Speaker 1: 0:26

Welcome back to the Make the Most of your Money podcast. It's been a little while, Colin. How are?

Speaker 2: 0:30

you, I'm doing all right. How are you Taylor? How are you sleeping?

Speaker 1: 0:34

I'm good. Yeah, we took a little summer break. It was mutual. I had a kid while we were gone, which has been a lot easier the second time around than the first time around, and you had your two boys home and summer camping all summer. So we took a little break from the podcast, but it's good to be back. It's good to be back. How was your summer?

Speaker 2: 0:54

It was great, yeah, like you said, lots of camps, lots of good time with family.

Speaker 1: 1:02

Only one broken bone that I've heard about.

Speaker 2: 1:03

Only one broken bone? Yeah, actually, and that happened on the last possible day of summer vacation. The night before school started, my youngest broke his forearm falling off a zip line. So that was well-timed A great memory too, though. I wish him a speedy recovery.

Speaker 1: 1:23

Show up to school with a cast.

Speaker 2: 1:25

Everyone's going to know who he is Bright yellow, highlighter yellow. His second choice was pink, so that would have been. That would have been great, too Pretty cool.

Speaker 1: 1:36

Give that attention. Well, some things changed while we were away. One of the biggest ones on the 4th of July, something beautiful happened the one big beautiful bill was passed, which there's been a lot of talk about it. Thanks to the person who named it and created it, it's going to just inherently be controversial, but there's some interesting things that we wanted to highlight. We're not certainly not going to try to cover every little thing that was changed, but want to pull out kind of the main things that are applicable and then talk about what should you actually do with this and how should it actually affect you. So you wrote a great article that we can link to. We call it Beauties in the Eye of the Beholder, what the OBBA the One Big Beautiful Bill Act means for your taxes and planning, and so we're just going to kind of talk through that. So what are the biggest changes that people should be aware of?

Speaker 2: 2:33

Yeah, I mean I'll say, just before we jump into the specifics, like this is a huge bill. The whole text of it's like 870 pages, and so you know there's tons of obscure language and fine print obscure language and fine print but the bottom line is that the biggest change is that it makes a lot of the 2017 tax cuts permanent and there's a few other new deductions and credits, but the main thing is making the previous tax bill permanent, which was set to expire at the end of this year.

Speaker 1: 3:09

Can we also just say permanent doesn't mean the same thing in tax law as it does in other areas of life. Permanent just means until it's changed later, right?

Speaker 2: 3:18

Yeah.

Speaker 1: 3:19

But basically there's not a sunset date Like that is the rule for the time being until somebody changes it sometime else. Like the previous, tax cuts were supposed to expire in 2026. They're now permanent, but that does not mean can never be changed.

Speaker 2: 3:32

That's the main thing, yeah, and many of the provisions we're going to talk about today actually do have a sunset date. But the actual change, the increase in the standard deduction and the new tax brackets that were introduced in 2017, those are, you know, written now in pencil and don't have an expiration date. But, as you say, you know, all of this is written in 2017. Those are, you know, written now in pencil and don't have an expiration date. But, as you say, you know, all of this is written in pencil. It can be changed by the next Congress.

Speaker 1: 3:55

Yeah, absolutely, Absolutely. So that's a big one. So, yeah, like because, yeah, the tax cuts it's become, it's so. It's so funny how we adjust to things that the tax cuts of 2016 are now like they were a temporary cut and then, when they were going to go away, people are going to raise taxes. But it was temporary the whole time. But that's very nice that these lower rates are here to stay for the time being.

Speaker 2: 4:18

Yeah, I think that's nice. Big picture, like a lot of people are going to get their 2025 tax bill back and they're going to kind of shrug their shoulders. It's not going to be that different from the previous year and we'll talk about some of the key differences, but you know the total number that they come up with it's going to feel like maybe this is a whole lot of nothing. But you know, the important thing to remember is like what would have happened if those 2017 tax cuts were inspired.

Speaker 1: 4:48

Well, nothing is good in this case. Yeah, yeah, nothing is good in this case. Like people are pretty happy with tax rates Well, nobody's ever happy with taxes but like tax rates have been low and they're going to stay that way for the time being. So you're right, no news is really good news in this case. So, yeah, so okay, the lower rates are here to stay. What else?

Speaker 2: 5:08

Yeah, I mean let's talk about some of the big headlines. Number one is the quote-unquote senior bonus and, despite the letter that many of my clients got on Social Security letterhead, this is actually not at all tied to Social Security income and whether you've claimed and getting a deduction for your Social Security income.

