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What The “Big Beautiful Bill” Means For Your Retirement Plan
A new tax bill has officially passed (you’ve probably heard it mentioned as the “Big Beautiful Bill”). And while most headlines are focused on politics, we’re focused on what it means for your retirement. The choices you make in the next year or two could have a significant impact on how much you keep and how much goes to Uncle Sam.
Important Links: Website: http://www.yourplanningpros.com
Call: 844-707-7381
----more----
Transcript:
Marc:
This week on Plan With the Tax Man, let's talk about the Big, Beautiful Bill and what it means for your retirement. We'll stay away from the politics as much as humanly possible and just focus on what it might mean in the choices that you may make in the next couple of years. Let's get into it.
Hey everybody, welcome into the podcast. This is Plan With the Tax Man with Tony Morrow and myself to talk investing, finance and a retirement with Tony, who is Des Moines Professional Alternative at Tax Doctor Inc. He's a CPA, CFP and an EA of 30 years plus in the industry, and a great resource for you to tap into.
And Tony, this week we're going to talk about... It's been a couple of weeks now and we're going to talk about the BBB or the OBBBB as the One Big Beautiful Bill. But you know, it's kind of funny. I think at first when we heard that, I think we thought that was just like the media name, but that's actually the bill's name. I was expecting it to be like OBB753624, some crazy number or whatever. But nope, it's One Big Beautiful Bill. So how you doing, buddy?
Tony:
I've been good. Wrapping up the summer and hot here and here, we're getting ready for the state fair. So that's a big thing around here.
Marc:
Yeah.
Tony:
Yeah. Things are going good.
Marc:
Well, good. Well, let's talk about this. Like I said, we'll try to stay off of the political stuff as much as we can. I mean, unfortunately, everything is trying to frame every piece of a conversation with some sort of a slant. And I will say, the only piece I'll say about this is that there's a lot of this helps billionaires and blah, blah, blah. And when you really look at some of the stuff we're going to cover today, it really doesn't. It's actually really kind of low and middle income families who actually get some of this extended stuff, at least a lot of the things that are going to affect most people. Right?
Tony:
That's right. Yeah.
Marc:
So we'll just dive into it. We'll kind of get started. So first of all, the tax brackets, which is the big piece, have been extended. You and I have been talking about that for a couple months now. When you're talking about planning and strategizing, we were waiting to see would the TCJA, the Tax Cuts and Jobs Act from 2017, expire or would they get extended? Well, they got extended.
Tony:
They got extended and they are supposedly... And we have to address this because you're going to hear a lot of stuff in the news and whatnot about this and that tax cut or brackets being now permanent, and hopefully, everybody knows that permanent only means that they just won't expire. But-
Marc:
Right. In Washington-
Tony:
Congress can change them.
Marc:
Yeah. In Washington, permanent is not an actual word I don't think. Yeah.
Tony:
It isn't. So I wish they wouldn't throw that around. But from this standpoint right now, they're not going to expire until Congress changes them.
Marc:
A future Congress would have to pass a bill, basically.
Tony:
Yeah. So you have to do that. But it is good news because now people from all income aspects can kind of plan. Obviously, the higher income is probably more concerned because they can do maybe a little more, but this is going to benefit people because all across the board, we're not going to have to worry about tax rates going up for right now.
Marc:
Yeah. The seven brackets, Tony, they're staying the same through at least probably 2028, right?
Tony:
At least. Yeah. At least.
Marc:
Right. So we got what? 10, 12, 22, 24, 32, 35, and 37. Those are the tax brackets.
Tony:
That is correct. Yeah. I always have to look them up now. Because there's so many, and they're constantly adjusting them a little bit for inflation. But I think that as far as how you can take advantage of that any more than you already have is we always try to get our clients to use up the bracket that they're in. It's important that they know what bracket they're in, which is their marginal bracket, because that is the bracket that the last dollar of income that's going to be taxed on. So anything we can do to fill up that bracket-
Marc:
Can you explain that a little bit? Because I think people get confused by that, right? So they think, okay, let's say I'm in the 22, and so I'm afraid I'm going to do this or this and I'm going to move to the 24. But when you get moved up a bracket, it doesn't mean every dollar that came in moves to the 24, correct?
Tony:
That's correct. Yeah. And a lot of people tend to forget when we'll pull out the brackets and the ranges that this is a progressive tax system. Certain amounts of income are starting out taxed at 10 and then the next is 12 and on and on and on. We talk about marginal bracket because if you're in the... Let's say I spout out, you're in the 22% bracket, that means any more of your income that you bring in that year over a certain amount is going to be taxed at 22%, but the first parts weren't taxed at 22%.
