EWA’s Guide to the New Tax Bill: Top 10 Changes That Matter

Speaker 1 – 00:00
Welcome to EWA’s FinLit podcast. EWA is a fee only RIA based out of Pittsburgh, Pennsylvania. We hope all listeners
of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you. And
we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your
family and also save time. Today I’m joined by Ben and Devin. We’re talking about the new. The new tax bill that was
just pretty controversial but just passed and now going to be live. So every time we have been on the podcast
though, he’s our master sports picker. So we got to ask, we’re recording this, what day is today?
Speaker 2 – 00:44
Wednesday. Right before the British Open.
Speaker 1 – 00:47
Yeah, right before the British Open. So got to get your guys picks.
Speaker 2 – 00:50
I love this. This is going to come out in like three months and you know, so.
Speaker 1 – 00:53
Wait, the last time when you picked it, right. I would just watch the one you picked. Ohio. It was like a year later we
published it. No, I’m just kidding. That was pretty soon after.
Speaker 3 – 01:00
I think you had Scotty for the US Open though.
Speaker 2 – 01:02
Yeah, I’ll say. Rory, I mean, we’re back at Royal Port Rush. This is in Northern Ireland, where he’s from. If you
remember, this was the tournament they hosted the British Open back in 2019. Rory made a quad bogey eight on his
first hole. Missed the cut. Can’t do any worse than that. So I think it’s behind him. I think he’s going to play really well
this week.
Speaker 1 – 01:22
Okay, Devin, how about you?
Speaker 3 – 01:23
I’m going to go with Scotty. I think he’s got it. I think he’s in the right frame of mind and he’s locked in.
Speaker 1 – 01:28
I’ve been speaking about locked in. I’ve been locked into a lot of stuff we have going on here. So I’m not even sure
the live like is Bryson playing in this one?
Speaker 2 – 01:33
Bryson will be playing.
Speaker 1 – 01:34
Yeah. All right, I gotta go with Bryson.
Speaker 2 – 01:36
He’s not exactly a links master. Bryson. So this is not really the.
Speaker 1 – 01:42
All right, well let’s give a quick background. So who wants to give a background of the before we get started? So just
so you know, this is a huge bill. How many pages is it? Do you guys know?
Speaker 2 – 01:53
It’s like it was like 800 something.
Speaker 1 – 01:55
Okay, so there’s a lot of stuff in there, a lot of stuff that affects corporations. We’re honing this down on the top 10 of
what we think will actually affect our clients. And our clients are physicians, retirees, executives, Corporate leaders,
you know, people generally in like the top quartile of incomes and net worth. So we narrowed down just the top 10.
This isn’t going to be more than a 20 to 30 minute podcast. So we just wanted to, instead of having this really boring
podcast, we figured we could give you like the, here’s what you need to know that will immediately affect you. So let’s
start with a quick background and then we’ll get right into the top 10.
Speaker 3 – 02:29
Yeah. So in 2017, during Trump’s first administration, they passed the first tax Trump Tax Cuts and jobs act of 2017.
This piece of legislation is essentially an extension of a lot of those actions. That is the biggest thing to know. Matt,
you mentioned earlier that it’s a big beautiful bill. There is a lot in this bill. So again we’re going to probably cover
10% of the bill. There is a lot going on. And not to kind of bury the le, but the biggest takeaway, and you guys can
disagree with me if you think so, but the biggest takeaway is that it’s really just an extension of the current tax
situation. So a lot of high income earners and high net worth folks were staring down the barrel of like a major tax
change if a lot of this stuff wasn’t extended.
Speaker 3 – 03:15
Yeah, so that’s the biggest thing to know here is that it’s mostly status quo. Most people won’t have an impact. It
won’t affect most people in a significant way, but it extends a lot of good, call them tax breaks for the foreseeable
future.
Speaker 2 – 03:29
Specifically on the ordinary income side, the top tax bracket is staying at 37%. If this did not get passed, the tax rates
were scheduled to sunset back to where they were prior to 2017. So the highest rate would have been 39.6.
Speaker 1 – 03:44
So some of the other rates would have been squeezed. Right. So I read a statistic like 60%. If this hadn’t been
passed, like 60% of taxpayers would have gotten a tax increase come January 1, 2026.
Speaker 2 – 03:54
That’s right.
Speaker 1 – 03:55
So not just like, and just doing the math, like the highest tax bracket thing starts from married, finally join like at 750.
