Ep. 18 | Navigating Post-Election Tax Strategies
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John Tripolsky:Hey, everybody, and welcome back to the mister r show brought to you by the MRR Institute. So if it's your first time here, as we like to mention in this show, congratulations. You found us here. You found a great spot for information directly tailored for you, the tax professionals. So, of course, I believe I mentioned this last episode a couple of times, if not more than I probably should have.
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John Tripolsky:I think we're planned out for already, so we got some good ones there. But for today, we're gonna look at something a little bit different than you may have expected, but we're gonna dive into some post election tax planning here on the show. So looking at it for different tax brackets. But, again, this content is directly built, basically tailored for you, the tax professionals. So I promise you, you do not wanna hear me give you that information, so I brought somebody better looking and smarter to the table.
John Tripolsky:Chris Pacquero, how's it going, my man? How are you doing?
Chris Piciurro:I'm wonderful. Happy New Year. We're in the 2025, and excited to talk about the post election tax planning opportunities. None of us have a crystal ball, though we have a good friend named crystal ball, believe it or not. Another that's another another podcast.
Chris Piciurro:Different different completely different podcast, the teaching tax flow podcast. But, however, you know, we had this time as tax professionals that were we've got, tax April 15th is a big deadline for many of us. Then you've got tax extension season where you've got those s corps and partnership returns due on September 15th, and then we've got the personal returns and the c corp extended returns and the estates due October 15th, then we all take a breath. We realize, holy moly, we've got the election, the very beginning in November, the election results. It's all this anticipation, and now we know what happened.
Chris Piciurro:We're thinking, okay. But guess what? We're already at year end, Q4, and then we have Thanksgiving, and then we have a holiday season. And next thing you know, it's New Year's. And now it's like, okay.
Chris Piciurro:Let's start thinking about planning for our clients. What do the results of the elections mean to us as tax and accounting professionals? How do we pivot forward? How do we be a resource and a a shepherd for our clients to navigate things? And we'll we'll see what happens.
Chris Piciurro:Right? We we all are I bet if you're listening to this podcast, first of all, congratulations. You're on Santa's good list for 2025 already if you're listening to this podcast. If you didn't get everything from Santa you wanted, you're gonna you're gonna get it next year.
John Tripolsky:But, Chris, here here's a question for you. So, you know, I on the TTF podcast, if anybody listens to that that we do through teaching tax law, I'm sure you'd you'd get a kick out of some of the comments I pull out of thin air and throw them at Chris. But, you know, buddy, now now that you're you're about to turn, you know, a a a milestone
Chris Piciurro:into Yeah. 50. That's where I just thought I'd
John Tripolsky:be. You're gonna be a half a century year old. But even more impressive than that, you've been in this industry for a quarter century. So and why I bring that up is, have you seen it? And, you know, on the topic of of election and and taxes, you know, without getting into too much as we get.
John Tripolsky:But you dealing with clients, tons of clients over the years, different types, ages, everything. Do you guy do you in the in the tax world really sees it as sees it? Wow. Now I'm making upwards. See it as a little bit of a recurring chaotic moment when there is an election as far as for clients.
John Tripolsky:Do you basically, do you see some go in a a freak out mode and just start asking a lot of random questions? Or or how does that look for a tax pro?
Chris Piciurro:Well, we don't really I'm I'm thinking through you know, because I was I was thinking not only in my own practice. I've been very blessed to be a instructor for the National Association of Tax Professionals where and and as far as doing some live webinars and presentations, but also our to the tax season update courses. So these are 16 hours of live CPE in person. And this year was my second or 24 was my second full year doing this, and I was able to do it in 5 different cities. And the point of this is that I had some of my before the election, I don't think it was a big deal because I had let's see.
Chris Piciurro:I had I had 3 no. I had 1 week before the election and then 2 weeks after. After the election, there was a lot there's kinda more consensus of what we think is gonna happen, but what the reason I'm bringing it up is that I get I I was able to work with and teach 100 of tax professionals between October December. And I love learning from them, and I love learning what their clients are asking in in what they're what they're thinking about. And it's so interesting, man.