Marc:
Correct.
Tony:
Just the latest. And so it's really a good tactic for using Roth IRAs or Roth conversions-
Marc:
And we'll talk about that yeah, a little bit later too. Yeah. But that's a good piece of that. I mean, overall extending this, from a planner's standpoint, which obviously you're a planner, that's useful. Yeah?
Tony:
I think it's useful because now we can go with people and we can, I think with more accuracy, determine what their future taxes are going to be on some of this stuff and how we want them to take advantage of that and invest for retirement. I mean-
Marc:
Yeah, for sure.
Tony:
On a nation standpoint, well, again, we don't want to get into politics and all that as far as spending and cutting and this and that. But all we can do is take advantage of what they give us regardless of who's in there.
Marc:
Yeah, true. And so probably up until '28 we'll have this in place, and some of these pieces that they passed also do have time expirations on them as well, and we'll talk more about that here in just a second. But again, there seems to be a lot of confusion around it. So that's the first big takeaway is that, hey, we are at historically low tax rates. So that's a win for most people. We'll see how it plays out in the long run, but for right now, that's the advantage we can take from it.
The standard deduction was also "made permanent" right, Tony? And honestly, it's pretty hefty. Check this out. I was going to run this past you, see what you thought. If you kind of break this down a little bit, Tony, so it's what? The standard deduction is... Let just find my note here. Where'd it go? Okay, so the standard deduction for a married couple, it's 31,500 base for 2025. That's pretty hefty.
Tony:
That's hefty. And a lot of clients, that at least we see, may not be able to have enough itemized deductions to get over that, but at least it is. It's hefty. So you're not being penalized what I would say so much, but it is making it a little bit simpler for some Americans to just take the standard deduction. However, I think what we're going to talk about next will come into play this year where it hasn't come into play and that's the SALT cap because some people might be able to itemize now. But again, it's important to make that distinction.
Marc:
Yeah, for sure. Well, I'll tell you what. I'm going to move it around a little bit. Let's talk about the SALT cap after we talk about some of the other deductions that kind of go along with the standard. Okay? So we got the standard deduction. It's 15,750 for a single person, single filer. 31,500 for a married couple.
Now, what they did for a lot of our listening audiences is the whole conversation and the kerfluffle around no tax on Social Security. That didn't happen. They did their bartering and all that stuff and people wanted to get this, and some people wanted to get that. And what they settled on, Tony, was this additional $6,000 per person over the age of 65.
Now, here's where I think people get confused. So the existing law gives you that additional standard deduction of $2,000 per person if you're over 65. Then this new temporary, from 2025 to 2028, senior deduction they're calling it is another 6,000 for single filers or 12,000 for married couples. So if you add these together, the 31,500... Let's say you're a married couple. 31,500 base deduction, the 3,200 age-based existing law deduction for married couples, plus the $12,000 bonus that's temporary through 2028, that's $46,700 of deductions can be pretty hard to itemize.
Tony:
It's going to be pretty hard to itemize for seniors. Yes.
Marc:
That's pretty great.
Tony:
For sure. I mean, that is good.
Marc:
65 and over again, right?
Tony:
Yeah, 65 and over. Now, what you got to remember though is that it's not... And I've already started to hear it. They're not eliminating taxes on Social Security.
Marc:
Correct.
Tony:
You still are paying taxes on your Social Security. It's just that they're extending a deduction. So it's in the ballpark. I mean, your taxes will be cut by whatever tax rate you're in with this deduction. And so-
Marc:
It's kind of like a semantic word. It's almost a semantic math problem. Now, there are income limitations on this, we should say. For some people, it is like you're not going to be paying the tax on your Social Security, but not for everybody.
Tony:
Not for everybody, but yeah for a lot of people, especially the people that are more Social Security heavy as far as driven with their retirement income, you may not be paying taxes at all now or very little. They will go down.
Marc:
Yeah. So I guess we should explain the phase out. So how it works is if your MAGI, your modified adjusted gross income, is 75,000 for singles and 150, that's when it starts to phase. Does it mean you're cut off? It's not like a cliff, right?
Tony:
It's not like a cliff.
Marc:
At 150 for couples, it's not cut off, but at $250,000 of income, that's when it does cut off. So 150 to 250, you're kind of like percentages are going down, correct?
Tony:
That's correct.
Marc:
Okay.
Tony:
Yeah, that's correct. And then the people that are over 250, obviously I think probably the theory there is, well, they don't need this extra deduction. So you're not getting it basically.
Marc:
Right. Right.
Tony:
So you're not getting that tax cut.
Marc:
And so that really does benefit lower and middle income families, retirees.
