The Big Beautiful Bill Is Now Law. How Are You Affected? (Part 1)

Evan Barnard: Welcome back to “The Investor Coaching Show.” This is Evan Barnard, joined by Jonathan Walker and James Dickson.

James Dickson: All right.

EB: In for Paul.

The Permanence of the Big Beautiful Bill

EB: Okay. The moment you’ve been waiting for: We are going to talk about the Big Beautiful Bill. I was thrilled to know that it actually got signed while Paul was on vacation, and so I got to fire the first shot across the bow.

I can anticipate that this will be a topic on the show for the next four years or so, as the IRS figures out how to implement all these rules and you get the technical advice memorandums and, “Oh, we meant it to say this,” and so forth. But let’s talk about some of the biggies.

I think the biggest thing that comes out of this bill is the air of permanence, and the reason I say the air of permanence is that even a permanent tax cut is not permanent until the next Congress changes it.

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But we at least have a fair degree of certainty that we’re sticking with the same tax brackets, the same tax rates. 

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There’s a slight tweak on the standard deduction, and I think that’s going to be indexed to inflation going forward, but I think the biggest thing really is just the certainty that helps businesses plan, that helps our clients plan. Full mean-spirited disclosure: This does mean that the people that have been saying, “You need to act now because the taxes are going up next month,” are going to have to change all of their advertising.

So we take the gifts where we find them. As Jonathan said, if I see a $20 bill lying on the street …

Jonathan Walker: Take it.

EB: … I’m going to pick it up.

JW: We’re going to pick that bad boy up.

EB: So interestingly enough, we’re going to start on some of the bigger number items, and then we’ll get into some of the minutiae that apply to individuals. There is a ton of stuff in this bill, and I would encourage you to either download a copy or download a summary.

There are some really good ones out there. The breakdown on military spending. Again, having two sons on active duty, I went through all of that.

They’re going to get a housing allowance increase in several markets. There was about 2.9 billion, I think, allocated for that.

I think as a service, percentage-wise, I think the Coast Guard was the big winner in the bill. The Navy got a new Virginia-class sub. The Air Force got several new F-15 EXs, I think they are, or something, the new latest, greatest F-15. Marine Corps got a few things I don’t even know if they asked for, but the Coast Guard really won the lottery in this bill, so that’s kind of fun.

Estate Tax Changes

EB: But from an individual taxpayer standpoint, one of the things I was happiest about was that it kept the current estate plan gifting amount or exclusion amount at, actually, it went up from 13.9 to 15 million even, and that’s now, quote-unquote, “permanent.” We were actually having conversations with clients just the last month or so. Their estate was at 5.5 million, 6 million.

And so like, “Hey, what do we need to do?” Well, let’s wait till next month to see if you need to do anything. And so now it’s good that hasn’t reverted back and all of a sudden people have to start redoing all of their estate planning documents.

So that’s to me, one of the big wins, is from an estate standpoint that you’ve got that $15 million limit per person, so $30 million for a couple. That’s going to be a relatively small group of the population percentage-wise that are ever going to have to deal with the estate tax.

JW: Sure. I can remember what it was like when I first started in the business because the limit was a million bucks, right?

EB: Six hundred thousand for me.

JD: Wow.

JW: Yeah. People were trying to figure out how they were going to shelter assets and what that was going to look like.

And so that environment has changed drastically. At this point, unless you’ve got an estate or net worth or something of that nature of over 30 million, you’re not going to have to worry too much about that, which is great.

EB: Right. You need to make sure your kids don’t blow the money. At least you don’t need any complex planning.

JW: Which is good.

EB: Yeah. Well, and the other thing is, particularly around here, but nationwide, I think it provides some safety for smaller farmers, small business owners. Those are the ones that can get up to an estate all of a sudden of 20 million, and now they don’t have to worry about carving up the business to pay the tax, and “This child can run the business, but now this person doesn’t have anything.”

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I think that’s a real win for the people that it actually does benefit. You don’t have to sell the family farm to keep the family farm.

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JW: Yeah, that’s a big deal. I mean, what I run into a lot in Gallatin is we do have these generational farms, and maybe the kids that are coming up now really don’t have any intention of —

JD: Exactly. Right?

JW: — sticking with the family farm, so to speak. They have other interests, which makes perfect sense. I mean, it happens.

