Hi, everyone. This is the How to Lower Your Tax
Bill podcast. I'm your host, Terrence Hutchins.
I'm a financial and tax advisor in the Dallas
-Fort Worth area. And the goal of this podcast
is to help you listeners get educated on different
tax strategies that you can implement to improve
your tax situation immediately. Each episode
will break down useful tax tips you can use to
save money. no matter what your personal or business
income situation. Because our motto is, keep
more of what you earn. So let's get into today's
episode. Welcome to another episode of How to
Lower Your Tax Bill. I'm your host, Tarrin Touchings,
and we are going to play a recording today of
a webinar that I did with my tax partner, David
Stevens. This is going to be going over the new
one big, beautiful bill, the tax revisions in
it, how it impacts individuals and also businesses.
We will get into some of the strategy on future
episodes around how it might affect you specifically
in relation to keeping more of what you earn.
So we're going to split this up into two different
sections. So we'll play part one this week and
part two next week. So hopefully this is educational
and we will talk to you soon. Hey folks, David
Stevens here from Stevens Capital Partners. I've
got Terrence Hutchins who's joined me today.
And Terrence is our managing director of business
and tax planning here at Stevens Capital Partners.
So happy to have Terrence. He is a wealth of
knowledge. We're going to walk through the one
big, beautiful bill. Is that right, Terrence?
That's it. Yes. And we're not going to be political.
We're not talking about any politics here. We're
just talking about how it's going to affect your
pocketbook. We're going to be talking to several
different types of people. whether it's an individual
tax return, which we all have that, but also
business owners. And then, of course, also real
estate as well. So we're going to be speaking
to all different types of client profiles, if
you will, as we walk through this information.
So let's kick it off with some of the things
that have been extended. What are the items that
have been extended? So Terrence, I'll start us
with the first one. Give us some of your thoughts
here. We've got tax rates are now permanent,
right? So the pre -tax rates from before 2018,
we were going to refer to the higher level. being
at 39 .6 is the highest prior to 2018, right?
But now we're in the seven bracket system between
10 and 37%. That is now permanent. Is that right?
That's correct. In fact, prior to 2018, about
90 % of people roughly saw their taxes go down
once the tax and jobs cut act started in 2018.
And so we were going to go back to that old system.
And so everybody mostly was going to actually
see their tax. bill go up just as a byproduct
of going back to the old rules. So this is a
big change for us as it relates to our personal
planning where, hey, instead of me having to
pay an extra one or 2 % in taxes next year, I'm
going to pretty much stay the same outside of
some of the other provisions that were adjusted.
Excellent. Okay. And then how about the standard
deduction? We know that the standard deduction,
the enhanced standard deduction as it's known
as remains permanent now. Is that correct? That
is correct. So prior to 2018, many people actually
itemized on their tax returns. So they added
up the mortgage interest, their taxes, their
state and local taxes, their charitable giving.
Now about only about 20 to 30 % of people actually
itemize because of this change to the standard
deduction. So now the first $31 ,500 that you
make, you actually don't pay tax on that to the
IRS. That's another nice change for a lot of
folks. If we had gone back to the old way of
doing it, potentially a lot more people would
have saw their taxes go up as well. Excellent.
And then how about personal exemptions? Talk
to us about personal exemptions, Tarrant. So
the personal exemption is essentially when I
claim anybody on my tax return, including myself,
my spouse, my kids, my parents, I was going to
get like a flat tax deduction for each person
that I claimed. Well, that went away in 2018
and now they've just set it permanently. is going
away. So that higher standard deduction essentially
just prevents the need to have that extra personal
exemption. So that was just cleaning up the law
there. Excellent. And then, of course, we have
the child tax credit. That got increased by a
couple hundred dollars as well, right? Yeah.
So it was 2000. So prior to 2018, it was a thousand.
Then it bumped up to 2000. And now they've increased
it to twenty two hundred dollars. So I know all
of our kids only cost twenty two hundred dollars
a year. So we get a tax credit for each of them
up to the twenty two hundred. And then it's also
adjusted for inflation moving forward. Correct.
