Episode 10: What matters most in the Big Beautiful Bill

Wit, Wisdom, and What Matters Most Podcast episode 10 Kyle: Welcome to another edition of Wit, Wisdom, and What Matters Most. It's a podcast with Moneta's Gast Freeman Troyer Racen Team. My name is Kyle Luetters. I'm joined by Danton Troyer. Danton, coming off of a holiday weekend where the fireworks weren't the hottest thing maybe that was going on throughout the weekend. The One Big Beautiful Bill signed into law on Independence Day itself. For a juxtaposition of numbers, America celebrating 249 years of independence with a bill that's 1,116 pages long. Danton: It'll be interesting. We get a lot of questions over what's going to be in the bill and a lot of news. And so now we know. Sort of. Kyle: It's sort of. To that point, that's why we emphasize the 1,116 pages to it. What we really wanted to do here with this edition of the podcast, though, was really look at this bill, you know, obviously the political situation in Washington is very distinct, but really taking a look at this solely through the eyes of two CERTIFIED FINANCIAL PLANNERS.® What are some of the opportunities? What are some of the key provisions of this tax bill that will affect a lot of different people? Because there are individual tax provisions. There's changes to the estate tax as well as certain things for business owners to be aware of and to keep their eyes on as well, too. So we're not going to cover it all. There's no possible way. And obviously to check in with CPAs and other tax professionals as well, too, before making any final moves. But we wanted to go through some of the things that as we read through this bill and summaries of this bill, some of the things that just kind of jumped out to us as unique kind of planning opportunities. Danton: Yeah, and also discuss what were some of the things that made it into the bill and what were some of the things that got cut last minute and how that might have affected some of the folks that maybe didn't get everything they wanted to or at least the devil being in the details. Kyle: A hundred percent. And Danton, one of the things that I thought was the most unique about this bill versus the Tax Cuts and Jobs Act of 2017 was there,and it has to do with when the bill is passed. I remember Tax Cuts and Jobs Act was passed right at the end of the year. A lot of CPAs and tax professionals were literally pulling their hair out as the final bill gets passed in December and goes into effect January 1st. This bill passed more at the midpoint of the year. So there's some provisions that affect 2025 and we'll get into those. And then there's also some that don't start until 2026. But I think one of the biggest things for us to talk about here real quick is the impetus for this bill. Or one of the big ones was that the TCJA, the Tax Cuts and Jobs Act, like we referred to, was scheduled to sunset at the end of 2025, so that's really what kind of kick started a lot this legislative process. Danton: Yeah, so what do you see as the things that are going to be continuing and what's getting cut from there? Kyle: There was a lot in this bill that really codified the changes that were temporary and made them permanent. One of the biggest things is keeping the rate and brackets that we currently have in making them permanent and adjusting them for inflation every year. So, it is definitely more solid footing, if you will, on tax strategy as we're having conversations about things like Roth conversions, charitable giving, knowing where people are going to end up in the tax brackets. We were honestly having quite a few conversations and modeling sessions with folks had the election gone the other way at the end of 2024. Fortunately or unfortunately, we wadded up a lot of those and threw them in the waste paper basket. But now we know at least for a while, because we never know what politically will happen, but we at least know for the foreseeable future what brackets we are dealing with. And a couple of other things that made this permanent, the standard deduction, that was a big leap back in 2017. And it increased a little bit for 2025. It will be indexed for inflation, but we've made that increased standard deduction permanent. Personal exemptions, which used to be a big thing in the tax code, are still removed. And another thing that was kind of codified in this was an Expanded Child Tax Credit. Now the House bill originally was $2,500 per kid. The Senate's decided on $2,200, starting next year is kind of the final lay of the land. But you got to remember, the Tax Cuts and Jobs Act basically doubled that. And we saw a much higher one during the pandemic as well, too. And that was also, too, when we got into the situation where they kind of doled out that child tax credit early via direct deposit under the Biden administration. So those are a couple of things there. And we're going to kind of hop around here a little bit, but