So now instead of someone’s making a million, that extra between 750 and a million, instead of that 2 extra 250,
between 750 million being taxed at 39.6, that’s going to stay at 37. So back the napkin math, you know, whatever that
is, like six or seven thousand dollars of tax savings for that million Dollar just in federal income taxes. And there’s
other factors of that. Well just put to highly. There’s the tax rates that you are used to will be inflation adjusted, but
they’re going to stay. It’s not going to go back to where they were prior to 2017.
Speaker 2 – 04:32
That’s right.
Speaker 1 – 04:33
So okay, that’s number one. So number two is around estate planning. I’ll cover that one. So this was a big one
because we had a lot of conversations. There was the highest estate planning exemption. So everyone has a lifetime
credit and that’s 13.99 million. Let’s round that up to 14 million. That’s going to inflation adjusted to 15 million next
year and then 20 for a single and then 27.98 million to 30 million. So just double that if you’re married filing jointly in
2026. So now if you have a really high net worth and you die with $30 million or less, there’s no 40% tax. If you die.
Let’s say with 40 million, you’re married, filing jointly, 30 million in the past, your kids tax free without any planning in
place, the extra 10 million would get taxed at 40%.
Speaker 1 – 05:18
You’d have a $4 million tax bill on a federal level. You also maybe have some state inheritance tax considerations
depending on what state you live in. But this is the highest level we’ve ever seen in, you know, in recent years. This
was as low as $1 million person a couple presidencies ago. So this is not, this is set in stone. But you know,
obviously politics could change that in the future. But this is an opportunity in the next really four and a half years to
do it to get your estate planning and again avoid taxes for sure.
Speaker 2 – 05:51
And would you say, Matt, this higher exemption limits, there’s more opportunities to get more money out of your
estate and utilize a larger credit amount now that you have it.
Speaker 1 – 06:00
If you’re high net worth and have the flexibility to start, you know, shifting assets away from your plate and on the
kind of the family plate where you don’t have the control of them anymore. Absolutely. If you have just accumulated
enough for you to be secure, you know, I would be looking at setting up revocable trust and things that are flexible,
but I wouldn’t be, you know, making any all gun decisions yet. Okay. And we’ve done many topics, estate planning,
podcast video, short form videos that talk about revocable versus irrevocable and estate planning and how to avoid
taxes when you pass any money to your kids either way you’re living when you die. Let’s go to number three, which is
around the salt. So Devin, do you want to handle that one?
Speaker 3 – 06:40
Yeah, yeah. This one probably got the most media coverage over the last few months. But solid is the state and local
tax deduction. I believe in the last, currently it’s $10,000. That’s the cap that was, that’s been increased to $40,000.
So that’s big for folks in high income states or sorry, high income tax states.
Speaker 1 – 06:58
So example of that, I mean Pennsylvania is No joke, it’s 3%. If you live downtown, it’s another 3% taxes. Right? Yep.
Speaker 3 – 07:05
And if you, so if you itemize those taxes can be, they can be deducted.
Speaker 1 – 07:09
But this really, I think affects like cities with New York, California. Exactly, et cetera.
Speaker 3 – 07:16
So opposite end of the spectrum, if you’re in Texas and Florida, et cetera, not much of an impact. So again, the
exemption amount was increased from 10 to 40,000. So that’s big. However, there’s a big fat phase out at 500k of
income. So for married filing jointly, couples, if you make more than 500k to 600k is when it phases out completely.
But again there is that maximum on income if you make that amount of money. That $40,000 kind of trends
downward to eventually zero if you make 600k.
Speaker 1 – 07:51
So which isn’t that interesting though because like in New York City you kind of need to make that kind of money to
live there, but there’s no benefit. So it’s like trying to make it more attractive for some of those cities to live there as
high income. But then they took it, they took that away for the high income people. So it’s like, okay, well it’s part of
the kind of the 250 and you want to live like in a two bedroom in New York City. Good luck.
Speaker 3 – 08:11
Yeah, yeah. So it’s almost, I don’t know if this is accurate, but it’s almost two steps forward, two or three steps back
for those folks where it can actually be a net negative. If you make, let’s call it 575 as a couple, it can actually hurt
you by taking that deduction. So contact your tax professional if you have any questions on that. But again, this is
probably the section of the bill that got the most media coverage because it was negotiated so much between the
House and the Senate. It went with the 10, it went up to 50 and then back to 40. And we don’t want to, this is beyond
the scope of this podcast, but just know that the salt cap has increased the 40K. So.
Speaker 1 – 08:47
Yeah, absolutely.
Speaker 2 – 08:49
And if you’re not itemizing your deductions, you’re taking what’s called the standard deduction.
Speaker 1 – 08:52
Bring this right to number four.
Speaker 2 – 08:54
That’s kind of flawless.