That is correct. Yeah. So it was a flat number.
So that's a good point where, hey, that number
could increase over time with inflation as well.
Let's talk about mortgage interest deduction.
So let's speak about that. Well, the mortgage
interest, that used to be a million dollars.
So I know, I know you have your five million
dollar compound there in Omaha. Well, hey, you
pay for it cash, of course, but for us common
people, if we financed it, then we had a mortgage
that was more than $750 ,000, that extra amount
of mortgage, we actually don't get any additional
interest deduction for it. So they just made
that a permanent extension now. And so yeah,
so anyone that's buying a house, if you have
a mortgage more than 750, you're not getting
any additional tax benefit from having it. If
you don't own a business that is. Excellent.
Okay. Very good. And we've got the state and
gift tax exemption. This is a big one. this with
a lot of talk about this one over the last really
four, five, six years. So let's talk a little
bit about that one. So with the estate tax exemption
that was just under 14 million going into this
year, they're basically just bumping it up to
15 million per person. So the biggest change
was prior to 2018, it was closer to half that
number and it was potentially going to revert
back to that. And so a lot of people who had
estates that are in the 15 to 20 million dollar
range were thinking, hey, I don't have a tax
estate problem or estate tax problem today. If
the numbers go back to where they were prior
to 2018, I will. So now this just provides clarity
to say, hey, a lot more people aren't going to
have estate tax issues. It also allows them to
understand planning around trust to where, hey,
do I need to do a revocable trust? Do I not?
Where am I going to be at? And then that number
is also inflation protected. So it'll just give
us more clarity around who's going to have a
taxable estate moving forward. Very good. How
about ABLE accounts? So an ABLE account is similar
to a 529 plan, but these are designed for people
who are disabled because many times they don't
have the ability to go to college due to the
disability that they have. And so this is just
something that allows an increased contribution
limit. This isn't going to impact the vast majority
of people per se, but this was just more of a
provision. This is a disabled account. It's going
to allow you to put money away for your kid if
they're disabled. And the biggest benefit is
it doesn't impact the benefits that they get
from the government. So if you have a disabled
kid, even if you have millions of dollars, that
kid themselves won't be prevented from getting
governmental assistance if they have this ABLE
account. So that was just something that the
government kind of just cleaned up as far as
the increased contribution limits that you could
put in there. And speaking of kids and education,
what are some of the other education related
changes? So with the 529 plans, a few of the
provisions that they adjusted were before you
could use money for private schools. So K through
12 education, you can take out up to $10 ,000
for that. Now they increase that to $20 ,000.
So if you have a kid that is in a private high
school, private middle school, and you have a
529 plan, you can use more of that money to go
towards that. In addition, instead of just having
it devoted strictly towards college or room and
board expenses, they extended it out to things
like trade schools and even professional certifications.
Now they're going to clean up what's allowed
under that, but professional licenses, even potentially
the CFP. If I want my kid to take the CFP and
I have a 529 fund, I can actually use the money
towards that. So that is one area where it just
expands the scope of what a 529 can be used for.
In addition to if your employer gives you assistance
for education, sometimes there's tax. They basically
said, Hey, if you're in school, we'll give you
52 50 towards your school. and it's not taxed.
That provision has been extended. So if you have
an employer that provides educational assistance,
then you're able to continue to get that tax
free under the extension of the law. Yeah, that's
a wonderful benefit. And then of course, you
have student loan forgiveness, right? It's also
excluded from taxable income. And that's what?
Permanent now, correct? Correct. Yeah. So if
you passed away early or you were disabled, and
your student loan got forgiven, that's not going
to be a taxable event. So that's just something
that was excluded. Those are provisions that
you would think would just have gotten permanently
carried on. So the law just confirmed that point.