Tony:
For a lot of them definitely. Definitely. I think we're going to see a lot of our senior tax clients and the financial planning clients, their tax bill is going to go down with that.
Marc:
Yeah. Now, the goofy part unfortunately was what was the IRS or whoever sent that thing out at first saying that it was no tax? And then they was like, okay, got all kind of confused and people got a little misnomer there. So we wanted to make sure we kind of explained that. They're kind of calling it the senior citizen deduction. As I said, it's 6,000 per person. Of course, $12,000 if you're married, and it's only for folks over 65 and again, within those monetary thresholds.
Now, to your point, let's back up a little bit and go to the SALT cap again, the bargaining chip I think when all these congressmen and senators and women are all chatting. It's like, well, I want this and I want that. They get this plan together. This happens with every bill for everything. We all know that's what they do. And you know that the higher income states were like, hey, California and New York and New Jersey and some other states were like, we need to raise the SALT. So explain what the SALT tax is and all that stuff.
Tony:
So the SALT tax is short for what they did with the state and local income taxes and your property taxes back with the Tax Act of 2017. They basically put a limit on that deduction that you can not deduct any more than $10,000 in that whole area of your Schedule A, which is really your state and local income tax, your property tax, your car license fees and sales tax.
And so for those high tax states and those big states like California and New York, you're talking property values... I mean, some of those people's property tax alone might've been 30 to 50,000.
Marc:
Yeah. I think Jersey's even higher than California, if I'm not mistaken. But Jersey's pretty high too. Yeah.
Tony:
So I mean, all the really high income earners have large, large homes and properties have been crying for several years because they always could itemize drastically and now that was cut way down for them. So they have expanded this to I believe it's 40,000.
Marc:
It's 40. Yep. Mm-hmm.
Tony:
And there are some limits I believe on that too, and I can't remember what they are. But that is going to be a help to people that might not have been able to itemize before that might be able to now. Again-
Marc:
Yeah. I feel like that's going to be your higher income earners though, Tony,
Tony:
It is.
Marc:
And by the way, yes, you're correct on the limits on that. The SALT deduction cap phases out between a half million and 600,000.
Tony:
Okay.
Marc:
Yeah. So it's fairly up there. So if you're itemizing, you're probably fairly well off.
Tony:
You're probably fairly well off. Yeah. It just gives a little bit to the higher income earner, especially in the higher property tax states and whatnot, and income tax states to be able to deduct all that where they were limited severely here in the past. And we have a couple of tax clients that live in these states. They're making a half million, million bucks a year as a W2'd employee. So they're phased out of everything. It's those people that were really getting hurt. So this will help some as well.
Marc:
Yeah, for sure. And before we move on to just the strategy of things and stuff, I did want to point out that there's also that new charitable deduction for standard filers. So if you can't itemize, back to my point a minute ago, we're talking like 30 plus grand of standard deductions going on, so a lot of people will not hit the itemizing level. They added this new little in 2026, Tony, where you can, for singles, it's only $1000, but still it's $1,000. And for married couples, it's $2000, but you can still do charitable donations without the itemizing.
Tony:
Without the itemizing.
Marc:
So it's not a ton of money, but it still comes off of your top income line. And if you're charitable minded, that's a great thing.
Tony:
That's a great thing. I mean, even at $2000, let's say you're in the 20% bracket, it's $400 of an actual tax reduction. And again, you want to take everything they're going to give you and you don't want to leave anything on the table. So that does help with the charitable giving as well.
And back to the point of the higher income people, the charitable giving, they're giving a lot more anyway, so they're already itemizing. So that doesn't really do anything for them, but it does give the average person, if they're doing it anyway, at least they get a little bit of deduction where before they didn't.
Marc:
Yeah, true. True. And this is an above the line deduction, correct?
Tony:
Above the line. So they don't have to itemize.
Marc:
Yeah.
Tony:
Yeah.
Marc:
Okay. All right, so then let's talk about also charitable giving and the Roth opportunities. So we kind of started that little piece of that earlier. Coming back to that now. The fact that you now have more runway, Tony as a planner, if Rothing over time was something that was maybe on someone's radar to do and they were worried, well, are they going to extend the Tax Cuts and Jobs Act or not? Or were the tax rates going to go up? That kind of changed that scenario, but now that we know that it's going to be that way for maybe the next four years, then hey, Roth opportunities are still alive.
Tony:
They're very much alive. Our clients especially using backdoor Roths for higher incomes, for us, we're basically telling clients, let's make sure we're filling up these brackets and getting everything into a Roth as we can before they change something on that loophole. But I think in this tax situation, especially in the planning area as far as evaluating what to do now versus later, I think that's where people like us come and play where we can provide a lot of value in that area. It's not talking all about just choosing investments, is how can we cut your tax bill and continue to save for retirement tax efficiently.