Speaker 1 – 08:55
I don’t know, this was an easy one. I thought maybe I could have taken it. But no, go ahead, feel free.
Speaker 2 – 09:00
The standard deduction has been 30,000 for 2025. With the changing in this bill, if you’re married filing jointly, it’s
now 31,500. So it’s an extra 1500. If you’re in the 37% bracket, that’s an extra couple hundred dollars to be saving
from that. They’ve also increased for single filers and those head of household as well. These are indexed for
inflation, so they’re, you know, going to be going up every year. From a senior citizen standpoint, each taxpayer 65 or
older is able to get up to an additional 6,000 deduction. There’s a phase out by 6% of your modified adjusted gross
income above 150 if you’re married filing jointly and above 75,000. Otherwise, that’s on top of the regular standard
deduction and the additional standard deduction for seniors, which you have.
Speaker 2 – 09:46
There’s a, you know, if you’re over 65, you can already kind of get that additional standard deduction. So pretty
simple. But that is a welcome change for a lot of people because I would say most people are using the standard
deduction. So people will feel that impact.
Speaker 1 – 10:02
Yeah, the only people are not using standard business owners or people are doing extreme charitable contributions.
I mean, it’s tough. Most of the population is now using the standard deduction. So it’s simplified, I think some of the
tax returns from that perspective. Okay, Devin, what’s next?
Speaker 3 – 10:20
Yeah, so number five is if you. So as Ben alluded to, you can either choose to itemize your deductions or take the
standard deduction. Another change is if you are making charitable contributions and you take the standard
deduction, you can deduct an additional $2,000 of philanthropic or tradable contributions. So that is big for a lot of
our clients. So it’s a. It’s an extra $2,000 to your deduction for that.
Speaker 1 – 10:44
Absolutely. And let’s hit number six to Devon to the itemized deduction. Haircut.
Speaker 3 – 10:51
Yeah, so for. So, okay, so right now there is a. For example, for medical expenses, in order to itemize medical cost,
they have to be above, I think it’s 7.5% of your AGI right now. So similar to that to take deductions on charitable
contributions, so they have to be above half a percent of your AGI. So for example, let’s say you make 100k as a
couple and you donate $2,000. That first $500 would not be deductible. So anything above half a percent of your AGI
is deductible. That’s a, that’s a big change.
Speaker 1 – 11:24
Absolutely. Okay. Number seven is the Trump account, which is really weird to me. Like, I thought, why would these
be named Trump accounts? I thought he was like a humble, you know what I mean? Like a humble leader guy.
Speaker 2 – 11:37
So get into these because there’s.
Speaker 1 – 11:40
Pros and cons to the Trump account. I think they should be named the Elon account. No, I’m just kidding. All right, so
anyways, new savings account for children born in 2025 through 2028. All children are U.S. citizens. Each child gets
1,000 from the federal government at birth and it’s going to track a major U.S. stock index. You think we can
convince Trump that like EWA can manage these? Probably not. Parents would then be able to contribute up to
5,000 a year. And the balance we invested a diversified fund that tracks the US Stock index. First contribution be
allowed one year after enactment of the law. Contributions only allowed until 18 years old. No deduction allowed for
the contribution of the account. Employers could contribute 2,500 to the employee’s account. It wouldn’t be counted
as income to the recipient. Okay.
Speaker 1 – 12:25
Earnings growth, tax deferred and qualified withdrawals are generally taxed as ordinary income. Is that just on the
basis or I mean, just on the growth?
Speaker 2 – 12:33
Correct.
Speaker 1 – 12:34
So it’s kind of like annuity. Yeah. Basis comes out tax free. Earnings are. Yeah. This is kind of dumb in my opinion.
Speaker 2 – 12:42
Yeah, I, I, I, you know, we’re, we’re trying to keep it, keep between the mayo and the mustard, keep it factual here, but I,
there’s.
Speaker 1 – 12:50
Sometimes I like to, I wouldn’t see a lot of. Was that sometimes I like to give my opinion. You have strong opinions
about Roy McElroy winning? I just have opinion on this. Yeah.
Speaker 2 – 12:58
I, I just think if you got a few buc for your kid, it’s going to a 529 before it’s going to a Trump account. That’s, that’s
neither here nor there.
Speaker 1 – 13:06
Can you name your 529A TRUMP account, though?
Speaker 2 – 13:09
I don’t think so.
Speaker 1 – 13:10
Some branding differences maybe There. But no, I mean the real question is, is this better than a. I would. Than a
direct index account? Because like the reality is you put 100 grand in here a basis and it grows to 5,000 times 18,
probably be index for inflation. So okay, 91 grand, 1,000 upfront and then the 90 grand you can put in that grows to
$1 million. Let’s say the kid 65, 91,000 tax free. The other 909,000 is growth at tax income rates.