Speaker 1: 5:43

It's it's purely an additional exemption for folks over 65 who happen to coincide with you know people who are on Social Security, but it's in no way tied to the Social Security, to the Social Security. So if you see anything which they overtly sent an email, they mean like Social Security Administration, like taxes, like it was, like 90% of people won't pay taxes on Social Security. And very confusing, very, very confusing, because the headline made it seem like, oh, you're not paying taxes on Social Security, but it's just there was another thing to help offset the income that you would receive, and Social Security might be a part of that. So that's big. So tell us about the, tell me about the deduction. How does it actually work? How much is it? Who? Who does it apply to? Does anybody?

Speaker 2: 6:17

not get it. Yeah, so if you are 65 or over, you get a $6,000 exemption, and so that means, like, think of it like adding to the standard deduction, although it's not contingent on you itemizing or anything. You just get to pay tax on $6,000 less of income and it's double.

Speaker 1: 6:39

If you itemize, do you get it as well?

Speaker 2: 6:41

Yes, yeah, regardless of whether you itemize, you get a $6,000 personal exemption.

Speaker 1: 6:47

You get a 6,000 personal exemption, that's important because you've intentionally been saying an exemption, you're not saying they increase the standard deduction. The standard deduction is still the standard deduction which you get and if you itemize then it's standard or itemized. But this exemption is on top of that, so it would be standard and the senior bonus itemized and the senior bonus.

Speaker 2: 7:07

Yeah, yeah, but there are some income limits with it. So, single filers, you know, if you make more than $75,000, that $6,000 exemption starts to phase out and it's phased out completely by $150,000 of income. So higher income retirees or earners are going to miss out on the deduction or the exemption.

Speaker 1: 7:32

I think higher income earners are going to miss out on the rest of this episode.

Speaker 2: 7:37

It would be kind of a good teaser for a lot of how this is going to go. Well, I mean, and the dirty secret is, the high income earners made out like bandits with the tax brackets being extended, and so that's a very fair point to point out there.

Speaker 1: 7:54

Okay, so it's the $6,000 bonus on top of the itemized or the standard deduction for people over 65, phases out starting at $75,000 of income for a single person, $150,000 for married couples, and that $6,000 would be per person, so twelve thousand for married couples, right?

Speaker 2: 8:12

right, okay, um. Yeah, I mean this, this deduction. It's available, whether you itemize or not, but it's also only available 2025 through 2028 um. So it's only these, these. Next, what is that? Four years um where where this will come into play, and then you know, maybe it gets extended, maybe it doesn't.

Speaker 1: 8:34

Yeah, but that's all you know. You mentioned the thing about this is where people could actually be pleasantly like, positively surprised by their current, because this was not part of the plan for 2025 until now. So there will be some people who are getting you know and let's clarify again that these are not $6,000 back to you. That would be a tax credit. This is a deduction, and so if you're paying 15% tax bracket or tax rate, a $6,000 deduction would be $900 back to you, or $1,800 if it's $12,000. So that is going to be that's positive news. But I always like to clarify it's not a credit which would be dollar for dollar, but it Very good, good to be good, good for the seniors.

Speaker 2: 9:31

What else? Tax deductions If you itemized on your taxes, you could deduct your state income tax or sales tax if you're in a sales tax state, plus local property taxes and whatnot.

Speaker 1: 9:46

Property tax is a big one yeah.

Speaker 2: 9:48

Yeah, and the 2017 Tax Cuts and Jobs Act caps the state and local tax deduction at $10,000. So if you lived in a higher tax state or a higher cost of living area, you know that was a major hit to those folks who could no longer deduct that.

Speaker 1: 10:18

I know plenty of people who a combination of that. It was a $50,000 to $100,000 deduction and at their tax rates that was worth $20,000 to $30,000 back in their pocket. All of a sudden boom capped at $10,000. It was practically nothing.

Speaker 2: 10:31

What has changed now? Yeah, so starting this year and through 2029, that cap will be increased to $40,000. So there will be a whole lot more folks who are able to deduct their state and local taxes, Again, only if they itemize, only if they're above that standard deduction. But again there's a cap to that. That starts getting phased out if you have $500,000 of income and disappears entirely by $600,000.

Speaker 1: 11:04

The increase from 10, it goes back to $10,000.

