Ep. 144 | One Big Beautiful Bill Act: What It Means for Individuals
Download MP3Hey, everybody, and welcome back to the Teaching Tax Flow podcast episode 144 today. We are gonna look at something that has likely come across your email in one way, shape, or form from teaching tax flow or somebody else in the tax professional industry. We are gonna look at the one big beautiful bill act and how that relates to specifically individual tax payers. But before we do that, let's take a moment and thank our episode sponsor.
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John Tripolsky:Hey, buddy. Welcome back to the podcast. Today, obviously, as you heard in the intro, we are gonna look at the one big beautiful bill act or the o b b b a or the o b three a. Million different ways to say this thing, I'm sure. But if you haven't heard anything about it yet, it is literally 1,100 pages plus.
John Tripolsky:So you likely haven't understood or haven't taken the time to read every single page in it. If you have, kudos to you. I can't say that I have personally. Lots of information in there, lots of things. I think even the industry is still really trying hard to unpack and understand and figure out how it blends and kind of marries into other things that are already in existence and things that are supposed to change.
John Tripolsky:But the best place, I think, we, here at Teaching Tax Flow, have seen this, information kinda sorted out right is how it relates to individuals and then businesses. So individuals, individual taxpayers, and that's what we're gonna talk about here today. So, Chris Pacquiro, welcome back, obviously. But, I'm excited about this topic a little bit because, really, this is the first time I think we've we've carved out some significant time to to talk about this, you and I. So a lot of it will be new to me.
Chrius Picciurro, CPA:It's great to be back. I'm excited to jump into some of the individual tax changes. We are going to have just tons of content in the teaching tax flow community. So that is not just this podcast, but it's also our YouTube channel, teaching tax flow. Definitely subscribe.
Chrius Picciurro, CPA:Our defeating taxes private Facebook group. We it's it's kinda funny, John, because we have, like, an unlimited amount of content now with this what we're gonna call the OB three. Not the OB one Kenobi, not the OPP. Sorry. Naughty by nature, but the OB three, the one big beautiful bill act.
Chrius Picciurro, CPA:And you're right. It really is a, it's a massive paradigm shift, in many ways. And, but what we first wanna tackle is is because we're gonna tackle some of the state tax issues. We're gonna tackle business. We're gonna tackle real estate.
Chrius Picciurro, CPA:We're gonna bring on special guests. But let's talk about what you need to know right now. This bill was just signed in on July 4 very recently. So let's look at some of the individual provisions that are going to affect almost, I would say, all of the teaching tax flow podcast viewers if you're on our YouTube channel, listeners if you're listening on your favorite podcast provider. So let's jump in, Johnny.
Chrius Picciurro, CPA:And and, again, we're going any questions that you have. This is your opportunity to say, I'm going to jump in to our private Facebook group. You can ask questions anonymously and ask a question or leave a comment on our YouTube channel. We reply to these things. Your questions drive our content.
Chrius Picciurro, CPA:So it's very, very important. It's not a bother at all. This is a labor of love for us, John. The only payment we ask for from you is to like and subscribe and share our content if you like it. That's it, which I think is very fair.
Chrius Picciurro, CPA:Oh, absolutely.
John Tripolsky:Absolutely. And and, Chris, I think too. Right? Like, we refer to this. This is literally 11 I think it's 1,148 pages or something of the sort.
John Tripolsky:So there's so much information packed in this. Not only I think we should take a moment and acknowledge the fact that somebody actually had to type this dang thing out. So whoever did that, whoever you are, specifically keyboard stroking on this, you're an amazing human being regardless what's in this thing. But also too, like like, I almost lead into this a little bit. So as I mentioned, you know, everybody, I think, even somebody like yourself has been doing this twenty five plus years.
John Tripolsky:Right? It's gonna take a while to unpack this and and fully embrace and understand everything. So whoever you, the taxpayer, and speaking to the audience, uses, you know, or is your your tax partner, give them a little bit of grace in this. They're not gonna know every single thing about this, oh, you know, within a week here. So we're all kinda working through this.