Chris Piciurro:I because I you know, we look at things like the corporate transparency act that's yoyoed around now for for quite a bit. And what so I think that clients that are looking for tax preparation services only, and I speak speak for myself, but morally because mostly for as an as an industry. And I feel like I have a decent pulse of the industry because of being involved with not only just the NATP, but other state or CPA organizations or what have you. I would say the the taxpayers that are really focused on tax preparation aren't too concerned about the election results. They feel like it they're in in general, a little bit reactive with things, and they just, you know, whatever it is it is, I'm gonna turn in my documents, you know, and and if I don't like my result, now I have someone to blame.
Chris Piciurro:Right? Where
John Tripolsky:So they feel pretty comfortable going into it. Unlike unlike somebody that, you know, comparing it to the stock market, right, where everybody's so reactionary shooting from the hip.
Chris Piciurro:Yeah. Well and and with so the clients or taxpayers that are involved in tax planning and strategies, I'm a little biased in our practice because my role is tax planning and strategy. So but when I take a step back and look at the industry in general so my our personal or our private CPA firm tax or private CPA firm clients are extremely interested in the election because part of what we do is planning a strategy. It's part of our firm membership. And so we get a lot more questions about that.
Chris Piciurro:Yet as an industry, I would say, you know, there there are people concerned with it, but are they gonna take action? And that's what this is about. This episode is about what happened with the election, what what what are the rules, what are we looking at right now, what do we think is gonna happen? Now you might say, how do I know what's gonna remember I said we don't have a crystal ball. Well, we have resources out there.
Chris Piciurro:You know, I've mentioned this many times, tax actually, in our in our other podcast, the teaching tax law podcast, we had a whole episode on on vice president Harris's tax plan and former president, now president-elect Trump's tax plan. So we have an idea of what they're running on. And now will that get passed? Well, based on the fact that the the Republican party has a majority, in both chambers of congress and in the White House, there's a higher likelihood that some of the stuff might get passed. So if we think this is gonna get passed, then, okay, how do we prepare our clients for that?
Chris Piciurro:But I've always had the attitude that I do I do tax planning for for taxpayers based on what I know now, not what I think might happen. Like, bonus depreciation. There's a decent chance that it gets up to back up to a 100%. It's 40% right now in 2025. I'm not gonna create a tax plan for a client and run numbers on cost segregation studies based on a a 100% bonus depreciation.
Chris Piciurro:Or if calculate, hey. I've got a client that's looking to purchase equipment or a new vehicle. I'm basing it on 40% bonus depreciation with the understanding that if it goes to a 100%, that would that that could be beneficial. And then if it does go to a 100%, what are the things that we can do to take advantage of that?
John Tripolsky:Awesome. And it's I wanna say it was, like, episode 8 or 9 that we did on this show was subscribing to a better firm, and and you had mentioned a little bit earlier too about, you know, the membership that you guys offer your clients through your practice. It's not, you know, an an annual transaction. It's it's really that partnership that you guys have built and seen a lot of success through. And I would say and thank you again for for answering that question about just people's feelings, you know, the seasonality side of it every 4 years.
John Tripolsky:Because I I a couple months ago, I had a conversation with a younger gentleman who just got a CPA license, works for a very large firm. And I think he was he was asking me because, you know, he's a friend of a friend and then knows what we do, you know, what it's like on the private practice side. I think he was just interested in it. And you can tell he was a little weary about that. Like, oh, then I gotta, you know, deal a little bit more with personalities instead of just, you know, transactions.
John Tripolsky:But, you know, I think that the you know, not to talk too much on that membership side of y'all's practice and offerings, but I think that really, you know, you've probably seen you could say yes or no, but you've probably seen that as a huge, huge change just in the dynamic of the relationships you guys have where they look and trust you guys more and they don't have to freak out about, you know, oh, well, what's gonna happen? Or, oh my gosh. Do I need to do something? You guys are their their advocate, if you will, and their, you know, confidant.
Chris Piciurro:Exactly. So on the private CPA firm, we we are for the last about 12 years, we've been exclusively membership based subscription model. Interestingly enough, we are opening up a tax preparation only service again. So on on a personal level, that's not the division that I work in. So I'm I'm in the tax plan.