Marc:
Yeah. I mean, I think that's going to be the name of the game for most people is how do we maximize... Especially for four years, right?
Tony:
Four years.
Marc:
We know that politically it is what it is and in four years, depending on what happens with elections, another administration could come in and try to wipe out everything that this administration did. Who knows. So be efficient and take advantage of things right now while you can. And we'll wrap it up with any other things in there that caught your eye that you thought were interesting that you might want to share with the listeners?
Tony:
I think one was, and nobody really is talking about it yet and it doesn't help a whole lot of people, and I don't know if I really agree with it, but I think it's important to get it out there. And that is they're allowing auto loan interest to be deducted again above the line. So you do not have to itemize to get this deduction. However, there's a lot of limits in it. It's got to be purchased this year, it's got to be new. There's phase outs for the deduction on income, but everybody's buying a car [inaudible 00:17:06]-
Marc:
Yeah, it's like 10 grand too, isn't it? It's pretty-
Tony:
Yeah, it's up there.
Marc:
Yeah.
Tony:
And so if you're out buying that, you're going to have an incentive to...
Marc:
Well, that was the point. Yeah. that was the point, right? Because what is it, final assembly in the US? Which I'm curious as to what the breakdown on that is. Is it like 40% of the car has to be assembled here or what?
Tony:
Exactly. I think that's interesting.
Marc:
Yeah, for sure.
Tony:
And it'll be interesting to see how they try to police that for people that might press that a little bit.
Marc:
Great point. Yeah. Well, in that same car vein, Tony, I think it is again, part of that initiative to promote American business and growth and help our economy. Because on the same side, the EV credit is going away. So if on your radar for your retirement strategy, if you're getting close to retirement this year was to get a new car like many retirees do when they first get to retirement, keep in mind that the EV credit goes away in September. So just a little over a month or so from now.
Tony:
Yeah. I think one last one though is the no tax on tips up to $25,000.
Marc:
Might not help a lot of our listeners or your clients, but maybe their kids or grandkids.
Tony:
Yeah. I mean, it's going to help a certain segment to a point. I actually had, believe it or not, somebody already called me up, and this was a business client, they're already thinking, and hopefully they don't do this. But they were asking about, well, why don't I just convert all my employees to 1099s and they can basically claim tip income?
So the IRS has got rules on that. It's got to be W2. They got to be reported tips. So if you're a tipped employee and it's got to be in the service industry that normally receives tips, can't be somebody out on the road truck driver or something like that. Don't get too cute with some of this stuff and trying to push the limits and trying to outthink things, because you're going to get yourself in trouble. I know the IRS is having some issues now with staffing and whatnot, but I would recommend highly do not try to do any of that. And there's already stuff out on the internet talking about ways, which I think are already, they strike me as illegal. So don't fall for that. Make sure you ask your advisor.
Marc:
Yeah, yeah. Yeah. We want to still stay above board with this stuff.
Tony:
Got to stay above the board.
Marc:
Yeah. Especially with some of that stuff. But yeah, I mean, it could be beneficial for folks in those industries doing things the right way. So good stuff. I mean, look, Tony, at the end of the day, the tax bill didn't shake the system to its core, but it did provide a decent amount of change to help in a lot of areas, especially for retirees and pre-retirees to take advantage of. So again, the window's kind of short to act. A lot of this stuff kicks in either this year or the first of next year, and it expires at the end of '28, going probably into '29. Unless of course Congress does something different. But more than likely, this all stands until there's a new administration and then they rule some kind of changes or whatever. So the takeaway, be proactive, right?
Tony:
Right. Be proactive, talk with your advisor, see which deductions might apply to your situation both for taxes and retirement planning. And then just modify the plan as you go and try to take advantage of anything you can.
Marc:
Absolutely. Yeah, and that's a great point. And when working with someone like yourself, Tony, who's doing both sides of that, both sides of the aisle if you will, if you'll pardon the pun, you've got the planning side as well as the tax side. So it's really helpful to have both of those things under one roof. So reach out to Tony if you've got some questions, need some help. Get yourself onto the calendar so that you can Plan With the Tax Man at 844-707-7381. 844-707-7381. Or of course, visit him online@ at Yourplanningpros.com. That is Yourplanningpros.com. And don't forget to subscribe to us on Apple or Spotify or whatever podcasting app you enjoy using. We'll see you next time here on Plan With the Tax Man with Tony Morrow. Thanks, Tony.
Tony:
All right, take care.