John Tripolsky:And, Chris, what you mentioned, this is a great opportunity. Ask questions. Figure it out. You know, if you don't get an exact answer from somebody immediately, just again, understand that this is huge. Right?
John Tripolsky:And there's a lot to it. So I just wanted to kinda preface the conversation with that just a little bit.
Chrius Picciurro, CPA:So what did the OB three do? Well, it from a big picture standpoint, it permanently extended money of the TCJA. John, I don't know if you I think you're slacking. I'm calling you out. I have not heard any jingles or any funny noises when we use an acronym yet.
John Tripolsky:So We'll bring it back. We'll bring it back in this one.
Chrius Picciurro, CPA:Alright. So TCJA Tax Cuts and Jobs Act of 2017. So permanently extended some of the TCJA provisions and added some new rules. We're gonna talk today about standard deduction, child tax credits, salt tax deduction, overtime deductions, and more. So the first topic, it's go that this did this this the o b three did is it extended reduced tax rates.
Chrius Picciurro, CPA:Those were gonna expire in 2026, and everyone's tax, no matter who you are, was gonna go up between 25%. So the lower tax rates John, I know you've got we've we've talked about this. I've I don't know when I said it, but you said that we're in the golden age of taxes. Right? Because we're in a historically low marginal tax rates.
Chrius Picciurro, CPA:Those marginal tax rates have been extended, under OB three because they were gonna go bye bye. It also increased the standard deduction for 2025. Now that the standard deduction now remember, you either take the standard deduction based on your filing status or you itemize your deductions if your itemized deductions are higher than your standard deduction. That standard deduction for married filing joint is for 2025 is an even $31,500. For single filers, $15,007.50.
Chrius Picciurro, CPA:So that means that less people will be itemizing because the standard deduction is higher. So, hey, that's pretty that's a that's a good amount of money, for a standard deduction, 31,500 for married joint.
John Tripolsky:Right. And, actually, Chris, really quick. So I know we did jump into that. Let's take a a very brief moment if you can and even just explain elevator style, elevator pitch style. What exactly is a standard deduction?
John Tripolsky:If this is the first time somebody's heard about that. I know we're kinda taking a step back a little bit. But
Chrius Picciurro, CPA:Sure. Well, like I said, this everyone who every taxpayer gets to take a deduction and not pay tax on a on the first portion of the on a portion of their income. So for married filing joint, let's assume your income is you have you've earned $40,000 on your w two wages. It no matter what your medical expenses are, mortgage interest, property taxes, charitable contributions, those all could be zero, and you still get a standard deduction of $31,500. Meaning, 40,000 minus the $31.05, you'd pay tax on $8,500.
Chrius Picciurro, CPA:Now let's say all the itemized deductions, which are reported on schedule a, exceed the standard deduction, then you get to deduct the itemized deductions instead. And I know we've got a podcast episode on we talk I think we talked about schedule a or when is it right to itemize. But yeah. So that that means that even if you have zero itemized deductions, you still get the standard deduction, and you get to take that deduction off of your taxable income. So one more example.
Chrius Picciurro, CPA:If someone makes a $100,000, a married couple, They're gonna pay federal tax on the $100,000 minus the standard deduction of 31,005.
John Tripolsky:Perfect. Basically, that's a a packaged standard deduction wrapped up with a bow on it given to everybody. Absolutely. Sense.
Chrius Picciurro, CPA:Let's talk about child independent benefit updates. Another big topic with OB three. So the child tax credit increased to $2,200 per child starting here in 2025. And the refundable portion of it is now $1,400, and that's indexed for inflation. Remember, there are with credits.
Chrius Picciurro, CPA:And we I think we have a we don't have a pod we know we have content on this. For sure we have content on this. The difference between a refundable credit and nonrefundable. A refundable credit means that if you have a thousand dollar credit and you only pay $600 worth of federal tax, your that thousand dollar credit would wipe out the $600 of federal tax, and you would get $400 back in your pocket. A nonrefundable credit means that if you had a thousand dollars of credit and a $600 of tax, that credit could off wipe out the tax.