Speaker 1: 11:08

It goes back to yeah, and that's the married filing joint numbers the $500,000 and $600,000. So, yeah, this is one of the more aggressive phase-outs and I've seen a lot written. It's a little nerdy but like it can be kind of punitive. If you make $500,000, the next hundred thousand you're going to start losing it. You're going to pay a lot more on on that extra a hundred thousand dollars of income from 500 to 600, because you're losing not just the federal rates. You Not just the federal rates, you're losing the deduction on these other things too, and so it's definitely something to be aware of. So I think this is one of the. I think it's a great change boosting that cap, but it phases out quick.

Speaker 2: 11:50

It does phase out quick. Yeah, you do have control over your income. Maybe you're a business owner and you could, you know, temporarily reduce your income by doing some capital expenses. Or if you're a retiree who's doing Roth conversions, you know that's one threshold to make sure you probably stay.

Speaker 1: 12:11

Yeah, I think we can quantify relatively simply. Let's say you make $500,000 and you have $40,000 of eligible SALT deductions. So, like right now, you're paying the you have, you're deducting the full $40,000 and your $500,000 of income. If you were to make an extra $100,000 that year, you're not only paying tax on the extra hundred but you're going to pay, you're going to have $30,000 extra income credited back to you. Yeah, I thought I could do that cleanly but it'd probably be easier to write out. But yeah, basically, great news. If you're under 500,000, married bases out very, very quickly and just be aware of it, and if you make more than that, then nothing changed. You're still capped at 10,000.

Speaker 2: 12:54

Yeah, high quality problem to have for sure.

Speaker 1: 12:57

And you said that one phases out in 2029.

Speaker 2: 13:00

Yeah, that's what my little cheat sheet says. Yeah, well.

Speaker 1: 13:03

I'm just I'm highlighting kind of the. Just the senior bonus is 2028, the SALT deduction limit is 2029. Yeah, it's a lot to keep track of.

Speaker 2: 13:14

Totally yeah, and we got to be careful with numbers on an audio podcast, but yeah.

Speaker 1: 13:22

Read Colin's article. It's in the notes. Colin's article is showing all this. What else?

Speaker 2: 13:30

Let's talk about charitable giving. There were some changes to two new rules rather on charitable giving. The first, which starts next year in 2026, is for non-itemizers, so people who take the standard deduction on their tax return. They don't have enough mortgage interest or charitable giving or whatever to get over that roughly $30,000 for married filing joint in standard deduction. Now those folks can deduct $1,000 above the line, meaning regardless of whether they itemize or not, of charitable giving, and $2,000 for a married couple, thousand for a married couple. So that's, that's a major change that you know encourages people to be charitable even if they are not high enough income or have enough deductible expenses to get quote unquote credit for it.

Speaker 1: 14:26

Yeah, I think it's great because you know if you make a lot of money and you're itemizing and you donate one hundred thousand dollars, you get a deduction for that. But it's very meaningful and it's beneficial. We talked to that when we had Mike's statement on about the benefits of that and it just gets a higher impact for your if you're giving dollars. Um, but yeah, if you, if you weren't itemizing, if you were just taking the standard deduction and you donated a thousand dollars to church or school or whatever, there was no tax benefit to it and it kind of sucked. But you're saying so now um,000 for single, $2,000 for married, they could deduct that even if they're still on the standard deduction. That's great, that's right.

Speaker 2: 15:00

Yeah, yeah.

Speaker 1: 15:00

That's great.

Speaker 2: 15:02

That's good. And the other major change to charitable giving is that for itemizers starting next year, in 2026, they now have to exceed half a percent of adjusted gross income in charitable donations before that deduction counts.

Speaker 1: 15:23

So that example I just gave of the higher earner giving $100,000, if they made $500,000 a year, EGI 500,000, donated 100, you're saying 0.5% of the 500 would not be deductible, so it would be 2,500 bucks.

Speaker 2: 15:39

Yeah, exactly, yep so similar to how the medical deduction works now. You have to have medical expenses that are above 7.5% of your AGI before you can deduct them. You can only deduct the amount above that. Now the similar rules in place for charitable giving. You have to exceed half a percent of your AGI to get I am.

Speaker 1: 16:01

You know we talked about in one of our previous episodes about how like tax laws are there too. They try to be fair and they're trying to incentivize certain behaviors, and this is one of the first times I've seen giving really dial Like I guess it's not a huge change, but it's just surprising to see that.

Speaker 2: 16:17

Like I guess it's not a huge change, but it's just surprising to see that Like why on the giving piece, yeah, why half a percent? Is that really? Is that such a big deal? Why did that need to get in there?

