Profitable Painter Podcast
Profitable Painter Podcast is a rich resource for anyone interested in starting, running, and scaling a professional painting business, offering valuable insights, strategies, and interviews with industry leaders. Through case studies and in-depth discussions, we deliver a vivid picture of the painting industry, with a disclaimer that any financial or tax information is general and not a substitute for professional advice.
Profitable Painter Podcast
Preparing for Tax Changes Ahead with New Administration
Unlock the secrets of navigating 2025's tax landscape with Daniel, the innovative mind behind Bookkeeping for Painters, and Richard, our insightful advising director. As we transition into a new year filled with legislative shifts, get ready to understand the ramifications of the court's back-and-forth decisions on the Corporate Transparency Act and the intriguing fate of Beneficial Ownership Information Reports. With a possible change in administration, Richard and Daniel offer their expert predictions on how these developments could shape the future of both businesses and individuals.
Anticipate the expiration of the Tax Cuts and Jobs Act and its potential impact on tax rates, with a keen look at how political shifts might influence fiscal stability. Our conversation promises to equip you with the foresight needed to navigate these uncertain times, empowering your business and personal financial planning. Prepare to explore how maintaining steady tax rates can foster growth and secure retirement investments, ensuring you're ready for whatever 2026 may bring. Don't miss this chance to stay a step ahead in the dynamic world of tax policy.
This is Daniel, the founder of Bookkeeping for Painters, and this is Richard, the advising director. How's it going, Daniel? It's going well Going into the new year, so that's exciting. Just had Christmas with the family and the kids and then we got 2025, which is crazy. 2025 seems like such a far-off year. I know right. When 2020 hit, I felt like, oh my gosh, a whole new decade. And now it's already half over and we've got some cool things in store.
Speaker 1:We've seen a lot of political changes in this year and I thought maybe we could talk about some of the key changes in tax policies that we are anticipating for 2025 and onward Before we jump into that. Another big change is the Beneficial Ownership Information Reports. So if you've been listening to us, you've heard us talk about the Corporate Transparency Act and how these Beneficial Ownership information reports are due by December 31st. That has been the law of the land up until recently, when a Texas federal court overturned the CTA as being unconstitutional and then the reports were no longer legally required until another court put a stay on that overturn. So we went from reports being required to not being required, back to being required, but now with a January 13th deadline, and then just today we're recording this on December 27th 2024, the exact same court decided to overturn itself and say that the reports are now no longer required. So I don't know when you're going to be listening to this. Maybe this is flip-flopped 100 more times by the time you get to it. Hopefully not. But as of now, the BOI reports are on hold. It will be very interesting to see what the court ultimately decides. It will also be interesting to see if a new incoming administration and a new attorney general want to continue to pursue this, or will they let it go and let the CTA die a quiet, painful death. So stay tuned. If you're listening to this in the future, you probably well, you definitely know more than I do. We'll see how it goes.
Speaker 1:But as far as some more speculative things for 2025, right, the big thing that we were looking towards the end of 2025 was the expiration of the Tax Cuts and Jobs Act, and I'm sure you're familiar with that. That's the 2017 law. That was one of the largest changes to the tax code since Ronald Reagan was president. What a lot of folks didn't realize is that many of those provisions in the Tax Cuts and Jobs Act were actually set to expire at the end of 2025. We were going to see another major change to the tax code, and tax professionals have been kind of waiting with bated breath to figure out what are things going to look like in 2026. What are things going to look like in 2026? Well, we still don't know for sure because nobody has a crystal ball, but we do have a little bit more clarity with the new incoming administration and the things that they have publicly said as far as what type of tax policy they would like to see. So what we're going to talk about today is speculative. It is based on things that have been said, but, as you know, it's not over till it's over and these provisions have not yet been codified into law. So take this with a grain of salt. This is our best guess as to what's going to happen in the future.
Speaker 1:So number one is that tax rates are going to stay steady in 2025. If you've been around for a while, you've seen tax rates fluctuate all over the place, and they were last changed in 2017. They were reduced. We've got the 10%, 12%, 22%, 24%, 32%, 35% and 37% tax brackets. I think that's right. Those were actually set to increase starting January 2026. Well, we expect those rates to stay steady now that politics have changed a bit, and that's a good thing, because stability means that we are able to budget more accurately, we're able to know what our tax liability is going to be, and it helps us put money aside for things like growing our businesses, investing in our retirement. We know that we're going to have the cash to do that. So, keeping those tax rates somewhat modest I mean, everyone would like to see them a little bit lower, but they are better than they have been in previous years.
Speaker 1:Another thing we're looking forward to is the standard deduction for individuals and married couples. So I think one of the most noticeable parts of the Tax Cuts and Jobs Act was the doubling of the standard deduction, and we are expecting that to continue. In fact, we are looking at right now. The standard deduction is about $29,200 for a married couple, $14,600 for a single, and we're expecting it to increase in 2025 as that gets adjusted for inflation. Of course, that's important, because the larger your standard deduction is, the less you have to pay in taxes. Now, if you're itemizing, you might have a little bit different opinion on that, but generally speaking, a larger standard deduction does improve things for more people, kind of the idea of a rising tide floats all ships.