Chris Piciurro:I'm on the team of tax planning and strategy. So if now someone that has been traditionally a tax preparation or tax compliance only could come over, to tax planning and strategy. So for me, I'm always looking at these these rules and laws. And and I I I don't know if I had to put a put a percentage on it. I've had about 25 to percent to a third of taxpayers are gonna actively change something they're doing based on the election results and future tax law changes.
Chris Piciurro:2 thirds to 75% of the people aren't really gonna change anything that they're doing. They're they might be interested or aware of the rules, but are they gonna really change their behavior? Are they gonna do anything different? Are they gonna go sell their house or move to a new state or or change their retirement contributions, change their entity structure? Are they gonna do anything based on this?
Chris Piciurro:Probably not. It's just in my world, almost all the people I'm working with are open to changing. Or you say, look. We've got we set this up under the tax cuts and jobs act, your entity structure, and we feel like if that gets extended, we feel that this is a good structure. So sometimes no decision is a decision.
Chris Piciurro:I mean, I my I see a lot of taxpayers have FOMO, you know, fair of missing out, and think, like, what am I missing? Oh my gosh. Am I, you know, some isn't it a good feeling if your CPA or tax professional or enrolled agent tells you, you know what? You have structured really well right now. You know, it's just not it's not sexy to tell someone that.
Chris Piciurro:It's not we wanna you wanna say, well, oh, you could do better. Sometimes you're really you're really in in it's kinda like someone that's in really good shape, like, hey. You're in really good shape. You don't have you know, your body mass index is great. Your heart rate is great.
Chris Piciurro:Just keep on doing what you're doing. That so if that's the best news you could ask for, but it doesn't get you excited. Right? It doesn't, like, oh, man. I can oh, I've been trying to lose these last £10, and guess what?
Chris Piciurro:Now someone has a magic pill I can take, and and I'm gonna lose them.
John Tripolsky:So Right. Or somebody says, hey. You're doing great with something, but in your mind, you're your own worst enemy where you see the what you're not, and they see where you are. But and let so let let's jump into this looking at you know, here we are in 2025. So it it is a new year.
John Tripolsky:We have our, you know, our our our recently reelected president coming back into office here very, very soon. Was it matter a couple days, actually? So what what does this look like? And, again, the best the best we can look at this. Right?
John Tripolsky:Like, we don't have that crystal ball. We're basically going off of all the information that's out there. I know we have some great resources and partners that we lean on to really stay ahead of the curve with some stuff. But, you know, looking at this, again, based on what's out there, what might we be looking at maybe sooner than later with some of the stuff? And and again, there's a process to getting anything passed.
John Tripolsky:Right? It's not like whether or not I'm gonna turn left or right at a traffic light. It's not sold out to that individual. Obviously, given given the way of our government setup and structure, there there's checks and balances. So where where's the best place to start with this in your mind?
Chris Piciurro:Right. So first of all, looking at the results, like I said, the Republican party with Donald Trump winning the the the White House has the has the has the presidency. And it also has the majority in both the both chambers of congress, so in the house and in the senate, which when you which that makes potential changes. Like, had had the the the democratic party had the still kept, you know, kept the house and the republican party and the other 2, then you'd see some gridlock and you probably wouldn't see some major changes. So knowing that the Republican party now for at least the next 2 years will have a majority in both chambers of congress, that makes me think, okay.
Chris Piciurro:Let me look at what now president-elect Trump's proposals were and how that might impact things. So we're gonna start off with the big the big one, tax cuts and jobs act. Right? The tax cuts and jobs act of 2017 was a huge reform. Remember, it reduced your individual tax rates.
Chris Piciurro:It increased the standard deduction. It created the qualified business income deduction. And these are set to expire, you know, after this year with tax brackets reverting to the pretax, trust, and jobs act levels. Now this happened in 2018. So in 2017, when we looked at those 2017 tax rates versus 2018.
Chris Piciurro:So if you if I had from we're look and our software actually calculated this. Well, if we're looking at a client with a certain amount of income in 2017, that same amount of income for 95% of taxpayers, maybe even 98%, was taxed lower. You know, there was less tax levied on the same amount income in under the tax cuts and jobs act than pretax cuts and jobs act for at least 95% of the tax returns that I've seen. Everyone's different. And so, ultimately, the lower rates, where even though they're set to expire, it seems like that might get extended.
