The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 99 - A First Look at Trump's Big Beautiful Tax Bill
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Tax legislation is undergoing significant changes that could reshape planning strategies for entrepreneurs, high-income earners, and real estate investors. These proposed changes would restore powerful tax benefits while creating new opportunities to legally reduce tax burdens through strategic planning and timing.
• 100% bonus depreciation likely returning until 2029, creating massive write-off potential for real estate investors and business owners
• QBI deduction potentially increasing from 20% to 23% and becoming permanent
• Qualified Opportunity Zones getting revitalized with potential 30% basis step-up for rural investments
• Standard deduction increasing by $1,000 for single filers and $2,000 for married couples
• SALT cap potentially rising from $10,000 to $40,000 for earnings under $500,000
• Social Security benefits potentially becoming tax-free, changing how we view FICA taxes
• Possible elimination of federal taxes on tips and overtime pay, though with likely restrictions
• Corporate tax rates potentially dropping to 20%, and to 15% for domestic manufacturers
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I'm a little bit heads up. I mean I'm a little bit hesitant on really diving into proposed legislation and really riffing on it and planning for it, because when Joe Biden was elected, everybody was theorizing about all these radical changes. Are we going to lose our 1031 exchanges? Is QBI going away, all these things that we thought could potentially happen here, and almost none of it happened that we thought would happen. So we're doing all this planning and at the end of the day, we saw a whole lot of nothing. We did see the Inflation Reduction Act, which was just some energy incentives here thing. We did see the Inflation Reduction Act, which was just some energy incentives here, but we've been talking and anticipating 100% bonus coming back and now it looks more likely than not that we're going to get it. But there's more to discuss here. So I'm going to dive into all the things that are applicable to the clients that we serve in our audience with audience members, which is entrepreneurs, high income earners, real estate investors and we're going to dive into each things at a bird's eye view and talk about what this might mean for you here and also how to make sense of all this information. And obviously it's a little premature. It passed the house, it has to get through Senate, but still it doesn't hurt to start thinking about these things Now. Again, we don't want to count our chickens before they hatch. I said it right this time, but certainly it is nice to know this stuff and consider the tax implications here. So let's get it out of the way.
Speaker 1:Bonus depreciation is expected to return to 100%. So if you do a cost segregation study on your real estate rentals, you accelerate depreciation, you may be able to write that property off immediately, at least a portion of that real estate immediately in year one, and it is expected to remain at 100% bonus depreciation until the end of 2029. And then it just completely goes away. I can't imagine it going from 100 to zero. It just seems highly unlikely here. So imagine there are likely being more tax legislation. You know bonuses kind of come in and out, as it was introduced at 50% and it's kind of it's been this moving thing for a while, but that's at least what we think that's in the current state of the proposed legislation. And so obviously the cost segregation studies for our real estate professionals and short-term rental investors is going to be a huge opportunity here, and obviously other ways to create bonus depreciation with cars and vehicle heavy equipment, et cetera, et cetera. It's going to impact a lot of the strategies pretty much anything that involves depreciation.
Speaker 1:But there's other things to look at here that are really interesting. Qualified business income deduction could potentially go from 20% to 23% and made permanent. So qualified business income deduction that's a 20% deduction on your ordinary income. That applies to some of you guys who are general contractors. S-corp owners and the real estate investors also qualify for it, although most of you guys operate at a loss, or at least a loss on paper.
Speaker 1:There are tons of complex phasings and phase-outs. Check your return on the first page. You'll see that QBI deduction. It's a very complex, intricate formula and there's all these variables and planning opportunities that we have for our clients. They're looking to potentially not only make it permanent because it's expected to go away in 2026 if no legislation is passed, but they're also looking to have it apply to other sources of income, such as certain forms of interest and dividend income, and also they're expecting to simplify the rules around it. There's all these like conditional factors and types of businesses that you have to consider for it. It's a highly intricate formula and variables on what QBI means for you as a business owner, based on your type of income prior to your activity, and it should simplify and it is a nice 20% tax deduction for entrepreneurs, which is really awesome.
Speaker 1:Qualified opportunity Now let's talk about qualified opportunity zones, and I was riffing on this earlier. I'm really, really passionate about this. I just think it's awesome what's possible here. Qozs, or qualified opportunity zones, have allowed you to defer taxes on capital gains income and that's any capital gain. It could be from the sale of your personal residence. If you don't have, if you didn't have, the exclusion of living there for two years. It could be capital gains from the sale of a watch. It could be capital gains from the sale of stock and, obviously, real estate.
Speaker 1:So there's so many different ways we can plan for this, but essentially in the past, it would allow you to defer some of the taxes by putting into these funds that would be invested into. Essentially, the funds would be mostly investing into real estate in areas that needed economic development. Be mostly investing into real estate in areas that needed economic development and you would get actually, you would defer the taxes on the transactions if you put your capital gains amounts into them until a later date well, really 2026. And you would actually get a step up in basis and they would reduce taxes on the gains. Well, now what we're expecting is?