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By Tony Mauro
5
11 ratings
A new tax bill has officially passed (you’ve probably heard it mentioned as the “Big Beautiful Bill”). And while most headlines are focused on politics, we’re focused on what it means for your retirement. The choices you make in the next year or two could have a significant impact on how much you keep and how much goes to Uncle Sam.
Important Links: Website: http://www.yourplanningpros.com
Call: 844-707-7381
----more----
Transcript:
Marc:
This week on Plan With the Tax Man, let's talk about the Big, Beautiful Bill and what it means for your retirement. We'll stay away from the politics as much as humanly possible and just focus on what it might mean in the choices that you may make in the next couple of years. Let's get into it.
Hey everybody, welcome into the podcast. This is Plan With the Tax Man with Tony Morrow and myself to talk investing, finance and a retirement with Tony, who is Des Moines Professional Alternative at Tax Doctor Inc. He's a CPA, CFP and an EA of 30 years plus in the industry, and a great resource for you to tap into.
And Tony, this week we're going to talk about... It's been a couple of weeks now and we're going to talk about the BBB or the OBBBB as the One Big Beautiful Bill. But you know, it's kind of funny. I think at first when we heard that, I think we thought that was just like the media name, but that's actually the bill's name. I was expecting it to be like OBB753624, some crazy number or whatever. But nope, it's One Big Beautiful Bill. So how you doing, buddy?
Tony:
I've been good. Wrapping up the summer and hot here and here, we're getting ready for the state fair. So that's a big thing around here.
Marc:
Yeah.
Tony:
Yeah. Things are going good.
Marc:
Well, good. Well, let's talk about this. Like I said, we'll try to stay off of the political stuff as much as we can. I mean, unfortunately, everything is trying to frame every piece of a conversation with some sort of a slant. And I will say, the only piece I'll say about this is that there's a lot of this helps billionaires and blah, blah, blah. And when you really look at some of the stuff we're going to cover today, it really doesn't. It's actually really kind of low and middle income families who actually get some of this extended stuff, at least a lot of the things that are going to affect most people. Right?
Tony:
That's right. Yeah.
Marc:
So we'll just dive into it. We'll kind of get started. So first of all, the tax brackets, which is the big piece, have been extended. You and I have been talking about that for a couple months now. When you're talking about planning and strategizing, we were waiting to see would the TCJA, the Tax Cuts and Jobs Act from 2017, expire or would they get extended? Well, they got extended.
Tony:
They got extended and they are supposedly... And we have to address this because you're going to hear a lot of stuff in the news and whatnot about this and that tax cut or brackets being now permanent, and hopefully, everybody knows that permanent only means that they just won't expire. But-
Marc:
Right. In Washington-
Tony:
Congress can change them.
Marc:
Yeah. In Washington, permanent is not an actual word I don't think. Yeah.
Tony:
It isn't. So I wish they wouldn't throw that around. But from this standpoint right now, they're not going to expire until Congress changes them.
Marc:
A future Congress would have to pass a bill, basically.
Tony:
Yeah. So you have to do that. But it is good news because now people from all income aspects can kind of plan. Obviously, the higher income is probably more concerned because they can do maybe a little more, but this is going to benefit people because all across the board, we're not going to have to worry about tax rates going up for right now.
Marc:
Yeah. The seven brackets, Tony, they're staying the same through at least probably 2028, right?
Tony:
At least. Yeah. At least.
Marc:
Right. So we got what? 10, 12, 22, 24, 32, 35, and 37. Those are the tax brackets.
Tony:
That is correct. Yeah. I always have to look them up now. Because there's so many, and they're constantly adjusting them a little bit for inflation. But I think that as far as how you can take advantage of that any more than you already have is we always try to get our clients to use up the bracket that they're in. It's important that they know what bracket they're in, which is their marginal bracket, because that is the bracket that the last dollar of income that's going to be taxed on. So anything we can do to fill up that bracket-
Marc:
Can you explain that a little bit? Because I think people get confused by that, right? So they think, okay, let's say I'm in the 22, and so I'm afraid I'm going to do this or this and I'm going to move to the 24. But when you get moved up a bracket, it doesn't mean every dollar that came in moves to the 24, correct?
Tony:
That's correct. Yeah. And a lot of people tend to forget when we'll pull out the brackets and the ranges that this is a progressive tax system. Certain amounts of income are starting out taxed at 10 and then the next is 12 and on and on and on. We talk about marginal bracket because if you're in the... Let's say I spout out, you're in the 22% bracket, that means any more of your income that you bring in that year over a certain amount is going to be taxed at 22%, but the first parts weren't taxed at 22%.
