48: Breaking Down the Big Beautiful Bill Part 2 for Individual Taxpayers

In this episode, I discuss the significant changes in tax legislation following the newly passed bill. I provide an overview of updates that impact individuals, including the extension and modification of provisions from the Tax Cuts and Jobs Act of 2017. Key topics include standard deductions, personal exemptions, child tax credits, mortgage interest deductions, and tips and overtime tax breaks. I also highlight additional changes such as charitable contribution deductions, enhanced deductions for seniors, and itemized deductions for automobile interest. Finally, I provide advice on how to navigate these updates, the importance of consulting credible sources, and what to expect moving forward.

Chapters

• 0:00 Introduction and Welcome
• 0:35 Overview of the New Legislation
• 4:57 Permanent Changes from TCJA
• 14:54 New Tax Provisions
• 24:52 Modifications and Adjustments
• 32:40 Planning and Next Steps
• 36:04 Conclusion and Farewell

Transcript

 I am Beth Whitworth race car driving quilt making CPA firm owning wife, mom, and boss. I'm here to help you build a business you love by sharing all of the good, the bad, the ugly, and the excellent sides of working in this industry. It's not always easy, but after many years, I can finally say it's worth it.

Let me guide you on your journey to accounting with confidence.

Good morning and welcome. I am here to talk about the one big beautiful bill, uh, once again. So, uh, today we are going to talk about part two, which impacts individuals and what changes have been made that will impact tax planning and taxes going forward this year and into the future. So for those who don't know me, my name is Beth Whitworth.

I am a CPA who was born and raised and still lives in St. Louis, Missouri. I've been doing accounting for a very long time and have been a tax preparer for 29 years. This year is the biggest legislation we have had since the pandemic and prior to the pandemic, the biggest legislation was the Tax Cuts and Job Act in 2017, which was a huge, huge bill that change that That had been the biggest change since 1986.

So what the new bill. Today that we're talking about it is taking what we did inside of the TCJA ACT and making sure that a lot of those things that were hanging out there that were set to expire at the end of this year are addressed. So for those of you who are watching on Facebook or LinkedIn or YouTube, feel free to comment at any time.

Um, put something in the chat or comment if you have any questions or if there's something that you would like to learn more about or even just comment and let me know you're here. I would love that as well. We are broadcasting live on Facebook, LinkedIn, and YouTube. So welcome, welcome. So I will tell you that this is a huge amount of information and I am going to do more of a high level type of review of these things.

There are going to be some that. We'll deserve a whole lot more time and probably be very specific to some people as far as maybe that you might have to get specific with your tax preparer on them. But I'm gonna do a highlight of things that are new, things that are maybe have been made permanent from the TCJA bill, and then also just things that you need to consider and, and, and think about.

So if you are looking for information about this, uh, big, beautiful bill, here's the link That is the, to the actual text. It is hundreds and hundreds of pages, but I will caution you that as you are getting information about. What has changed, what is new? Make sure you're going to reputable sources. Make sure you are talking with people who are actually in the industry.

All the guidance is not out yet, so there is some speculation on how some things are going to be handled. It's very easy for some people to jump in and make something sound like it's too good to be true. If you've listened to me before, you know that if I say that you think something sounds like it's too good to be true and it has anything to do with the IRS, it is probably too good to be true.

So let's get started. So, reputable sources. Our main sources are A ICP, A Journal of Accountancy irs.gov website. Right now there's a, not a whole lot other than news articles and CPA firms and people putting information out, which is great. I would say. Stick with those firms that are big enough to have their own research departments.

If you're looking up information, do not rely just on good old chat, GP or Claude or any of those. All of those need to be fact checked, and I tested that as I was preparing for some of these sessions. And sure enough things that are clearly stated in the law for limits or amounts. They had wrong. So I schooled them.

I said, Hey, don't you think that's really this amount? Oh yes, you're right. Good catch. So careful there when it comes to using, um, AI to really get your knowledge of this bill. 'cause there's everything about it is really out since the bill passed in early July. Okay, so we're gonna first talk about what was made permanent.