Chrius Picciurro, CPA:You don't have any tax, but you don't get a refund for the $400. So the child tax credit's a hybrid credit. $1,400 of it's refundable. $800 of it is nonrefundable for 2025. So now this is gonna be you know, what I expect the ramifications of this is gonna be is that I expect that tax refunds are gonna be higher for the 2025 return because withholding you're you're withholding from your from your w two wages for most you know, most taxpayers are w two wage earners.
Chrius Picciurro, CPA:Those withholdings were based on previous tax, you know, tax rates and lower child tax credits. So you there might be you might get a larger refund. We don't know what's gonna happen. We don't know if the withholding tables are gonna get updated by the end of the year. There's just a lot going on.
Chrius Picciurro, CPA:But the child tax credit is raised to $2,200 with 1,400 refundable, and this credit is indexed for inflation. So in future years, based on our inflation, that child tax credit's gonna go up. It was stagnant for a long time. So that that inflation that index is is very beneficial for for parents, just like yourself, John. You know, someone like yourself.
Chrius Picciurro, CPA:The dependent care credit. I know one of your favorite topics is daycare.
John Tripolsky:He's pouring salt on a on a on a wound here, folks. Just so know.
Chrius Picciurro, CPA:It's all good. Care credit, the maximum percentage increase went from 35% to 50%. So let's assume you paid, you know, a thousand dollars for dependent care. That would be nice, wouldn't it? But let's say you paid a thousand of day care.
Chrius Picciurro, CPA:The maximum credit previously would have been, $350. Now the maximum credit's 50% of $500. Remember, a credit is better than the deduction. So up to 50% of what you pay for day care could come back to you as far as a tax credit. And now those those credits phased out, but there's a new tier two tier phase out structure for higher income households.
Chrius Picciurro, CPA:So that's that's another, you know, pro taxpayer with young or school aged children credit. In the child and dependent care flexible spending account contribution is raised to $7,500. So what that means is that a lot of employers, larger employers, allow you to go put money pretax into an FSA, and that money be paid directly to your childcare provider. That way it just comes off of your taxable wages as w two. That was $5,000.
Chrius Picciurro, CPA:That went up to $7,500. So the bottom line is with child dependent benefits, very much pro families with younger or school aged children.
John Tripolsky:So And these are some pretty significant changes. Like you mentioned too, they're very pro that I mean, I think the the overall impact of that. Right? I mean, there's a lot of families that I mean, this is a huge, huge thing for them that are definitely lower, you know, incomers, we should say. I mean, this is massive for them.
Chrius Picciurro, CPA:Right. Oh, absolutely. Now let's talk about some new deductions, our next topic. During the election, we remember, we did two episodes. We did a specific episode for vice president Harris's tax plan and for now president president Trump's tax plan.
Chrius Picciurro, CPA:And and then we compared them a little bit, and some of them had the same thoughts. Right? Or both plan some the plans sometimes have the same thoughts. Let's talk about some new deductions, the overtime deduction. So now there's up to a $12,500 if you're single or $25,000 if you're joint that you can deduct for qualified overtime pay.
Chrius Picciurro, CPA:There are phase outs for high income earners. Alright? But let's assume let's assume you have a married couple, someone earned on a w $285,000, and $20,000 of that was quali paid for overtime. That since they're married, $20,000 of overtime is less than the than the than the $25,000 max. That $20,000 overtime will not be taxable.
Chrius Picciurro, CPA:Pretty crazy. Now we know that these w twos are gonna get so much more complicated. John, you know, I I'm a preacher of this. There's no such thing as an easy tax return. Right?
Chrius Picciurro, CPA:So
John Tripolsky:And they and they just got more
Chrius Picciurro, CPA:than were. Right? So, like, the w twos now are gonna be the w twos are gonna have to identify tip income and overtime deductions and all those crazy stuff. But that's just
John Tripolsky:And I wondered too, like, I mean, speaking for for your private practice. Right? Like, you guys I mean, obviously, you have a niche in real estate investors, which, you know, stereotypically, higher income earners of that. So I I wonder really too from a from a stand we'll call it a standard or a normal we'll never call it easy, you know, taxpayer perspective. It's gonna be interesting too just how much or how long it takes or how good of a job a lot of these tax preparers and and tax pros do of educating their clients of these.