some other provisions that are permanent through this, and I think this is a huge one, especially with some of the families that we end up working with quite a bit, is the permanent increase of the estate and lifetime gift tax exemption to an inflation indexed amount of $15 million for single filers and $30 million for joint filers beginning in 2026. So in 2025, it's about $13.99 million, so a healthy jump into 2026, and then increased for inflation after that, which is a very big planning opportunity. Danton: Yeah, it seems like, at least as it relates to the 2017 tax cuts, we kept a lot of the major pieces in place. I mean, there's some nuance there, but it's just nice to have kind of at least some clarity on how long this is going to go for and be able to do a little bit more than a year at a time planning, it feels like a lot of these times. Kyle: I don't know if you felt this way, but as a planner, I kind of thought that we were kind of playing with one hand tied behind our back with a sunset. And it was always kind of this weird thing when you were sitting down with someone and saying, hey, now that we know what this is, this is probably 2018, we know that it's going to sunset at the end of 2025 unless Congress acts, but you may not be ready to do something. And so it was kind of a non-conversation. And now that changes a little bit to say, hey, unless there is another major bill, major piece of sweeping legislation, these are the rules. And so we have a much longer runway. A couple of other things here on the business side of things, 100% bonus depreciation for short-lived investments, very key for business owners. And then permanently reinstating the EBITDA-based limitation on business net interest deductions is a huge one that comes into play here. There's some international tax provisions. I don't want everyone to go to sleep that's listening to this. We won't dive into those. Danton: Talk about the taxes and how that will be addressed as it relates to Social Security, because I think that's a lot of people's maybe concern and on their mind is, is it going away? But the taxes, it doesn't really affect that so much, but it may affect their bottom line and how much they're receiving. Kyle: Very good question because on the campaign trail, we heard a campaign pledge of no taxes on Social Security. We also heard no taxes on tips and overtime, which by the way, did make it into the final bill, there are some pretty low caps on that. But as far as Social Security goes, that was not addressed specifically in the bill. However, I think the compromise though was added with a temporary senior deduction of $6,000 for each qualifying individual for both itemizers and non-itemizers that phases out when modified adjusted gross income exceeds $75,000. Now that's temporary; it's available from 2025 through 2028. And I think as we always talk about in Washington, D.C., you never want to see how the sausage is made. That was one of the compromises to providing some relief in that arena without necessarily completely saying Social Security is not taxed. A number of the states have it on their ballots to take a look at that. I know Missouri is looking at it; that's where we are. But I thought that was kind of like a unique compromise, if you will. Another thing that I thought was very contentious, and I'll have you chime in on here, was the SALT tax deduction cap. In the old bill, it was $10,000. And the Senate initially said, we're not raising it from $10,000. The House bill passed at $40,000. There was a lot of handling behind closed doors, but eventually they did increase it to $40,000, and that cap will go up by 1 percent through 2029. And it is subject to a phase-out with taxpayers with incomes above $500,000. Danton: Yeah, it seems like this is another political football back and forth where the Democrats want to benefit their potentially higher-income state taxes. So, it's nice to see that there is a deduction that is increased. So anytime from our perspective, we're legally able to pay less in taxes, it's probably a good thing. So, it's nice to see. It would be nice to have maybe a little bit longer timeframe as far as clarity goes, but it's better than nothing. Kyle: Well, and another thing to point out, too, is that above that $500,000 income, there's a cap to the flat $10,000 thereafter. So, I mean, it's not like a use it or a lose it type of a deal, so, but there is some kind of parameters around it. Another thing that I thought was very interesting was charitable giving was addressed in this bill in two ways. One, it creates a half a percent floor on itemized deductions for charitable contributions. So you need to be aware of that as you're giving things away. But then also, too, and this is a unique planning opportunity for the vast majority of people that take the standard deduction, is there is now a permanent $1,000 above the line deduction for charitable contributions if y