Now, like I said, the T-C-G-A-A Act was a huge bill that made huge changes to individual tax returns. That being for the first time in decades, it. Eliminated the personal exemption that you used to get. So the, the people that had a huge family got, you know, thousands and thousands of dollars that they took off their taxes, it eliminated that and it replaced it with a standard deduction that was much higher.

So instead of a $6,000 limit for a single person, it was 12,000 for a married couple. Instead of 12,000, it was 24,000. And so that. Got people to have a higher standard deduction and it got fewer people needing to itemize deductions. So the difference between that is if you, that you use the standard deduction, if you don't have enough of certain expenditures and things on your return, that would actually be go over that standard deduction amount.

So it was super easy to get over $6,000 or $12,000 when you were married, filing jointly back before 2017. Now it's a lot harder and it has, that standard deduction has continued to increase for inflation. So now it's, you know, $30,000 for a married couple or higher. So that has been made permanent. No more personal exemptions.

They're not coming back in. The standard deduction is still high, which is, it's good and bad for a lot of people. It was a huge tax benefit because they weren't anywhere close to being able to itemize and getting this large standard deduction. Really did reduce their taxes. So that has been made permanent as well as the tax rates.

And I will say this with the caveat that, you know, tax rates are always subject to change. Even if it says that the rates from the TCJA ACT have been made permanent, that is permanent until there's another decision to change them by Congress. So, but what, what it was set to is that in the after 2025, the rates were going to revert back to pre.

TCJA times and now they're going to hold steady, and those rates are between 10% as the lowest bracket to 37%. And so those are not going higher at this point. And they're also going to add a couple of inflationary steps in the lower brackets, meaning that the bracket, you know, so I don't even know off the top of my head what the brackets are as far as the dollar amounts, but it's going to add some upper limit so that.

As that you'll stay in that 10% bracket, maybe longer or 12% bracket longer. They're not gonna do that for all the brackets, but they are gonna do that for the 10 to 12%. So the, so rates were made, permanent standard deduction was made, permanent personal exemptions being out was made permanent. The child tax credit that we saw a whole bunch of things happening in and around the child tax credit during 21, 22.

All of those, those pandemic years, um, they have made permanent increase to the child tax credit is. $2,200 with a $1,400 refundable portion, so you don't get all $2,200 as refundable if you, you know, but you can use that $2,200 too as a credit, which reduces your tax liability. The other piece of the.

Child tax credit that's, that's related is the other. So they, they lump into this other category. It's an other dependent credit, and that is for once your kid's over 16, they're still in school, you're still gonna get $500 for them so they don't fall off completely. You get the $2,200 for per child up until 16, you get $500 for anybody who is your dependent.

Including a parent, you know? So if you are starting to claim your parent, you're supporting them, they live with you, you can get $500 for that person as well. So that has been made permanent. That was new. You know, when, when they. Put in the child tax credit, they put that caveat of being over. Once they hit 16, they fell off that.

And so they kind of picked it up by putting this $500 out there for your college age students, your older high school students, those types of things. So all of those things have been made permanent. That's exciting. I think the tax rates were it, that was a huge, what we call a tax cliff, where, okay, we're planning, we're planning, we're planning, we get to 2025, here's the rates.

What are they gonna be in 2026? We don't know. And that makes planning very, very difficult at that point. So, um, now that we know we can better plan, better plan, so the other things made permanent or relating to your mortgage interest. So I don't know, you may or may not have been aware that in TCJA made essentially acquisition indebtedness, meaning you purchased a home, you were limited to $750,000.

That. You could have as the amount that could be considered. The interest on that amount is how much you could have for mortgage interest if you're itemizing. They have made that permanent and they have also made, and this is, this is one that I think impacts more people, the home equity line of credit.

So they used to be able to, if you had something that was considered home equity, the interest was deductible. TCJA put in place the rules that that home equity line that you take has to be used for your home. So when people were using home equity lines to refinance credit card debt or to pull money out to help send their kid to college, or you know, to invest in some other property, those were not considered reasons that you could get that home equity interest as part of your deductible mortgage interest on your schedule A.

So. That is still a thing, so just be beware that I know there, there have been people, you know in the past for years, you refinance your house, you pay off some debt, maybe you put a roof on, but most of it went to to kind of get that lower interest rate. Now, interest rates right now on home equity is pretty high, although not.