John Tripolsky:Right? Because, I mean, I I see this now. I mean, me and I think me and my wife were speaking to this a while back. They're, you know, in in a position or in a company. Right?
John Tripolsky:You might have a ton of employees, and they just they're hourly. They rack up a ton of overtime. Like, they fight for overtime opportunities, and they take it. You know, I really wonder how many of them, a, even though this exists now, it's very new. Right?
John Tripolsky:We're talking a week. But I wonder if it's just gonna kinda, you know, fly over their head when they do hear about it or if they look at it as a planning opportunity or just something to, you know, keep, keep in tune of. Right? But then also you look at the some of these other ones. Right?
John Tripolsky:I think we're gonna we're gonna speak on another, you know, notable new deductions and other items in here. It's gonna change the way that people look at things, purchases, you know, just the way they do things. I think it'd change their lives a little bit if they know about it. Right?
Chrius Picciurro, CPA:Mhmm. Absolutely. It it's it'll be very interesting how this is rolled out. I mean, will there be withholding now on overtime, or can you elect out of it? The whole withhold payroll withholding issues, they're gonna be really interesting with this overtime deduction.
Chrius Picciurro, CPA:Let's talk about another new deduction, the tip income deduction. So there are limits. Right? But up to $25,000 per year for cash tips can be, is is is deductible. So let's say you're let's say you're a server, and your income is you know, you're paid $25,000, and then you earn $10,000 worth of tips.
Chrius Picciurro, CPA:That $10,000 worth of cash tips taxable. There are limits, but, again, the tip income deduction, the overtime deduction, two big deductions that were not around before. The third one, you can now deduct your interest. Now car loan interest used to be deductible before I even started preparing returns, I believe, but now up to $10,000 of interest on qualifying personal vehicles per year are allowed as a deduction. So now does that mean more people are going to itemize their deductions?
Chrius Picciurro, CPA:Is that you know, there's just so much. So three new deductions that we're gonna figure out how that's gonna change and, change things around.
John Tripolsky:And really And looking at just these three alone. Right? I mean, to me, and, again, not getting in the weeds, but I look at this as, you know, I wonder how many people because we're talking about. Right? So even the tip income.
John Tripolsky:Again, we we know this at a at a very small level right now, but, you know, they're talking about it was a $25,000, deduction limit. I wonder how many people now, you know, would had never claimed any cash tips. They make it a killing, never claiming it, and now all of a sudden, they're gonna claim, you know, $24,993. And, you know, it's it's just gonna be interesting to see some of the data, and I know the IRS puts out, you know, a data book annually. It'll be interesting to see how a lot of this has changed.
John Tripolsky:But then also writing that personal vehicle on, I was really shocked to see that, honestly. I didn't expect that. I mean, I'm sure there was a lot of reasoning behind it. Maybe it'll stimulate the, you know, new car market, used car market. Who knows?
John Tripolsky:Because I know there's other, this phase out of some some credits and whatnot, but it's interesting. Very interesting.
Chrius Picciurro, CPA:Absolutely. And we're gonna, again, we're gonna be coming out with much more detailed content on on all of these these items we're talking about. Here's a big one, especially for people in those states that have an income tax. The salt tax, not the not what you put on your hamburger if you do put salt on your hamburger, but the salt tax, state and local income tax. If you itemize your deduction, that salt tax deduction for married couples filing jointly was 10,000.
Chrius Picciurro, CPA:Well, guess what? It went up to $40,000. That's, I mean, 400 percent now. So now you could deduct up to $40,000 in 2025 of state and local income taxes.
John Tripolsky:And You're paying a lot in taxes to get that deduction. So
Chrius Picciurro, CPA:Well, and it seems fair. Like, think about the theory behind this, John. Let's say you paid $15,000 of state of Michigan tax and property taxes. You and your wife only got a deduction for 10. That means that you paid $5,000 to another taxing entity, and you're not even getting a deduction for that 5,000 from the federal government.