Marc:
Correct.
Tony:
Just the latest. And so it's really a good tactic for using Roth IRAs or Roth conversions-
Marc:
And we'll talk about that yeah, a little bit later too. Yeah. But that's a good piece of that. I mean, overall extending this, from a planner's standpoint, which obviously you're a planner, that's useful. Yeah?
Tony:
I think it's useful because now we can go with people and we can, I think with more accuracy, determine what their future taxes are going to be on some of this stuff and how we want them to take advantage of that and invest for retirement. I mean-
Marc:
Yeah, for sure.
Tony:
On a nation standpoint, well, again, we don't want to get into politics and all that as far as spending and cutting and this and that. But all we can do is take advantage of what they give us regardless of who's in there.
Marc:
Yeah, true. And so probably up until '28 we'll have this in place, and some of these pieces that they passed also do have time expirations on them as well, and we'll talk more about that here in just a second. But again, there seems to be a lot of confusion around it. So that's the first big takeaway is that, hey, we are at historically low tax rates. So that's a win for most people. We'll see how it plays out in the long run, but for right now, that's the advantage we can take from it.
The standard deduction was also "made permanent" right, Tony? And honestly, it's pretty hefty. Check this out. I was going to run this past you, see what you thought. If you kind of break this down a little bit, Tony, so it's what? The standard deduction is... Let just find my note here. Where'd it go? Okay, so the standard deduction for a married couple, it's 31,500 base for 2025. That's pretty hefty.
Tony:
That's hefty. And a lot of clients, that at least we see, may not be able to have enough itemized deductions to get over that, but at least it is. It's hefty. So you're not being penalized what I would say so much, but it is making it a little bit simpler for some Americans to just take the standard deduction. However, I think what we're going to talk about next will come into play this year where it hasn't come into play and that's the SALT cap because some people might be able to itemize now. But again, it's important to make that distinction.
Marc:
Yeah, for sure. Well, I'll tell you what. I'm going to move it around a little bit. Let's talk about the SALT cap after we talk about some of the other deductions that kind of go along with the standard. Okay? So we got the standard deduction. It's 15,750 for a single person, single filer. 31,500 for a married couple.
Now, what they did for a lot of our listening audiences is the whole conversation and the kerfluffle around no tax on Social Security. That didn't happen. They did their bartering and all that stuff and people wanted to get this, and some people wanted to get that. And what they settled on, Tony, was this additional $6,000 per person over the age of 65.
Now, here's where I think people get confused. So the existing law gives you that additional standard deduction of $2,000 per person if you're over 65. Then this new temporary, from 2025 to 2028, senior deduction they're calling it is another 6,000 for single filers or 12,000 for married couples. So if you add these together, the 31,500... Let's say you're a married couple. 31,500 base deduction, the 3,200 age-based existing law deduction for married couples, plus the $12,000 bonus that's temporary through 2028, that's $46,700 of deductions can be pretty hard to itemize.
Tony:
It's going to be pretty hard to itemize for seniors. Yes.
Marc:
That's pretty great.
Tony:
For sure. I mean, that is good.
Marc:
65 and over again, right?
Tony:
Yeah, 65 and over. Now, what you got to remember though is that it's not... And I've already started to hear it. They're not eliminating taxes on Social Security.
Marc:
Correct.
Tony:
You still are paying taxes on your Social Security. It's just that they're extending a deduction. So it's in the ballpark. I mean, your taxes will be cut by whatever tax rate you're in with this deduction. And so-
Marc:
It's kind of like a semantic word. It's almost a semantic math problem. Now, there are income limitations on this, we should say. For some people, it is like you're not going to be paying the tax on your Social Security, but not for everybody.
Tony:
Not for everybody, but yeah for a lot of people, especially the people that are more Social Security heavy as far as driven with their retirement income, you may not be paying taxes at all now or very little. They will go down.
Marc:
Yeah. So I guess we should explain the phase out. So how it works is if your MAGI, your modified adjusted gross income, is 75,000 for singles and 150, that's when it starts to phase. Does it mean you're cut off? It's not like a cliff, right?
Tony:
It's not like a cliff.
Marc:
At 150 for couples, it's not cut off, but at $250,000 of income, that's when it does cut off. So 150 to 250, you're kind of like percentages are going down, correct?
Tony:
That's correct.
Marc:
Okay.
Tony:
Yeah, that's correct. And then the people that are over 250, obviously I think probably the theory there is, well, they don't need this extra deduction. So you're not getting it basically.
Marc:
Right. Right.
Tony:
So you're not getting that tax cut.
Marc:
And so that really does benefit lower and middle income families, retirees.