Speaker 1: 16:23

For giving. You know, is there not anywhere else? No, that's the other thing you take from one you got. You got to take from somewhere else. So, um, but yeah, that's. So. That's interesting. I'm not sure it's a massive change, like it's not going to alter somebody's giving plans, uh, but just a good thing to be aware of that. It's not dollar for dollar. On the deduction, you got an agi. Uh, florida exceed.

Speaker 2: 16:41

Okay, yeah, I mean I was gonna go off on a tangent about you know, know I mean my theory for why, you know, some of these got in here like this and why there are these odd phase outs and time limits for certain items, is because of the way this bill was passed. It was passed on on reconciliation, which means it didn't need a veto or a filibuster proof majority to pass it filibuster-proof majority to pass it. But because of that, senate rules require that it be budget neutral after a certain number of years, so a lot of it has to be temporary or at least not make permanent changes. And so there's probably all sorts of you know actuarial or you know statistical games being played with some of these numbers to, you know, provide the benefit for as long as we can, but then have it phase out, and then you've got the election coming in and around some of those phase outs, and so you know that's playing a role too.

Speaker 1: 17:42

How far do you live from DC? You're in Virginia. How far away are you? About an hour and a half See. I knew it. See, down here in the south we got our lingo and then you're up here, filibuster-proof majority. I've never heard that in my life. That's probably normal talk for you all over there, but that's really good insight. Yes, that's actually very, very interesting. This whole thing they had to offset. It was a big math problem to get all this in, but you guys, I math problem to get all this in, but you guys, I'm sure that this half a percentage GI thing was part of that. So really, that was very insightful, thank you. What else? What else?

Speaker 2: 18:15

Let's see a couple more yeah, a couple more In the kind of not major change bucket is they raised the estate and gift tax exemption. So now we're getting into the super high net worth territory where you have to start worrying about estate taxes. But they raised the gift and estate tax exemption from about $14 million today per person to $15 million going forward. So that means married couples can shield about $30 million from estate tax and then it's going to adjust with inflation going forward, and so you know, if you're lucky enough to be in that bracket, then you know there are going to be some strategy changes around the margins or you know for how to plan for estate taxes. But that was, you know, one of the big headline changes there.

Speaker 1: 19:14

Yeah, this is one of those, that kind of continuing the way it's been for the last eight years. The estate tax, just to clarify this, is like the death tax. It's like it's not if you pass on an IRA and there's still going to be income taxes. This is you pass on money. You just got to pay tax because you died and passed on money. This used to be very, very meaningful. On money, you just got to pay tax because you died and passed on money. This used to be very, very meaningful. Now, at 15 million per person, 30 million for a couple way less applicable, but there's still kind of always this chance that someday it could become applicable you know, yeah, and I say this oh, this wasn't a major change.

Speaker 2: 19:46

It actually is a major change from what it would have gone back to in 2026. Like it would have been cut in half. Have gone back to in 2026. Like it would have been cut in half. You know, gone from 14 million or so in 2025 down to 7 million per person and now, all of a sudden, you're picking up probably many, multiples of times of families.

Speaker 1: 20:02

I want to remind people too that this isn't just a death. Like you can use this exemption while you're alive for gifts as well. I think right now it's like $19,000. You can gift to whoever you want as many times as you want without it reducing part of this exemption, but you can actually gift above that while you're alive. So if you're not even close to the case was basically a family inherited a property and they were trying to gift some of it to the next generation and they were going to do it over multi-years to avoid triggering a gift tax, but they were nowhere close to the exemption. Basically, they could just do it all today and it wouldn't have affected anything from a gift tax. So that was my own tangent there. Just something to keep in mind that basically right now, with current rules, it's going to be very, very, very difficult for most Americans to ever be worrying about an estate tax. And I say that and we should reference say this is not tax advice. We're not tax professionals.

Speaker 2: 20:58

Yeah, and I would say you know, if you're close to that threshold or will be close to that threshold, then yeah, you should engage an estate attorney or at least have a plan.

Speaker 1: 21:12

No, if you are close to it or you think you could become close to it, take it very, very seriously.

Speaker 2: 21:19

And the sooner you start and can take advantage of some of those annual gift exclusions the $19,000 you referenced. You know doing that repeatedly to the next generation or multiple members of the next generation can help avoid it. But the sooner you start that the better.

Speaker 1: 21:38

Yep, definitely Keep it going.