Crazy. I don't think they're even higher than when we were, we refinanced at some point and got it down to 6% 'cause it had been that high. So just keep in mind that home equity lines of credit are, have some limitations. Finally, the, the other big, big, big piece that was made permanent that honestly didn't wanna see come back because it was so big.

It was the section on the unreimbursed employee business expenses. They were, it was a part of your itemized deduction schedule, and it was a huge tax planning deal for anyone who. Got a W2, but really kind of ran their own office or they were a single owner s corporation. We were able to use these itemized deductions for their vehicles and their mileage and their meals and their entertainment and their, just all the things, marketing everything.

And that was for some giant companies, that was how they ran their business. So they paid everybody by a W2 and then said, you're gonna pay this stuff out of pocket for your business and you're gonna take this on your as an itemized deduction on your, uh, personal return. That vanished in 28, the 2017 filing season, and became a huge deal for some of these organizations having to revamp how they either paid their employees, how the employees maybe needed to become owners of a partnership so that they could deduct expenses there.

And it became, it was a big deal. And so having this, that cliff for, to have that come back in 2026. Would've been really difficult because people changed their entire systems. Companies that big companies changed their, their systems. Edward Jones had to change their system. They had to come up with a new way of getting to the same place because that tax law changed.

So from our perspective as preparers, it actually kind of makes things easier. But we did have to come up with some, some ways to work through that. So it is now permanent. They're not these. You know, unreimbursed employee business expenses aren't coming back. That included things like educator expenses.

They've kind of moved that somewhere else. Union dues, it eliminated your accounting fees from that section and it eliminated your management fees for your financial stuff. So if you were getting charged a management fee by your financial advisor, those used to be able to be in that section. Those are permanently gone.

Alright, so that's a lot of the stuff that has been made permanent. And that's great because that increases our ability to be able to actually plan, you know, so these things that we're supposed to terminate or go away made it very difficult to plan for you. One other small one is that, I don't know, a little obscure 'cause unless it impacted you where you actually were moving, you may not have realized that the moving expense deduction that went away unless you're in the military.

And so that is still permanently removed unless it's for military purposes. So, okay, let's move on to some of what is new. This is the stuff that's probably. Making the news a little bit more. It is the, the stuff that there's more uncertainty around, I would think. So first and foremost, I will talk about charitable contributions.

So one, so something new is they have put what we call an above the line deduction, meaning you don't have to be itemizing to take it of $1,000 of charitable contributions to anybody who's filing their tax returns. If you, if you donated at least a thousand dollars or. Between zero and a thousand. You're single.

You can take a thousand dollars above the line donation expense, and you don't have to have itemized to do that. Now, for married filing joint, it's 2000, and they did a little sampling of this during the pandemic where they had a $300 above the line deduction. Well, they've increased that and for me, I say that is, that is a great thing and that's a great thing because.

As much as we all are want to be charitable, depending on where you are in your tax situation, you kind of are also looking for tax breaks. And so this should stimulate getting some money into those charities, the charity of your choice, and getting a tax deduction for that. So for the people who are donating.

Smaller amounts. You're not putting it into a donor advised funds, but you do wanna go give, you know, to your stray rescue or somebody's run or somebody's bike ride or whatever. That's for charity. You can now keep track of all that and get a deduction. The other piece related to charitable deductions impacts those who itemize, and I'm not as excited about this one.

It is new, but it's in the past it was, you got to. Itemize your charitable deductions at any limit, I should say. So meaning it doesn't matter what your adjusted gross income was, you would start from dollar one to be able to start taking that as a deduction. Now they're saying that your charitable contribution base starts.

Point five, half a percent of your adjusted gross income. So that means if you make a hundred thousand dollars, you wouldn't get any charitable deduction until you gave over $500. It's designed for higher income people, but I think it could hurt those middle brackets a little bit. So we'll see how that plays out, but just know that that is coming, and I believe that that is starting in 2025.

I will have to double check on that one on if it's 2025 or 2026, um, the charitable, I, I think it's 2025 because the above the line charitable is a 20, 25 thing. So you still have time to, you know, contribute up to a thousand, 2000. And also if you are gonna contribute more than that, then that can move over as an itemized deduction.