Tony:
For a lot of them definitely. Definitely. I think we're going to see a lot of our senior tax clients and the financial planning clients, their tax bill is going to go down with that.
Marc:
Yeah. Now, the goofy part unfortunately was what was the IRS or whoever sent that thing out at first saying that it was no tax? And then they was like, okay, got all kind of confused and people got a little misnomer there. So we wanted to make sure we kind of explained that. They're kind of calling it the senior citizen deduction. As I said, it's 6,000 per person. Of course, $12,000 if you're married, and it's only for folks over 65 and again, within those monetary thresholds.
Now, to your point, let's back up a little bit and go to the SALT cap again, the bargaining chip I think when all these congressmen and senators and women are all chatting. It's like, well, I want this and I want that. They get this plan together. This happens with every bill for everything. We all know that's what they do. And you know that the higher income states were like, hey, California and New York and New Jersey and some other states were like, we need to raise the SALT. So explain what the SALT tax is and all that stuff.
Tony:
So the SALT tax is short for what they did with the state and local income taxes and your property taxes back with the Tax Act of 2017. They basically put a limit on that deduction that you can not deduct any more than $10,000 in that whole area of your Schedule A, which is really your state and local income tax, your property tax, your car license fees and sales tax.
And so for those high tax states and those big states like California and New York, you're talking property values... I mean, some of those people's property tax alone might've been 30 to 50,000.
Marc:
Yeah. I think Jersey's even higher than California, if I'm not mistaken. But Jersey's pretty high too. Yeah.
Tony:
So I mean, all the really high income earners have large, large homes and properties have been crying for several years because they always could itemize drastically and now that was cut way down for them. So they have expanded this to I believe it's 40,000.
Marc:
It's 40. Yep. Mm-hmm.
Tony:
And there are some limits I believe on that too, and I can't remember what they are. But that is going to be a help to people that might not have been able to itemize before that might be able to now. Again-
Marc:
Yeah. I feel like that's going to be your higher income earners though, Tony,
Tony:
It is.
Marc:
And by the way, yes, you're correct on the limits on that. The SALT deduction cap phases out between a half million and 600,000.
Tony:
Okay.
Marc:
Yeah. So it's fairly up there. So if you're itemizing, you're probably fairly well off.
Tony:
You're probably fairly well off. Yeah. It just gives a little bit to the higher income earner, especially in the higher property tax states and whatnot, and income tax states to be able to deduct all that where they were limited severely here in the past. And we have a couple of tax clients that live in these states. They're making a half million, million bucks a year as a W2'd employee. So they're phased out of everything. It's those people that were really getting hurt. So this will help some as well.
Marc:
Yeah, for sure. And before we move on to just the strategy of things and stuff, I did want to point out that there's also that new charitable deduction for standard filers. So if you can't itemize, back to my point a minute ago, we're talking like 30 plus grand of standard deductions going on, so a lot of people will not hit the itemizing level. They added this new little in 2026, Tony, where you can, for singles, it's only $1000, but still it's $1,000. And for married couples, it's $2000, but you can still do charitable donations without the itemizing.
Tony:
Without the itemizing.
Marc:
So it's not a ton of money, but it still comes off of your top income line. And if you're charitable minded, that's a great thing.
Tony:
That's a great thing. I mean, even at $2000, let's say you're in the 20% bracket, it's $400 of an actual tax reduction. And again, you want to take everything they're going to give you and you don't want to leave anything on the table. So that does help with the charitable giving as well.
And back to the point of the higher income people, the charitable giving, they're giving a lot more anyway, so they're already itemizing. So that doesn't really do anything for them, but it does give the average person, if they're doing it anyway, at least they get a little bit of deduction where before they didn't.
Marc:
Yeah, true. True. And this is an above the line deduction, correct?
Tony:
Above the line. So they don't have to itemize.
Marc:
Yeah.
Tony:
Yeah.
Marc:
Okay. All right, so then let's talk about also charitable giving and the Roth opportunities. So we kind of started that little piece of that earlier. Coming back to that now. The fact that you now have more runway, Tony as a planner, if Rothing over time was something that was maybe on someone's radar to do and they were worried, well, are they going to extend the Tax Cuts and Jobs Act or not? Or were the tax rates going to go up? That kind of changed that scenario, but now that we know that it's going to be that way for maybe the next four years, then hey, Roth opportunities are still alive.
Tony:
They're very much alive. Our clients especially using backdoor Roths for higher incomes, for us, we're basically telling clients, let's make sure we're filling up these brackets and getting everything into a Roth as we can before they change something on that loophole. But I think in this tax situation, especially in the planning area as far as evaluating what to do now versus later, I think that's where people like us come and play where we can provide a lot of value in that area. It's not talking all about just choosing investments, is how can we cut your tax bill and continue to save for retirement tax efficiently.