Or they go off and do their thing and they come back. Had that happen too. But now they’ve got the ability to work through that in a way that, no pun intended, won’t be taxing to them to work through that process.

Over-65 Extra Deduction

EB: So yeah, so we’ll stick with the over-65 theme before we go to our next break. But the other thing, James, go ahead and talk about this extra standard deduction if you’re over 65, and even share the back and forth.

JD: Yeah, we were talking about it.

EB: Who actually gets it?

JD: Yeah, we were kind of discussing this when we first came in before the show began. And so everybody who is over 65 will get a $6,000 deduction. So that’s kind of how they are taking care of the no tax on social security.

However, you don’t actually have to, if I’m understanding it correctly, you don’t actually have to be taking Social Security in order to get the deduction. So it’s kind of a boon to all seniors above age 65, which will help, you know.

EB: Well, it’s seniors over 65, if you’re single, you don’t make more than $75,000.

JD: Correct.

EB: And if you’re married, filing jointly, you don’t make more than $150,000. So it would be nice if it was all seniors, that would be great, but the government giveth and the government taketh away.

JD: That’s correct.

EB: But that was kind of the key thing. Just frankly, the way it’s been sold to the public is “tax-free social security.” And if you fit that range of under $75,000 or under $150,000, that probably goes pretty far toward making a big portion of your Social Security tax-free.

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But if you’re not taking Social Security, if you’re under those income limits, you still get the $6,000 or the $12,000 deduction. So that’s pretty cool.

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JW: That’s pretty solid.

JD: Yeah.

EB: I forget, half my Fourth of July was cutting grass, and the other half was reading through all these various opinions on the tax code. So I appreciate Cindy putting up with me just nerding out on the couch, going through all these legal papers.

So that’s a cool one to kind of honor that tax-free Social Security promise. We will look at some of the other segments in the bill coming up after this break.

Deductions for Charitable Contributions

EB: There were some interesting things in The Big Beautiful Bill on charitable stuff. Number one, I’ll go with the easy one first, it did not touch anything on qualified charitable distributions, so that still stays at 70-and-a-half. All of those rules, none of that has changed.

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It did create a permanent $1,000 above-the-line deduction for charitable contributions if you’re an individual filer, $2,000 if you’re a joint filer. 

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So if you remember — I can’t remember if it was 2020 or 2021 — when we had that kind of squirrely $300 or $600 charitable contribution on the front page of the return during COVID, so that even if you were taking a standard deduction and you weren’t itemizing, you could take $300 or $600 of charitable contributions. That has now gone to $1,000 for individuals and $2,000 for joint filers.

So just thinking about that, of the clients that I work with that fit this fact pattern, I have a few clients that they’re not gifting $25,000 to where there’s an enormous tax difference if they do a qualified charitable distribution. And they may do significant giving to the church and Wounded Warriors or something like that, and then a couple of thousand dollars to 10 different charities, now they can maybe just write those checks out of their checking account and take that deduction still and not have to do a bunch of QCDs that are for small denominations or something like that.

So that may make it a little easier for folks. Or even if you’re not in that position to where you have IRA balances that you’re making your charitable giving out of, and you’re not 70-and-a-half, now you can take advantage of that, even if you take a standard deduction. For larger givers, and it’s an interesting thing, there’s a half percent floor on itemized deductions for charitable contributions, and I have to dig into that, but there’s a different tax rate.

So let’s just say you’re in the 37% tax bracket, which means you’re a real high earner, right? You can only deduct the tax, or you only get a deduction, for 35% of your contributions.

So it caps that deductibility at 35% even if you’re in the 37% bracket. That was probably some keep-it-revenue-neutral kind of a deal.

JW: Probably.

EB: And someone didn’t buy their congressman enough pizza or extra pepperoni or something like that to get some of those through. And then we didn’t talk on it much, so we’ll close out with this. The child tax credit has now been made permanent, and it’s $2,200 per person, up from $2,000.

Folks were thinking it was going to be dropping down or something like that, but it survived and went up to the $2,200 number per child. And I don’t think they changed any of the other rules on that. I think it’s the same ages and so forth, and I think some of that still phases out.

Ran into an interesting situation on that. Might cover that in a future thing. But it was a non-working spouse, and the husband in this case, his income was high enough that they lost their child tax credit because stay-at-home moms are basically penalized under the tax code as it relates to the child tax credit, which kind of sucks. So write your congressman or congresswoman, as the case may be.

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