Speaker 2 – 13:41
Right.
Speaker 1 – 13:42
Why wouldn’t we put that 91,000 in the stock account and that 99 is taxed at capital gain rates which are probably
half the rate of income rates. Absolute stupid. Yeah, this. I mean free money is free money, right?
Speaker 2 – 13:55
This is almost like a bond. Like a bond.
Speaker 1 – 13:58
Why would you put your own money on this? No, it’s done. I’m with you. Yeah. All right, number eight, QSBs. Ben
Devin, who wants to handle this?
Speaker 3 – 14:05
I got it. So QSBS is qualified small business stock. It allows C Corp owners to deduct gains on stock in their
company. So this is great for small business owners, startup founders, et cetera. So currently you have stock in a
business, you sell it up to, I believe it’s $10 million of gains can be tax deductible. Assuming that you had stock in the
business for at least five. These are changing so that $10 million has increased to 15. So those are $15 million in
gains. It can be completely tax deductible. But instead of kind of like it’s a cliff at five years there are kind of tiers in
the holding period. So at three years you can deduct or exclude 50% of the gains. At four years you can deduct 75%.
And at five years again it’s the same kind of 100%.
Speaker 3 – 14:53
So it’s kind of graded instead of having that cliff. Some other kind of nuances. Again, the first S is small business. So
the limit used to be 50 million DOL in assets. That’s been bumped up a bit to 75. So it’s kind of, you know, small to
medium sized C Corps. And again it has to be a C Corp.
Speaker 1 – 15:12
So there’s certain industries. I know like our industry is excluded. But certain industries are excluded. Yes. Like tech,
stuff like that.
Speaker 3 – 15:21
Yeah. I believe physicians are also excluded. Is that right?
Speaker 1 – 15:24
I research for client H Vac company would qualify. Okay. A certain kind of services, but yeah, I believe physicians,
financial advisors, some other professional services are excluded from this. So yeah.
Speaker 3 – 15:37
So in sum again kind of from the beginning is that isn’t. It’s an extension of the current tax code essentially with
additional benefits. So if you’re kind of just, you know, if you’re deciding whether or not to file as S Corp versus C
Corp, whether or not to start a company, this is highly, highly relevant to you.
Speaker 1 – 15:54
Absolutely. Okay, let’s talk about the expansion of Section 179. So Ben, you want to handle this one?
Speaker 2 – 16:00
Yeah. So this is a 179 is a deduction that allows businesses to ded the full purchase price of any qualifying
equipment or software that you purchase or finance during the tax year. And this is specifically in regards to the
bonus amount. So you’re now able to deduct that full purchase price in one year. Instead of depreciating the cost
over multiple years. That bonus amount over the past few years has gone down. Previously it was 100% that you can
deduct. It’s gone down to 80, 60, so on and so forth. This now just reverts it back to 100% which it was a few years
ago. So you can deduct that full bonus depreciation in the amount of 100%.
Speaker 1 – 16:38
That’s now two and a half million, up from one million. Correct.
Speaker 2 – 16:41
So the limits of the limits have increased. So the phase out begins at about four million of property. That’s up from
two and a half million. And like you said Matt, it’s now two and a half millions eligible. That’s up from one million.
Speaker 1 – 16:52
So that’s a pretty big, it’s qualifying quote because we talk about section 179 with the 6,000 pound vehicle. Not that’s
staying down. I think it’s just like, it’s a limited amount. I believe it’s like 30 grand or something you can do and you
can deduct the rest of it over the, you know, next five years or whatever. But this is qualifying equipment. There’s still
some cars like I think it’s 14, 000 pound trucks or whatever. Yeah. And other bigger equipment. Like if you’re pollen
like on a semi truck or something, that would be fully deductible. But this is like for big, more medium sized big, not
like a single run. So like, you know what I mean, a single person business that’s gonna go buy like a asset.
Speaker 3 – 17:30
Asset heavy businesses as well. Not typically. Not professional services.
Speaker 1 – 17:32
Yeah, exactly. Okay. And then last one, the 21 corporate tax rate is now permanent. So this does make C Corps more
attractive because Even though the Dubo taxation, you have that, plus the QSBs. And then at the highest tax bracket,
C Corps, they’re getting closer to the S Corp tax rate. They’re still, if you’re not going to ever sell your business, you’d
better off staying in an S Corp, even at the highest tax bracket. But if you’re like, I’m going to sell, I’m going to do a
qsbs, there is going to be some massive savings assuming you qualify for that qsbs, if you convert to a C Corp. But
that’s an individual analysis you have to do as well.
