The One Big Beautiful Bill
From the Orange Couch

Robin:
Hi, this is Robin Tull, and I’m with our Director of Tax and Financial Planning, Drew Overton. We’re going to be talking today about the One Big Beautiful Bill. I’m in a different place on the orange couch, where I’m asking the questions to Drew, but we encourage you to send us questions you’re having regarding financial planning.

Robin:
One question we get is: help me to understand this tax bill that was signed in July. The thing that I’ve experienced most from clients is many of them don’t know that their taxes would have gone up had this bill not been signed. Can you expand on that, please?

Drew:
Definitely. Marginal rates were scheduled to go back up to what they were before the Tax Cuts and Jobs Act. So the 12% and 22% brackets were scheduled to go back up to 15% and 25%, and so on, with the top bracket going from 37% to 39.6%. Everyone across that spectrum would have been impacted, and now that’s not going to be the case.

Robin:
One of the questions that we always ask in client meetings is: do you itemize or do you use a standard deduction? That was one area that really got changed, isn’t it?

Drew:
It is. The standard deduction for individuals went up $1,000; for married couples filing jointly, up $2,000. When we look at this bill, what’s under the itemized deductions—the charitable deductions, the state and local tax deductions—that’s where most of the change came from.

Robin:
When I first started out and got married, I bought a car because I didn’t have one, and I had to take out a loan because I didn’t have the money. I was able to deduct the interest back then and use it to itemize. My understanding is that deductibility of car loan interest is included?

Drew:
It is. For newly purchased cars that were assembled in the U.S., there’s an auto loan deduction up to $10,000. A friend bought a Honda this year. You think Honda was made outside of the U.S., right? No, not necessarily. That one was assembled in the U.S., so he gets that interest deduction.

Robin:
An area which was discussed a lot during the campaign was tax on tips and overtime. I believe that got changed significantly, too, right?

Drew:
It did. That was a big change that came out. $25,000—that’s the limit for tips—as well as overtime is going to be $12,500 per person. For someone making $20 an hour, but in overtime they make $30 an hour, that $10 difference is where the deduction comes into play—not your base salary. It’s a little different there, but definitely got passed and is part of the bill now.

Robin:
You have three kids. Phil in our office is getting ready to have a baby in November. Now there’s this new account called, “Trump Account” for new birth. Tell me about that.

Drew:
Exactly. Any child born this year or later is going to get a Trump account, which is going to be initially funded by the government with $1,000. There’s going to be a $5,000 annual contribution limit. Think of it as a hybrid IRA. With IRAs, you have to have earned income. Clearly Phil’s new kid is not going to have any earned income. These accounts don’t need it, and you can contribute on their behalf. No deduction for that contribution though, but you get the tax-deferred growth.

Robin:
You still have 529s to save for college education, too. That hasn’t changed, but there are some benefits—they expanded those a bit.

Drew:
They did. The last extension said it’s not just for college. We can do K-12 tuition as well. Now they’ve said any educational expenses like tuition as well as tutoring expenses, computers, supplies are included, as well as credentials—CFP, CFA—anything after school that you get. Those expenses are included and can be paid for by the 529.

Robin:
We get a lot of questions as it relates to people who have more than one child and more than one 529. They ask, “What if one of my kids doesn’t go to college? What happens to their 529?”

Drew:
They are very flexible accounts. The account owner can always change the beneficiary – your child or grandchild. That’s the flexible part to those accounts. You can also roll some of that into a Roth IRA. We’re having people do that. They’re getting more flexible, which means more people are taking advantage of them.

Robin:
I like that. We’ve started to do that for some people. Now, we always encourage people to have a last will and testament or a trust. The reason I always say that is because if you don’t have a will, the state that you live in has one for you—and it may not say what you want it to say. So there were some generous changes in the estate tax deduction: $30 million?

Drew:
$30 million for married couples, $15 million per person. When you think of planning for beneficiaries, the tax planning for that used to be looking at income tax planning and estate tax planning. Not necessarily now for those people under the $30 million limit for couples. Now we’re looking more so at the 10-year rule—that’s still in play—for any beneficiaries that are non-spouses. There are some exceptions, but we’re looking at how best to withdraw tax efficiently.

Robin:
This is probably a good time to go see your attorney, to make sure your will is up to date, your trust is up to date, and everything’s funded properly so you can take advantage of some of these things.

Robin:
We have a lot of clients who are charitably inclined, and we help them with different strategies there. There were some changes in the new bill as it relates to charitable giving—even if you don’t itemize, you can still deduct.

Drew:
Yes. For people who take the standard deduction and are also charitably inclined—$1,000 per individual, $2,000 per couple—can take that charitable deduction regardless of whether or not they’re taking that itemized deduction. For itemizers, there’s a new AGI (adjusted gross income) floor of half a percent. Let’s say you’re making $200,000 of adjusted gross income. That first $1,000 of contributions to charity is not going to be deductible. You’ve got to get over that to start making an impact on your tax return.

Robin:
Great. We can finish up with this last subject. We have a lot of clients who are small business owners, and there were some significant changes there. You have this 20% deduction for qualified business income that was extended, and Section 179 allows you to deduct capital expenditures, correct?

Drew:
Exactly. Section 179 extended and increased. 100% bonus depreciation was also reset permanently. A lot of big changes to incentivize business owners to reinvest in their companies, giving a tax incentive there. Big, big changes there.

Robin:
We’ve tried to highlight the areas that probably would affect our clients. If you have any questions, please reach out to myself, Drew, or any one of our team members. We’d welcome the opportunity. We thank you for your trust and confidence over the years and hope you finish out the summer wonderfully. Have a great day.