So, so that's the charitable stuff. The other, what is new and is getting a lot of airtime is the no tax on tips, no tax on overtime. So if you've heard of this, this is them saying, okay, beginning in 2025, if you are in a tip. Industry, so we're talking food and beverage. Um, I think they came back and said health and beauty type stuff.

So, you know, your, your hair, your nails, your aesthetics. Anybody who's typically tipped that there will be a deduction of up to $25,000 per taxpayer for the tips that you have earned. So if you are in a high, kind of wanna a high tip industry, so you're working in food and bread, beverage, a lot of times your wage is paid less.

And because you get so much in tips and so for someone who is, is full-time working in this industry, this is a kind of a boon for them, but it is temporary. It is set to expire in 2028. It has a phase out. So if you make more than $150,000, it will start to, and for gross income, it will start to phase out.

But. It will be an above the line deduction for you to reduce your taxable income. Now, for employers, that means they've got to make sure we have to, there's gonna be changes coming to reporting for W twos so that when you go to do your tax return, you know exactly what number to pull. And so I know there have been categories for tips on W twos in the past, but there could be some changes to that.

So that could be coming. Now the no tax on overtime is the whole new ball game also set to expire in 2028. It is $12,500 per taxpayer. It is also subject to gross income limits, and it is said to be on the overtime pay. So say you get paid time and a half, you should get an exemption for that extra half.

Not for the whole time and a half. Just the half. If you get paid double time, you should be getting just the part that. Doubled. Not the whole, not your regular hourly wage plus the overtime. So that brings into a whole lot of, kind of a whole lot of craziness because many employers, whether if they're tracking it inside a, they have to track it inside their payroll system, but that is not a reportable box on a W2.

And so payroll companies are going to have to be jumping through some hoops here before the end of the year to make sure that they've got. The reporting correct and it's retroactive. It's not just for overtime that that's been earned since the bill passed. It's overtime for the whole year. So there's going to be some things that are going to have to change in order to get this reported accurately.

So great, I guess. But it is gonna create some administrative payroll nightmare. In some respects. So, and on the tips, the, there's supposed to be guidance coming out on what industries are impacted. So I said food and beverage and health and beauty, but there could be other specific industries. You're supposed to be getting guidance on that by early October.

It should be coming. Okay. Another new is the enhanced deduction for seniors. So this is the social security piece. It's essentially an additional standard deduction. There had been in place some extra in the past, but it was set to phase out. Or it was set, it was very small. So you're standard. If you were over 65 or you were blind, you were getting a little bit of a bump in a standard deduction.

So what is happening now is that you're gonna add a $6,000 bonus deduction for seniors. That is for 2025 through 2028, and then it's gonna be gone. Unless it's extended or somebody you know, makes a change there. And that is also phased out for higher incomes. So for your seniors who are on social security, but they also have some, you know, investment income and those types of things, then you're looking at, you're getting an extra $6,000 possibly, depending on what income levels they are at, that will reduce their taxable income.

It is not. Refundable. So it's a a, it's one of those things that it's not like you're going to take this extra deduction and get them into a refund position. It's going to offset the tax. That is what's happening on the, the, the. I guess I, it, it's referred to as so relating to social security, but it's really not, it's really an extra standard deduction for people over 65.

Another interesting one that they added, which again, I think, um, becomes, I, I look at it from what type of document do we get in order to accurately prepare your tax return. And so this one I find interesting. This is going to be that. You're going to be able to itemize the deduction for automobile interest if the automobile was purchased in 2025 to 2028 and was assembled in a US based plant.

So the vehicle has to be the collateral on the loan. Now think of that logistically. Who's determining where the car was assembled? Who's reporting that so that we know and now like we get for mortgage interest, are we now gonna have to get the automobile interest that qualifies? I don't know, but just so you know, this is gonna be added to the interest section of the itemized deductions, I would assume.

So in that section you have mortgage interest. You have some business related interests and then you have, obviously we'll have possibly, if the forms come out the way I think they would, that you would have the US manufactured automobile interest. Okay? Now it is limited to $10,000 for car loans on from 2025 to 2028.

