but you want to have your own internal list. And the reason why is because you, if you already have W-9s, you know who not to have to send to, right. So then when you go to your 1099 list that's provided by QuickBooks, you could say not to have to send to, right. So then when you go to your 1099 list that's provided by QuickBooks, you could say, nope, not that company, not that company, not that company. These 10 companies are getting 1099s. And then you process it through QuickBooks. Quickbooks files it where it needs to go and sends it out to the person that's supposed to receive it. Wonderful, that's fantastic. Or it gives you the option to print it up. You print it up and you know who to mail and you're not mailing out 50 of them that you didn't need to mail out. You're mailing out 10 because that's all you needed to do. 

29:43
The next thing is making sure that you're reporting true income and knowing the changes on 1099K. That threshold of 20,000 means that small businesses mom and pop online that you know spent that make less than 20,000. Means that small businesses mom and pop online that make less than 20,000 on sales online or something like that, they're not going to receive 1099Ks, but they still have to report that income minus their expenses. But if you get a 1099K it's because you met the threshold of over $20,000 or 200 transactions and or 200 transactions. So just be aware of that. Those are the three ones. I mean there's some other things in there that are good ones that kind of dive into, like qualified small business stock. 

30:25
That is a tax strategy. That requires it would require an entire episode to kind of go over it with depth and with numbers, and I think that I would have people that are kind of snoozing as they're listening to the soothing sounds of my voice drone on in regards to QSBS. So I'm going to stay away from that topic on this episode. If you're interested in QSBS, please talk to your tax professional, your strategist and or your in-house accountant to help you out with that. That is the big, beautiful bill and how it affects your small business. So we are going to move on in the next episode of how this translates from your business to your personal Because, remember, your S corporation is a pass-through entity. It does not pay taxes on its own. It reports on a K-1 to you. What are the changes to your personal taxes? We'll get to that in the very next episode. 

31:32 - Melissa Broughton (Co-host)
Thanks for listening to the Real Buzz Taking the Sting Out of Taxes. 

31:36 - Eric Broughton (Host)
If you like what you heard please subscribe. Please post a positive review. 

31:40 - Melissa Broughton (Co-host)
And share with a fellow business owner or friend. 

31:43 - Eric Broughton (Host)
If you're serious about reducing your tax liability. 

31:46 - Melissa Broughton (Co-host)
Reach out to us at BusyBeeAdvisorscom. 

31:50 - Eric Broughton (Host)
And follow us on Facebook. 

31:52 - Melissa Broughton (Co-host)
And LinkedIn at Busy Bee Advisors. Thank you, so here's the fine print. The purpose of this episode is for entertainment. You understand, of course, that everyone's tax situation is completely different and that one tax strategy or suggestion cannot be applied in all cases, and that there very well may be variations. Thanks for listening.