Marc:
Yeah. I mean, I think that's going to be the name of the game for most people is how do we maximize... Especially for four years, right?
Tony:
Four years.
Marc:
We know that politically it is what it is and in four years, depending on what happens with elections, another administration could come in and try to wipe out everything that this administration did. Who knows. So be efficient and take advantage of things right now while you can. And we'll wrap it up with any other things in there that caught your eye that you thought were interesting that you might want to share with the listeners?
Tony:
I think one was, and nobody really is talking about it yet and it doesn't help a whole lot of people, and I don't know if I really agree with it, but I think it's important to get it out there. And that is they're allowing auto loan interest to be deducted again above the line. So you do not have to itemize to get this deduction. However, there's a lot of limits in it. It's got to be purchased this year, it's got to be new. There's phase outs for the deduction on income, but everybody's buying a car [inaudible 00:17:06]-
Marc:
Yeah, it's like 10 grand too, isn't it? It's pretty-
Tony:
Yeah, it's up there.
Marc:
Yeah.
Tony:
And so if you're out buying that, you're going to have an incentive to...
Marc:
Well, that was the point. Yeah. that was the point, right? Because what is it, final assembly in the US? Which I'm curious as to what the breakdown on that is. Is it like 40% of the car has to be assembled here or what?
Tony:
Exactly. I think that's interesting.
Marc:
Yeah, for sure.
Tony:
And it'll be interesting to see how they try to police that for people that might press that a little bit.
Marc:
Great point. Yeah. Well, in that same car vein, Tony, I think it is again, part of that initiative to promote American business and growth and help our economy. Because on the same side, the EV credit is going away. So if on your radar for your retirement strategy, if you're getting close to retirement this year was to get a new car like many retirees do when they first get to retirement, keep in mind that the EV credit goes away in September. So just a little over a month or so from now.
Tony:
Yeah. I think one last one though is the no tax on tips up to $25,000.
Marc:
Might not help a lot of our listeners or your clients, but maybe their kids or grandkids.
Tony:
Yeah. I mean, it's going to help a certain segment to a point. I actually had, believe it or not, somebody already called me up, and this was a business client, they're already thinking, and hopefully they don't do this. But they were asking about, well, why don't I just convert all my employees to 1099s and they can basically claim tip income?
So the IRS has got rules on that. It's got to be W2. They got to be reported tips. So if you're a tipped employee and it's got to be in the service industry that normally receives tips, can't be somebody out on the road truck driver or something like that. Don't get too cute with some of this stuff and trying to push the limits and trying to outthink things, because you're going to get yourself in trouble. I know the IRS is having some issues now with staffing and whatnot, but I would recommend highly do not try to do any of that. And there's already stuff out on the internet talking about ways, which I think are already, they strike me as illegal. So don't fall for that. Make sure you ask your advisor.
Marc:
Yeah, yeah. Yeah. We want to still stay above board with this stuff.
Tony:
Got to stay above the board.
Marc:
Yeah. Especially with some of that stuff. But yeah, I mean, it could be beneficial for folks in those industries doing things the right way. So good stuff. I mean, look, Tony, at the end of the day, the tax bill didn't shake the system to its core, but it did provide a decent amount of change to help in a lot of areas, especially for retirees and pre-retirees to take advantage of. So again, the window's kind of short to act. A lot of this stuff kicks in either this year or the first of next year, and it expires at the end of '28, going probably into '29. Unless of course Congress does something different. But more than likely, this all stands until there's a new administration and then they rule some kind of changes or whatever. So the takeaway, be proactive, right?
Tony:
Right. Be proactive, talk with your advisor, see which deductions might apply to your situation both for taxes and retirement planning. And then just modify the plan as you go and try to take advantage of anything you can.
Marc:
Absolutely. Yeah, and that's a great point. And when working with someone like yourself, Tony, who's doing both sides of that, both sides of the aisle if you will, if you'll pardon the pun, you've got the planning side as well as the tax side. So it's really helpful to have both of those things under one roof. So reach out to Tony if you've got some questions, need some help. Get yourself onto the calendar so that you can Plan With the Tax Man at 844-707-7381. 844-707-7381. Or of course, visit him online@ at Yourplanningpros.com. That is Yourplanningpros.com. And don't forget to subscribe to us on Apple or Spotify or whatever podcasting app you enjoy using. We'll see you next time here on Plan With the Tax Man with Tony Morrow. Thanks, Tony.
Tony:
All right, take care.
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