Speaker 1:Well, let me just backtrack a little bit just to tell you a little more about this. So it was a really cool idea to defer your cap gains and any type of cap gain, and then any future gain on wherever you rolled your investment into would be untaxed as long as you held it for 10 years. And there was a way that, as long as you invested early enough, you would actually reduce the taxation on that deferred gain as well reduce the taxation on that deferred gain as well. Well, the length of the deferral became less and less appealing as it would all be recognized in 2026. And they used to have what we would call a partial step up where they would reduce some of the taxes as long as you did it soon enough. So QOZs right now have kind of lost some of their value because they are phasing out and the deferral length has been shortened. But it looks like they're going to really pump some new life into this thing and I'm pretty confident they will, and it looks really appealing here. So this would really be, at least as of right now. You know.
Speaker 1:So if you're listening to this at a certain point, remember this is being recorded on May 28th of 2025. So some of this may be outdated. Here potentially have new qualified opportunity zone funds created in 2027 with essentially a 10% basis step up as long as you keep it in there for five years, and maybe even up to 30% if these are in rural areas. That would be awesome eliminating not only deferring your cap gain, but also eliminating 30% if you hold into this fund for five years. And also there's all these other things that you can do to mitigate the tax once you recognize it. On the deferral, we don't have a whole lot of time to discuss this, but the facilitators of these qualified opportunity zone funds, even though you are deferring some of the cap gains, when the cap gains is recognized, there are all sorts of strategies mitigated within that fund which we can riff on. On another section, probably after the law is passed, I'll fill you guys in more on how awesome this can be and how creative and resourceful the facilitators can be here. But anyways, we can see a potential step up in basis and deferrals that'll last a little longer as well. So these are just all the things that we would maybe see in the future, really making them more powerful.
Speaker 1:Your standard deduction not incredibly exciting, but they'll probably add looks like we're adding an additional $1,000 for single or $2,000 for married filing joint Right now it's at $15,000 of a standard deduction, which is just a deduction off the top if you're not itemizing, if you're not writing off your state and local taxes and mortgage insurance in mortgage insurance Salt cap. So the amount that you can deduct from your property taxes and or your state taxes is likely to or at least in the proposed legislation will increase from $10,000 to $40,000. So that'll be nice for our folks in New York and California writing off more of their state and local taxes, but this is expected to be applicable for folks earning under $500,000, with a phasing out of that opportunity. And while that's going to be favorable for those of you who pay a lot of state taxes and property taxes looking to deduct it against your federal, for those of you looking to do the pass-through entity tax election workaround and this is something we do with our clients who have S-Corps or partnerships where essentially you have your entity pay the state taxes, so you can deduct more than $10,000 against your federal. This is very, very beneficial for folks who have high incomes and also, by the way, this is something that a lot of outdated CPAs never took a chance to learn because it's state by state specific. You really got to dive into what each state says on the treatment of the state taxes. But if you're a high income earner, you really got to make sure you consider the pass-through entity tax selection if you you're a high income earner, you really got to make sure you consider the pass through entity tax election if you're really a high income earning entrepreneur. But anyways, they're likely going to put some legislation that kind of puts an end to that workaround that we've used to really write off so much more in our state taxes against federal.
Speaker 1:I'm sure you've heard no federal taxes on tips and overtime. That really sounds nice, but there's likely going to be lots of legislation stipulating on this and one of the things here is you know, I'm sure they know and we know that there's going to be all sorts of opportunities to be creative and resourceful on what you define as a tip in overtime. So this is going to likely be restricted to certain professions or positions. So they're likely going to prevent folks like me for having a tipping system for accountants and or moving my accountants into hourly pay. So there likely are going to be all sorts of restrictions that limited our ability on this, and there will be ways to circumvent those with spinoff entities and spinoff services. But anyways, there is that element of the no taxes on tips in overtime.
Speaker 1:And here's something really interesting, though, and this is something that's overlooked, because I feel like a lot of people don't really understand what FICA is. We probably should do a podcast on this soon. But no taxes on Social Security benefits. Now, this could be huge for some of you guys, because your Social Security benefits are you know. That may change the way we look at how much we're paying into our FICA and how much we want to incur here. So there's a lot of strategies around using S-Corps to reduce your FICA taxes, which is the paying into your Social Security and Medicare benefits, and while the general consensus here is we don't want to pay FICA, it's just an overpayment, it sucks, you know it's. You know it's expensive, you still got to pay your state and federal taxes.
Speaker 1:No, I want us to just think a little bit here. This FICA tax is the only tax that we're paying that comes back to us in the future. It accumulates, it grows and if you look at this the ROIs, especially for those making up to $60,000, you are paying into a future retirement benefit and if this benefit is tax-free, we may want to reconsider how low we're trying to drive our FICA. But also for some of you folks who are real estate investors who don't pay any FICA, maybe you might want to look for opportunities to now actually create active sources of income and incur that extra FICA taxes, because those FICA taxes are going to be paying into a tax-free retirement benefit in the future. Additionally, when we think about S-corporations and the threshold of profits to create them, we may actually decide against S-corps until income reaches a higher threshold, because paying into FICA may not be all that bad when we look at the long-term opportunities with this.