I assume that that is a year. $10,000 of interest in a year. I don't think it's $10,000 of interest total, because that would also be a very hard limit to keep track of over time. So that is also new I, and that falls to me in the new and unusual 'cause. I was not expecting that at all. Okay. Let's talk about what is, what is modified?

I would say modification ones would be things like. I don't know, maybe modified's not a great term. There's some obscure things in here that might be modified. Wagering losses is one I would consider. What is modified? Essentially it was wagering Losses were limited as an itemized deduction to the amount of.

Winnings. So if you are a gambler, you could only take your losses up to the amount you, you won. And it was, I, it was as an itemized deduction. They are now limiting those losses further. And I'm guessing this might be somewhat in response to the fact that gambling is really kind of across the board becoming legal in so, so, so many states, all of the apps and all those things, but it is now limited to 90%.

Of the amount of your losses and only to the extent of your winnings. So that's a modification. So if you're used to always just, you know, turning in enough winnings to offset those losses, you might have to, we have a modification there. Losses are gonna be limited. You're gonna lose 10% of that as an itemized deduction.

And then I would say. 5 29 plans. So 5 29 plans are really designed for saving money. It used to be specifically for post-secondary education, which would be your college. It has expanded that the use of the 5 29 plans. It's includes K through 12 and homeschool expenses. So you could use a 5 29 plan to help pay for any type of homeschooling.

So if you subscribe to some sort of membership or something that provides you materials as you're teaching at home, that it, that could be a potential use of that. The other thing that it expanded the five 20 nines for is to use the money for post-secondary credentialing. So things like in, for my industry, it would be the.

Getting your CPA, there's testing fees, there's course, and studying fees, you know, things like review classes, all of those things. So there, there could be an opportunity that if there's still money in that 5 29 plan after you've finished college and you're getting some credentialing, that you could use it for that as well.

We had a, it has been, it's still. Limited as far as what state deductions you can get in. Its per state. So, but that I thought was new and interesting and a modification. So we're gonna hop over to this new one as we're, we're already past 30 minutes here. The salt cap, the salt is the state and local tax cap.

So it, with the TCJA, you have a section on your itemized deductions, that's for taxes, and in that taxes section you have. Taxes you paid to the state, whether it be through withholding, whether you, it was through estimates you had your real estate taxes if you were in estate with personal property taxes that was in there and that was pre, and then local taxes if you, if you live in a city that had local taxes that were withheld.

So what the TCJA put into place was that that total section, including all of those types of taxes, got limited to $10,000. That's huge. I mean, I, there are people out there who pay real estate taxes more than $10,000 in a year and then add in the state taxes and they, they got cut off, you know, so their itemized deductions dropped.

There was a lot of of things there, and so a lot of the business owners who were. Maybe, uh, s-corp owners who had a lot of, you know, so they got wages, but then they got limited to how much they could take as itemized. Um, they just really, it, it became a kind of an issue. So the O-B-B-B-A. Actually bumps that cap back to 40,000 or up to 40,000.

It used to not be capped at all. So it goes from 10,000 to 40,000. There is phase out for adjusted gross incomes that are greater than 500,000, but even if it's greater than 500,000 and you are in that phase out range, it can't be phased out less than 10,000. So this does open up a, a range here. This the kind of a $30,000 window, which is huge.

That's, it's pretty big. I mean, when you're talking itemized deductions, it's pretty big. So, um, this is set to be, it's pro retroactive for 2025, which means we will get to take advantage of this for 2025 tax planning as far as when we're estimating what people's. Itemized deductions were last year if they were limited.

We get to plan for them to get more, which is great. The phase outs are going to be both, both. The 40 thou thousand I think is adjusted for, uh, 1% increase for 2026. No. Yes. And then 1% increases for 27 from that. 27 and 28 and 29, and then beginning in 2030, the cap goes back to 10,000 unless there's legislation that extends it and or makes it permanent.

Now, in response to this limitation that was put in place, many, many states put in a pass through entity tax. That allowed businesses to essentially estimate what the owner's taxes were going to be, and the businesses could pay that in in advance, and the business got the deduction and therefore the.