Speaker 2: 21:39

What else, man? Yeah, let's say the last. You know, the last of the big changes is kind of what the one big beautiful bill means for health insurance, both for the Affordable Care Act and for changes it's made to Medicaid Not Medicare, but Medicaid, the indigent medical insurance coverage that's provided by the government or at least paid for by the government, administered by the states. But, yeah, let's, let's talk about some of those. So, affordable Care Act so this is for those who are not yet Medicare eligible but don't get insurance through an employer there was a temporary expansion of some premium tax credits under the Biden administration which basically provided more money for people who were getting insurance on the exchange get some subsidies so that there wasn't a cliff that if you went 400% 41% over the federal poverty level in income, you got nothing.

Speaker 2: 23:00

That has been basically rolled back. So now you know, starting in 2026, if your income exceeds 400% of the poverty level, you likely will not get any premium assistance with your policy and also the amount of those who are eligible who are under that 400%, the amount of credit they'll get will shrink. So that's you know. That's a major change, especially for self-employed people or families who are getting their coverage through the exchange probably the worst news of this whole.

Speaker 1: 23:35

Thing.

Speaker 2: 23:36

Yeah, yeah, this impacts a lot of people.

Speaker 1: 23:40

Great list. I want to bring it back to like action, like what, if anything, should you actually do? I think, personally, just one major takeaway here is just this highlights even more Tax laws change and they will continue to change and, like I highlighted, permanent doesn't mean permanent. So you know everybody was freaking out that making a bunch of moves because the tax rules are going to change in 2026 and now they're not. And so just think, keeping that in mind, that be very cautious of trying to project what taxes are going to be beyond what you know today. Like we can be pretty darn confident that for the next four years these are the rules. Beyond that, there's so many variables at play.

Speaker 1: 24:23

So I always like to say that that you know there's a saying don't let the tax tail wag the dog, like most of the time you should. Don't make decisions purely for taxes. I think that continues to hold true. You know, an example here would be you know the salt deduction limit going up doesn't mean you go buy a more expensive house because now it's deductible, a portion of it's deductible, if that made the difference between you doing it or not. Don't make it based on that decision, you know. So, um, I kind of for a lot of this. I would say there's a lot of great headlines but when you dig in it gets. It's kind of we were talking before this about Trump accounts and like how that sounds really good and then it was not quite what it seemed like. So I think in a lot of ways it's kind of enjoy what changed and benefited you and know that it's not permanent. Yeah, weird tax planning, but what would you? What would you change if anything?

Speaker 2: 25:10

Yeah, I mean I would say there's some opportunities for planning around the margins. Some opportunities for planning around the margins, like you said, if you were somebody who is coming close to that SALT phase out or if you're somebody that's close to that 400% of poverty line for ACA premium credits, like there may be some actions you can take to preserve some of those benefits you know around the margins. But you know, like you said, you know these big, huge tax bills and they often generate a whole lot more confusion and clarity and you know, and they're all subject to change in the future. The only thing you can be certain of is that this will change, you know, probably a few years down the road.

Speaker 1: 26:03

Yeah, I mean, I think some bunching property tax payments could make sense, bunching some of your deductions there. But yeah, for the most part I think it just kind of extended what was, which is fine. Just it's, if you have a financial plan, just kind of factor that in. Ok, we have a little more clarity for the next four years. But, like I said earlier, I still would just be very cautious of you know for my clients in their 30s, like what are taxes going to be in 30 years? Nobody knows, nobody knows. But this is good news.

Speaker 2: 26:49

We have a little more clarity. I think the window of opportunity for Roth conversions is kind of extended. It's business as read the fine print uh it's a small number of people that this applies to Um, you know.

Speaker 1: 27:04

there there were some other changes around the auto loan, auto loan interest on us assembled cars up to $10,000 you can deduct. So I mean there's there's little things here and there, no-transcript. It's just really good to know. Update your understanding, say, okay, we got some clarity for the next four years or five years. That's kind of the main takeaway.

Speaker 2: 27:46

Yeah, and for those wondering, I do have a tip jar, my desk. If you're watching on a video, this actually came from a client who used to be a balloon artist. This is Phil the Tip Jar. There you go and it says hi, I'm Phil, I'm a tip jar, phil the Tip.

Speaker 1: 28:05

Jar, you need to add a QR code so we can virtually tip you for your efforts.

Speaker 2: 28:09

Exactly yeah, good stuff.

Speaker 1: 28:12

Man, it's good to be back. This is great. I think this is a really good update on the obbba, whatever, the one big beautiful bill. Um, yeah, look forward to next time I'll see you next time.