That's great. We are going to pivot to the next
topic here, which is going to be on business
tax changes. All right. So what does the one
big, beautiful bill say about your business,
your pocketbook directly? How is it going to
affect you? Let's walk through this together,
Terrence. Topic number one. A big topic here,
bonus depreciation, right? So let's talk a little
bit about that. The bonus appreciation for those
who weren't aware back in 2018, they brought
this into the law and they essentially said,
Hey, if you have property that has a shelf life
of 20 years for less, you can take and deduct
a hundred percent of it. And so this introduced
big things for real estate investors in particular,
because now they were able to do what are called
cost segregation studies. where they can actually
break out their buildings into four different
components. Normally, roughly 30 % of the building,
they can actually depreciate and deduct it 100
% upfront. And with the way bonus depreciation
works, you can actually take a tax loss as a
result. So imagine if you have a million dollar
building and you're able to take a $300 ,000
tax loss against that building, that could actually
reduce your other income. So they've made this
a permanent extension. of the law. So that's
something that it will be interesting to see
how that continues to impact the real estate
industry. No, that's a big change. That's phenomenal.
Thank you for sharing that. How about section
179 expensing? This is very attractive as well.
Let's walk through that. Yeah. So section 179
is another component of the tax while relating
to depreciating fixed assets. So things like
computers, equipment, all that kind of stuff.
Well, They increased the amount of that deduction
that you can take so not to get too much into
the nitty -gritty But right now you can deduct
up to two and a half million dollars of equipment
without it being phased down Alright, so if I
have a two million dollar piece of equipment
I can deduct a hundred percent of that up front
now one of the biggest differences between section
179 and Bonus appreciation is that bonus appreciation
can create a tax loss section some 179 cannot
All right. So if you're a very profitable business
though, it really gives you the ability to do
a lot of equipment up front off your normal income,
which you probably couldn't get to a negative
number. Excellent. That's really good. Okay.
Let's go to 1099 miscellaneous reporting thresholds.
Let's talk through that. Yeah. So in the past,
if I'm a contractor or if I own a business and
I employ contractors and I had to send out a
1099 whether that's an NEC or a non -employee
compensation form or a miscellaneous form, generally
that's going to be normally health care providers
send them to their physicians or if you're a
property management company and you're collecting
rent, you're going to send a 1099 miscellaneous
to your landlord. Before the minimum threshold
to receive that was $600. So it actually increased
that to $2 ,000. So you don't have to send out
as many 1099s unless you're paying them at least
$2 ,000 a year. So this is just something that
administratively is going to reduce the burden
for business owners and for the IRS to process
all these tax forms. And then one other thing
to note, a lot who were getting unaware around
things like Venmo, Zelle, where if you were actually
sending out the same $600, you were actually
getting a 1099K from those electronic providers.
That was going to be a new, they had said, hey,
we're going to do this. We're going to give you
two years to adjust. In the past, you had to
get like $20 ,000 from 1099K. So like Square,
things like that. Now they basically went back
to that $20 ,000 threshold and didn't bring it
all the way down. So that's once again, going
to just administratively relieve a lot of burden
for the third party transactions. And also for
taxpayers having to keep up with all the forms
they're supposed to get. plus the IRS for having
to process. That's great. That's great. And let's
talk about QBI or qualified business income deduction.
First, explain what it is, Terrence. And then
let's talk a little bit about how they've extended
those permanently, what that looks like, some
of those different levels, the phase outs, et
cetera. So if you recall, one of the big things
in the news for the 2018 tax and Dobson Act was
C corporations. The C corporations. used to pay
taxes at 35%. Now they're paying taxes at 21%.
And so the little guys like us, we said, hey,
if you're going to give Apple corporation a tax
break, where's our tax break going to come in?
That's where the QBI provided a tax break for
your small business. There's a few components
to this, but simply you can get up to a 20 %
deduction on your qualified business income or
QBI. For most businesses, If I make $100 ,000,
I can qualify to get up to a $20 ,000 tax deduction.