Owner was getting less income passed through to them and that's how they were sort of solving this. And then there would be a tax credit on various states. Not all the states com had that. And all the states that did have it did not handle everything exactly the same. So there could be some changes coming with how the states are going to deal with that.

But right now they're allowing, you know, this act is allowing the pass throughs. To continue to be unlimited if they are going to continue to have the PTET. So that is the salt cap. I know it impacts several. So if you ever looked at your return and, and you were itemizing, but suddenly you just see this flat, $10,000, like what the heck is that?

You know, I had more than $10,000 in personal property tax and income tax. It was crazy. It was one of those big things. It was almost as big for us as the switching, the standard deduction up. So it was, it was pretty, that was a massive tax bill. I will admit to you, when I sat through the tax training class that year, I remember sitting there and I can't remember, somebody on my team was sitting next to me and I'm like.

I think I'm gonna retire. It was so massive. But here we are several years later and I am still doing this, and I think for the most part we've got some good. Things coming. There's some tax cliffs that have been eliminated and we are have a clearer picture on how to make plans. And that is, that's what we wanna do.

We wanna help our people, you know, know what's coming. We don't like surprises and so tax laws that we don't know what is going on make us crazy. So my advice for what to do next is to first. You're gonna wanna chat with your tax preparer this year if they don't. Send something out regarding these changes or you don't see anything from them, you're gonna wanna reach out and say, Hey, what will this potentially change?

But please, please, please, I would suggest, wait, give the bill some time. Give the IRS some time to actually get some guidance written. So right now we are all interpreting that language, that that's, that's in this, this 800 pages of text, we are still having to do a lot of interpretation. And what happens with these bills is guidance will come out, the IRS will publish guidance in some form that in the name will also change the forms.

So all of the forms that will be changing or added or any of those things. It's happening. So we want you to get information, check in with your, your tax preparer and, but give us time. So I would say planning this year, you know, you're not gonna start it until later in October and that that does push it a little bit.

However, you do wanna have that conversation before the end of the year once. December 31st has passed. There isn't anything you can do to change things. It's now history. So there are a lot of hard and fast deadlines relating to year end. Now there are a handful of things, you know, relating to putting money into your IRA or you know, various other things.

But that can be done during the se, the tax season. But you wanna check in before then. Then the other thing that is going to happen, and probably, I don't know that they formally announced it, but the filing season is probably going to be pushed back as far as when it's going to open, meaning typically we are able to start e-filing individual tax returns by the end of January.

And now we're probably looking at probably closer to mid-February before we can start e-filing. That doesn't mean that we aren't gonna start preparing returns. It just means that we can't do the submission until mid-February as we're waiting for all of the software vendors, the IRS's systems. All those systems have to be updated and so.

It takes a while. It takes a while, but we are lucky that they passed this bill in July and not in October. Or November. And I will say that though, they are going to extend, you know, when they will probably open the season, they're not going to extend the April 15th deadline, the March 15th deadline for businesses.

So that means our tax season is going to be compressed. And as I say that, and I say, okay, so make sure that you're not dragging your feet this year. You know? So as you're getting the information, you think you have all the. All of the information, even if we can't get it filed until later in February, get it to us because we are going to have a little bit of a compressed season by them not opening it till the middle of February.

That only gives us a couple months. To get all the individuals done, so, okay. If you have any questions, leave them in the comments. If you're watching this on the replay, leave it in the comments and we will get back to you. If there's anything that I didn't cover and you wanna hear about, leave me a note.

I'd love to hear from you. And as always, if you need me, you know where to find me. But also, if you have tax questions, concerns, issues, reach out to your tax preparer. If I'm that person, let's wait until October so that we have more guidance. But otherwise, you know, don't be afraid of this bill. Get your information from reputable sources.

Fact, check me. In fact, I mean it's like I said, we are working off of summaries from reliable sources, but again, everybody makes mistakes so please, please, please let me know if you have any questions. Alright, everybody, have a great day. I'll talk to you next time.

Thanks for listening to another episode of Accounting with Confidence. My hope is that my experiences can help you navigate the realities of owning and operating your business. Please subscribe or follow the podcast on your favorite podcast listening platform so that you never miss an episode. Feel free to leave me a text by using the, send us a text message link in the show description and let me know how I'm doing.