Chrius Picciurro, CPA:You're getting you're paying tax on money you had to pay tax on. It just didn't make any I'd so that SALT tax increase is very favorable. The mortgage interest deduction is was made permanent. So more acquisition debt up to $750,000 is now still deductible. So if you buy a home let's say you buy a property for 700,000, you take a mortgage out for 450, then tire since that mortgage is less than $7.50, all the mortgage interest is deductible.
Chrius Picciurro, CPA:And MIP. Oh, that means, back when I was in college, I'm a minor in possession, but we're not gonna talk about that. We're gonna MIP mortgage insurance premiums or PMI. Right? Private mortgage insurance is now deductible again.
Chrius Picciurro, CPA:So that's for people that aren't sometimes, people that get a mortgage don't put 20% down or put a little less percentage down and have to pay what's called PMI, which is a because their loan is more risky than others, and have to pay insurance on that, and that's now deductible. So, again, solid cap and mortgage interest, these are schedule a deductions. Let's move into savings and educational provisions. There's something new called a, quote, unquote, Trump account. Okay?
Chrius Picciurro, CPA:These are new accounts for children that are born in 2025, or new accounts for children 18 that will that will get a $1,000 deposit. So it's a way to put money into into accounts for help younger people save. And the annual people other people can contribute to these Trump accounts up to $5,000. So remember, we always had five twenty we've not always, but for a long time, we've had a five twenty nine plans, but those that was earmarked just for education. So these are trying to create a little nest egg for children, and they're gonna be called Trump accounts.
Chrius Picciurro, CPA:We're gonna we're gonna have more content on that as well. 05/29 and, again, how this is gonna get administered? Who the heck knows? Right? 05/29 plan expansion.
Chrius Picciurro, CPA:Remember that there was a big change to the 05/29 plans where you can now take money out of the 05/29 and use it for k to 12 qualified education, but the limit was $10,000. That limit doubled to $20,000. And now vocational credentialing is is eligible for taking money out of the five twenty nine plan tax free. So point is more flexibility for five twenty nine plan owners.
John Tripolsky:Mhmm. And I think, Chris, as we as we talked on, obviously, we have another episode that we're gonna do more business focused after this one. There there's a lot to this, which, I mean, honestly, those I mean, we we've done so many episodes with so many topics. This does change some of the stuff that we spoke on previously. I don't think it completely blows anything up, to where it's you know, it is what it is.
John Tripolsky:But there is a reason for for our listeners why we why we date some of the stuff we do. Like, we'll talk about, you know, the current time when we're speaking on it. If there's something that's planned for the future that we know about, we're talking about that. So there there's a reason why intentionally we're talking about in, quote, unquote, you know, verbalizing date stamps as we're doing this because there's already a Chris, I I can think of four or five topics we've done, I mean, maybe a 120 episodes ago where we've gone and we've redone them. And and it's not like we're gonna go and delete the other podcasts we did.
John Tripolsky:We're just doing an updated version of it. So I think this this bill, this act that's now put into place, again, doesn't explode anything, blow it up that we've done, but you're gonna start to see the listeners. You're gonna definitely start to see revisions to stuff that we've put out there in the past, and we'll note that. We'll we'll let everybody know. So you can kinda think of, you know, teaching tax full as the the very transparent source, and there's some stuff that we're not gonna talk on.
John Tripolsky:And, Chris, tell me if I'm wrong. I don't wanna speak for you. Some of the stuff we're not gonna talk on if we don't know enough about it. Like, it it is what it is. Right?
Chrius Picciurro, CPA:So We're diving in. Absolutely. Let's talk about a couple I'm gonna wrap this up with a few other key highlights. And, again, we're gonna definitely I know it sounds like we're we're doing our own commercial, but if this hits your ears or eyes, subscribe to our YouTube channel. I can't tell you how much content we're gonna put out.