Speaker 1:At the same time, I get it, you don't trust the government. You'd rather have the money to yourself to put back into your businesses and your investments. I get it. But I think that for many of our clients and many of you entrepreneurs especially when we look at QBI paying yourself a salary and also paying your children let's go back into how we pay our children. A lot of people do these management companies to avoid FICA on their children. Maybe you decide, hey, actually let's pay them through our S-Corps so they pay the FICA taxes. So these kids are getting future tax-free retirement account benefits and it may actually increase your QBI deduction by an additional really 10%, without going into too much detail.
Speaker 1:In many circumstances for high income earners, when you increase the salaries coming out of your entity, you also may increase your QBI deduction, which may be an additional 20% to 23% deduction on 50% of the wages. So actually making these wages and actually paying your children out of your entity. It may be a strategy here where we're exchanging, we're actually paying more FICA taxes for our children, but we're also reducing our federal taxes. So we're exchanging our federal taxes, they go down, but we're going to pay more FICA taxes, which is a tax we get back. So the family management company which everybody preaches may actually be less beneficial when you think about the long-term tax savings and also besides the fact we all know it's a workaround. It's just something everybody's getting away with, but it's a really illegitimate company for paying our children with these family management companies. So I hope I didn't overwhelm you guys with tax minutiae there, but essentially we see a lot of people creating these sole proprietorships to avoid having their children pay FICA taxes, and so their children's income could be completely tax-free when they hire their children. We may actually decide that the FICA tax is a good thing for our children to pay and hire them out of our S-corporations instead of our sole props. Well, that was a mouthful there riffing on that topic, and I hope I didn't lose you.
Speaker 1:Let's talk about some other things here. When we look at all these things here I don't want us to I mean one of the things that just seems the most probable and reliable, because we've been talking about it nonstop and even the Democrats have shown support of this concept of returning to 100% bonus. So we can start. I wouldn't say we can bank on it because you know legislation can take a a while and there may be some changes. You know we would expect this to go through before the end of the year, but there's a possibility. It doesn't so, but there's a good chance. We will have it, as most people are projecting that 100 percent bonus and obviously that's what most people seem to care about and talk about here. Obviously, that's what most people seem to care about and talk about here.
Speaker 1:What I would also say here is you know, while the bonus depreciation is a very sexy topic buy your G-Wagon, write it off against your taxes we shouldn't be relying on just buying assets, and especially buying assets, we can't afford to win the tax game. There's so many other things we can do here and you may recall I just recorded a podcast. I believe this was episode. Yeah, this was episode 96 on the dangers or actually this will be episode 98 on the dangers of bonus depreciation. This will be episode 98 on the dangers of bonus depreciation.
Speaker 1:So, you know, even if we're in a low bracket, we want to stack this on top of our foundational tax strategies here, because you may not always need to, or maybe you shouldn't always be, buying assets for the purchase of tax savings. So we want to make sure we have other things here. There are some other things to consider along the lines of child tax credits being expanded, essentially going from $2,000 per child to $2,500 per child, and the phase-out threshold increasing for those, and there are all ways to get down to that. Phase and phase-out threshold for those, and there are all ways to get down to that phase in and phase out threshold. So, and then the corporate tax rate will change.
Speaker 1:Most of you guys listening don't have corpse. We are diving deeper into the benefits of corpse and considering spinoff corpse to manage your real estate. There's a possibility that some of the corp rate can go from 21% to 20% and in some circumstances down to 15% for domestic manufacturers. Maybe that's a way to kind of offset in reaction to the tariff. So that might be interesting for some of you guys. And those are really the key things here and I'll be staying on top of this and letting you know what else I find and what other new developments occur and what that means for you if you are our audience and, obviously, if you are our client.
Speaker 1:Now, if you find any of this important to you and you're not a client, I suggest you go to prosperalcpacom slash apply. Also, if you want to take a quick mini course and start getting acclimated to some of these ideas and how they apply and get some free case studies things we've done with our clients go to taxfundingchecklistcom. But also I also want to announce that we do have new offers where we are more accessible to the general public with tax planning and you don't have to be rich to do tax planning. Obviously, the higher your income goes, the more impactful it will be to do tax planning. But we do have what we call the Prosperal Tax Navigator where you can access these ideas in more of a group format. You can talk to me live, however. I will go live every Tuesday and I might even add an extra date if this fills up, but you can reach me live every Tuesday if you are a member of the Possible Tax Navigator and we will really help you think through these ideas.
Speaker 1:You will have a one-on-one session with this and the idea here is to make these ideas and, as you know, we've specialized in serving an elite group of folks and high income earners. If you're not quite there, you can still benefit from these ideas, so you can go to prosperalcpacom slash tax navigator to learn more about that. Also, if you apply, you'll learn about it as well. We'll, based on your answers, if that's a good fit, we'll send you those details. But we're trying to just help out as much as many people as we can, as much as we can, through our content, through our workshops and through our open calls in our services. So if any of this sounds appealing, check it out, reach out. We really want to help you out. All right, stay tuned for more tax updates on this really exciting and interesting stuff to come, and have a wonderful day.