However, if I make quote unquote too much money
and I'm in what's called a specified service
trade or business. So folks like us who are in
finance or in accounting, attorneys, physicians,
if you were in higher than a 24 % tax bracket,
that deduction started going from 20 % down to
less than that over time. In this provision,
if you were $100 ,000 more than the 24 % tax
bracket, you didn't qualify at all. So they just
raised the bar to say, hey, it's actually gonna
be up to $150 ,000. So if you're phased out,
it's gonna be smaller if you're in that range,
or you might be able to capture a little bit
of the deduction if you're at least within $150
,000 of the 24 % tax bracket. Also, just an important
note, that Cuba deduction was also stated to
expire. So a lot of small businesses that were
getting deductions, I have clients who, hey,
their deductions are in the hundreds of thousands
of dollars on this QBI. And they were going to
lose that deduction if this didn't get extended
past 2025. So that's another huge win for business
owners who would have seen their taxes will go
significantly upward without that extension.
Yeah, that's great. Very good. How about business
interest deduction? So this is a very less restrictive
now, right? So this is a kind of a niche thing.
This generally is going to impact a business,
probably in the early stages of their company,
where they may have a lot of debt financing that
they do, but not a lot of income to show for
it initially. And so this is a one sixty three
J. Effectively, I know you were wondering what
that code was stated. I know, you know, I know,
you know, all by heart. So so essentially what
that says is, hey, you are going to. basically
the IRS, what they wanted to do is say, hey,
if you're not making really any money, we're
gonna limit the amount of interest you can deduct.
So this is really just gonna change the calculation
for how we define how much money you're making.
So they're gonna add back things like depreciation
or amortization. So instead of that reducing
the amount of on paper money you're making, and
then that also subsequently could reduce the
amount of interest you're able to deduct, the
IRS basically said, hey, we're gonna not have
to calculate depreciation and amortization on
how much money you're making. So that would potentially
put you in a better position to deduct more interest
for some of your debt financing. So like I said,
this is a niche thing that might impact some
businesses out there, but it's a win for them
as it relates to being able to have more ability
to deduct some of their interest expense. What
is brand new that we didn't have before? Let's
walk through the first one. I know the extra
standard deduction for seniors. Very excited
about that. You walk us through that one. For
sure. So a lot of people who are getting Social
Security, they're on pensions or they might be
taking out distributions from the IRAs, this
is going to be a big win for them. They actually
have an additional $6 ,000 per person, so $12
,000 for a married couple that they get to exclude
on their income. So we already talked about the
$31 ,500, then they get an extra $1 ,650, so
$3 ,300. So that's about $34 ,000 off the top.
This is an additional $12 ,000 that senior team
get. Correct. So roughly $45 ,000 that they make
in taxable income, they won't pay taxes on. All
right. So that's a big win for them. However,
the government says, hey, if you make over 150
,000, you start getting phased out. Half that
if you're single. All right. So don't get too
excited if you're a big earner out there, but
this is a big win for the middle class and below
that won't have to pay as much taxes on their
retirement earnings. No, that's great. And then
of course we have dependent care credit, right?
In FSA. Let's talk about that. Yeah. Yeah. So
with the dependent care, I know obviously a lot
of people are paying childcare to be able to
go to work. And in the past, the max credit was
just about $600 per kid of the two kids. They'd
increased that with the calculation. It's going
to work out to be about $1 ,380. So another $180
basically that you're going to get as a tax credit,
right? That's like a nice night out with your
family. The government is going to chip in for
you. You didn't find how many kids you have,
right? Right, right, exactly. So that's going
to be an addition. And then the FSA, oftentimes
employers allow you to put money towards an FSA
account. So that limit went from $5 ,000 to $7
,500. So you get an additional $1 ,200 you can
essentially exclude from your income that can
go into an FSA account that can be used towards
paying some of those childcare expenses that
you have. So that's a big win for both that have
multiple kids that are under the age of 12 in
this case. That's excellent. And this is really
just a broad overview that we're covering today.
What we're really excited about at Stevens Capital
Partners is we are growing. We've been growing
consistently. We're honored to be recognized
in Inc 5000, not only regionals, but nationally.
We just found out as well. But I say all that
just to mention that if you're a business owner
and you happen to see this video and you say,
Hey, I really want to partner with someone who
can be way more surgical than who I'm working
with today, way more strategic, then please reach
out to us, stevenscapitalpartners .com in a variety
of ways you can reach us. You'll see that on
our website. We'd love to have a conversation
with you and see how we can impact your family
and your business in a positive way. So thank
you so much.