Speaker 3 – 18:02
Yeah, we’re talking millions of dollars in potential tax savings here. So it’s, yeah, it’s big and it’s nuanced. So if you
have any questions, you know.
Speaker 1 – 18:09
Yeah, and you can do. The thing about the qsbs is that’s per individual. So like if you had like a $40 million business,
like or $60 million, you could do like put some shares in your name, put some shares in your wife’s name, put some
shares in a trust for your wife, some shares of trust for Kit. Like you could get all of it excluded inside of your family
if you have a, if you’re married and kids. So there’s strategies around to get it all tax free, which could be 10, 15, $20
million of taxes safe. Maybe you give up a million of income tax along the way, but you’re saying you’re saving 20 or
30 in the back end and taxes on the exit. So definitely a strategy to be heavily considered. So that’s it on the number
10.
Speaker 1 – 18:48
So I, I know you guys wrote this. Devin, not to throw you wrote this outline that Trump was one of the 10 that we
chose. Trump, that $1,000 account, I just have to question if that one should have been in there or not. So is there
anything, if were to go back and record this over which we’re not, what would you have chose to replace the Trump
account with?
Speaker 3 – 19:07
Look, that was, that was number seven for a reason. It was, it was scraping the bottom of the barrel at that point.
Speaker 2 – 19:12
Keep in mind, we really took a focus point on just the financial aspects of this. There’s a lot of health care aspects,
student loan aspects that we’re going to be getting into and other resources. We just really wanted to focus on some
of the highlights.
Speaker 1 – 19:25
On the financial side, is there any like runner up that maybe could have been the top 10 that you guys can think of, or.
Speaker 3 – 19:35
Child tax care credit, but I don’t think that’s worthwhile.
Speaker 1 – 19:38
Well, you can’t say it without giving a little background to it. So what does a child, what changed with the child? Tax
your credit.
Speaker 3 – 19:44
So if you have kids, you get a $2,000 deduction. Sorry, credit on your taxes that is increased to 2,200. So if you got
five kids, that’s another thousand bucks in your pocket.
Speaker 2 – 19:55
Yeah. Still phased out at 400,000 for married filing jointly, but.
Speaker 3 – 20:00
Absolutely, exactly.
Speaker 1 – 20:01
And some of this tax code is just crazy because how are you going to afford like four or five kids with the low. And
it’s like a lot of it is, it’s politicized, it’s performance. Yeah.
Speaker 2 – 20:11
Like, I mean there’s, you know, one of the big sell, you know, talking points is like no tax on tips. No tax on tips. Like
that is a part of this. But it’s only up to a certain amount. It’s only a certain above the line deduction. Like there’s, if
you read the fine print, it’s not as simple as no tax.
Speaker 1 – 20:29
What about Social Security? Yeah, that’s so big one.
Speaker 3 – 20:32
Like what Ben was saying. So during Trump’s campaign he talked about what, no tax on tips, no tax on overtime and
then no tax on Social Security. Right. That’s kind of why this bill exists. And they’re in the bill, but they’re.
Speaker 1 – 20:43
Not as it’s not going to someone with high income.
Speaker 3 – 20:47
Exactly, exactly.
Speaker 1 – 20:48
Gotcha. So thereby it’s not going to affect our clients materially.
Speaker 3 – 20:52
It will, I think in my opinion. Again, there’s a lot still coming out, but if you’re ultra high net worth, it will have an
impact. If you’re on the lower end of the spectrum, it will have an impact. For the middle 80%, it will have some
impact. So not, it’s not as drastic as you would think. And again, it’s more of an extension of what’s currently in place.
So it’s, you know, it’s like, should.
Speaker 1 – 21:14
We start accepting tips? Like if we do a really good job, clients want to tip us.
Speaker 3 – 21:17
We could, yeah, let’s get some tax free income, flip the thing around. And 22.
Speaker 2 – 21:22
How would those get divvied up amongst the.
Speaker 1 – 21:24
Should we split them?
Speaker 2 – 21:26
That’d be a hilarious discussion.
Speaker 1 – 21:28
We’re not asking for tips, but maybe we should tax free now. Yeah. All right, well, thanks for joining us everybody. We
will have a follow up podcast on the student loans. I know there are some significant changes on the student loan
and we’ll address the retired ones with the Social Security as well.
Speaker 2 – 21:45
Yeah, we also have a blog coming out, so a written resource to help kind of reference some of this as well.
Speaker 1 – 21:51
Thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful
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