Chrius Picciurro, CPA:In fact, I I we'll probably just create a separate playlist just for the o b three. I think that'd probably be our our best option. But charitable contribution deduction now has a half percent AGI floor. What that typically means is that only the amount of charitable contributions over that half percent of your adjusted gross income are deductible. Miscellaneous itemized deductions.
Chrius Picciurro, CPA:Back in the day, those were called form twenty one zero six deductions. They went away with the Tax Cuts and Jobs Act. That's where your tax prep fees, unreimbursed employee business expenses, those have been permanently repealed. So that that's one thing that actually hurts, quote, unquote, many taxpayers. The alternative minimum tax exemption has been enhanced.
Chrius Picciurro, CPA:The estate tax exemption has been increased to $15,000,000, and a lot of these things take place you know, a lot of these provisions start in 2025 and some in 2026. So you had a lot of information here. Definitely subscribe to our stuff. We're here to help you out, and start talking to your tax professional about how these changes affect your situation.
John Tripolsky:Absolutely. Absolutely. And, Chris, I'm glad we we took the time to dive into this. And, again, you know what? We're gonna do our own damn commercial.
John Tripolsky:That's what that's what we're doing here. So I'm gonna I'm I'll be the one to say it. We really we were frankly, we need the questions that people have on these topics. And the reason why I say that, right, is we're doing our part. We're diving into this as much as we can.
John Tripolsky:Chris, obviously, you're you're taking taking the perspective of it as the tax pro. Me not being a tax pro, I'm here for the non hilarious comic relief half the time, and I push the record button on the podcast. That's kind of my role here. But I tend to try to take the taxpayer view on. So that's why, like, me and Chris, I think we have a good little synergy going on with these.
John Tripolsky:But, honestly, from anybody watching, listening, this has been shared with anything, send us the questions you have on these. We know you have them. Send them. Even if we don't directly respond to you with an answer, which we probably will, that's that literally is what drives our content. And I think with this taking place, this literally being the biggest change, well, some of us may ever see in our lifetimes as far as for tax goes.
John Tripolsky:Your questions are exactly what we need to hear to answer them in the order of what people have them in, if that makes sense. So, basically, what I'm saying, don't be lazy. Don't feel that you can't reach out with a question, Chris, you mentioned. Join the defeating taxes private Facebook group. Drop a comment in there anonymously.
John Tripolsky:Even if you don't ask a question, give us topic ideas from it. Because this bill, 1,100 pages, we have enough stuff to go through. We'll find an answer. And if we don't have it, we don't know enough about it. We're gonna bring somebody on that does.
John Tripolsky:So case in point, it's happened many times. We love it. We love doing this. Hopefully, everybody I mean, we see it by the numbers, the download numbers. People love listening to this, and and we're honored for that.
John Tripolsky:But definitely log on to to YouTube. Send us that stuff. Subscribe. Share with a friend. Again, as Chris mentioned, this is impacting pretty much everybody that pays taxes.
John Tripolsky:And even if you don't pay them now, you're gonna pay them eventually, and you're still gonna be impacted by it. So there's no running from this. Right. Unless you leave unless you move out of the country and take residence and know the ocean. That's a different story.
Chrius Picciurro, CPA:But There's a lot of rules with that. You can't just yeah. That that's a
John Tripolsky:Yeah. I should've I should think you even said that because that's a whole thing. Yes. So, yeah, don't go don't go try to do that. Don't listen to things I say.
John Tripolsky:But as always, as we close this out with, I mean, we love doing this. Again, thank you everybody for kinda following along on this little journeys, you know, with us. And, again, think about this. We went, Chris, a 144 episodes ago. We decided, hey.
John Tripolsky:Let's do a podcast. Who knows? We'll listen to it, but we'll give it a whirl anyways. Grabbed a pizza box, folded in half, clipped a mic on top of it, and we went for it. And now we're, you know, leaps and bounds grown, and we love this stuff.
John Tripolsky:So thank you everybody for along for the ride here again, and we'll see everybody back here again on the teaching tax flow podcast. Different date, same day of the week, completely different topic except for next week. Semi related. So have a great week, everybody. Thank you.
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