Speaker 1:Speaking of this itemizing, one of the more difficult parts, one of the more uglier parts of Tax Cuts and Jobs Act was the $10,000 limit on the state and local tax deduction. So this is often referred to as the SALT deduction state and local tax and what that meant is no matter how much you paid in property taxes or state income tax, the most you could itemize was $10,000. And that actually pushed a lot of people into using the standard deduction. Me myself, I used to itemize because I had a lot of mortgage interest and I live in a higher tax state I live in Illinois, so one of the higher state income taxes. But after that cap and the doubling of the standard deduction, I found myself just using the standard. It does make your tax reporting a little bit easier because you don't have to fill out an extra schedule. But if you are paying a lot of state and local taxes you're probably missing out because of that cap. So we are hoping that that cap will be removed and then you know if you are in a fellow highx state like New York, California, New Jersey. You know it. If you're there you might be able to see a little bit more of a deduction moving forward.
Speaker 1:For small businesses, we've got some great provisions, and this is the return of 100% bonus depreciation. This is one of my favorite provisions of the Tax Cuts and Jobs Act. It allows for the immediate full write-offs for eligible equipment and property purchases. Buy computers, vehicles, machinery, office equipment. You don't have to wait five or seven years to fully deduct those costs. You can choose to use bonus depreciation and write the entire thing off in year one. So a huge tax savings for mostly small businesses who are purchasing these types of things. We enjoyed 100% bonus depreciation for several years but starting in 2023, we saw it reduced from 100% down to 80%. 2024, we're down to 60%. 2025, we're supposed to go to 40%, but we'll see. Maybe we'll get back up to 100.
Speaker 1:This is also a very important provision for people who are real estate investors and who qualify as real estate professionals. When you are doing cost segregation studies on your real estate, being able to use bonus depreciation and writing off a good portion of that property you just purchased is huge to maximizing cash flow. Just kind of an example, one that we did a client was able to use a cost seg, with bonus depreciation, and the taxes he saved with that strategy was enough to cover the down payment he made on his property, and now he's going to be able to rent that property for enough to cover his mortgage payments. So the down payment was covered, mortgage payments and expenses are covered. In 30 years he's going to have a fully paid off asset that's going to be worth probably around $2 million and he will not put out any of his own money to obtain that. So that's an ideal situation. It doesn't always work out that way, but just really cool strategy that I like to brag about. So thank you for listening to that. All right.
Speaker 1:Another business benefit is going to be the continuation of the qualified business income deduction or the QBI deduction, or, if you're an accountant, it's the Section 199A. This is a direct write-off of up to 20% of your self-employment or small business income. This is a huge boon to people who have businesses. This applies to sole proprietors, to people who have businesses. This applies to sole proprietors, partners in an LLC, S-corp, shareholders, and it is a very substantial tax savings. That was supposed to go away in 2026, so we're really happy to see that that might be sticking around. We certainly hope so. Now there's a couple of new things that have been floated out here. So Now there's a couple of new things that have been floated out here.
Speaker 1:Just by personal opinion, I'm a little bit more skeptical of these, but if we get them, that would be awesome. We have heard about exemptions for Social Security income, tips and overtime. This is the no tax on tips that we've probably heard some of the politicians talking about. It would allow folks who have Social Security income or tip income or overtime income to completely avoid having to pay income tax on that. Again, I'm a little skeptical about this because I think this is a bit of a heavier lift than some of the politicians are admitting to. But if we get it, it would certainly benefit some of our hardest working folks.
Speaker 1:And then, finally, we've talked about, or we've heard talked about, the increased deduction for startup costs. This really only applies when you're first starting your business. Before you have revenue, you have startup costs, maybe legal fees, accounting costs, purchasing assets. These things have to be amateurized and expensed over the first 15 years. The exception to that is you can write off $5,000. And this talk has been of increasing that to $50,000. So if that happens, most small businesses won't have to worry about amortizing startup costs. They'll be able to expense those things immediately. That would certainly help lower the upfront costs for people who are trying to get off the ground. So those are the items that we have for 2025.
Speaker 1:Again, this is speculative. We don't know what it's going to be until it actually happens but certainly some light at the end of the tunnel for small business owners. If you are a small business owner, now is a great time to kind of look at your budget. Try to understand how these provisions would affect your bottom line. Talk to your tax planner. Make sure that you're ready for 2025, 2026 to take full advantage of these provisions. If you are looking forward to a particular tax saving strategy or provision, let us know, and you can go to our Facebook group. It's Grow your Opinion Business on Facebook. Let us know in the comments what you're looking forward to or what you might like to see, and we would love to get your opinions. But until next time, I appreciate you listening and hope you have a great rest of your 2024.