Chris Piciurro:Okay? So that or potentially made permanent. So we've gotta keep an eye on the tax cuts and jobs act expiring, and is that going to expire with with and and we revert back to the higher tax rates, or is it gonna get extended or made permanent? So taxpayers should really look at their long term financial plans. When we're looking at lower tax rates, right, or lower tax rates say, hey.
Chris Piciurro:We should consider maybe Roth IRA conversions, harvesting capital gains. In other words, when you're in that lower marginal tax rate than than you might be in the future, that's the year you might wanna recognize a little more income. So if the tax cuts and jobs act does expire, which I don't expect it to well, I mean, it's gonna expire, but I don't if it doesn't get either made permanent or extended, then you've gotta consider consider that. Because what we thought was we thought we're gonna be dealing with much higher tax rates in 26 27. So that's something to consider to keep in your eye on the tax cuts and jobs act.
Chris Piciurro:The tax cuts and jobs act reduced the corporate tax rate. So we're talking about c corporations. We don't have as many c corps as we used to, but but there's still plenty still are plenty of them. But the corporate tax rate was was reduced from 35% to 21% under the tax cuts and jobs act. Now president Trump was, I believe he was his tax plan called for that rate to go down to 15%, and I believe vice president Harris was looking to increase it to 28%.
Chris Piciurro:So do we see lower rate for corporate tech for on the corporate taxes? Well, that's your c corporations. And like I said, the Trump administration, according to and we are getting we are sourcing this based on a variety of sources, but our main source is going to be the tax foundation.org, a bipartisan, nonprofit entity. So well, I'm sorry.
John Tripolsky:And honestly, Chris, I love going on there and just seeing what articles that they do put out too. For any tax pro that's out there, it's you know, their website and, yes, this is a it is a non paid promoted push for these guys. The information that they give out, like I mentioned, it's it's great. It's as you mentioned, it's it's nonpartisan, obviously, but it's also very relevant to the topics that are out there. So you don't have to
Chris Piciurro:search really hard. So Right. And and remember, I mean, the Republican party does have a majority in both chambers of congress, but they're narrow majorities. So this isn't going to be there's still some some negotiation that has to occur. So we look at the corporate tax rates.
Chris Piciurro:If if we see corporate tax rates go down to 15% for then then you might you might see more profits retained in corporations or and and dividends paid out to to shareholders. We don't know what's gonna happen. For our clients, if we have a client that's a c corporation and I see the corporate to that rate go down to from 21% down to 15%, then it might make sense to potentially retain more income in that corp and pay the corporate tax as opposed to shifting that income out of the corporation and not paying the 21% tax. So and when we say talk about these strategies, obviously, there has to be legal and ethically, tax planning done. You can't just pay random management fees to however you want without some type of substantiation.
Chris Piciurro:But let's take a look at those corporate tax rates. And, again, if corporate tax rates get decreased, then you might see more c corps or more in more income retained within the corporation.
John Tripolsky:And you mentioned too there's less c corps, and this is just out of personal inquiry. Is there a reason why there's more c corps now versus in the past? Is it really just the complexity of them or the just the they're not as necessary these days?
Chris Piciurro:Right. So there's a lot less now than before for a couple reasons. The fur the biggest reason is c corporations are are subject to double taxation, it's called. So let's say a c corporation has a profit of a $100,000. Remember that rate used to be in the thirties.
Chris Piciurro:The corporation's gonna pay tax on a $100,000. And let's say it's a you know, right now, it's a 21% tax. So the c corporation is gonna pay $21,000 of tax under $100,000 of of net income. Then the c corp might pay dividends to its shareholders. Right?
Chris Piciurro:Those dividends are taxable to the shareholder, either at their marginal tax rate or if it's if they've owned the stock for more than a year, that's called a qualified dividend and they're taxed like long term capital gains. However, when the corporation pays a dividend, that dividend is not a deduction. That's why we're call they're the corporation's paying the dividend with after tax dollars. So the higher the margin higher the corporate tax rate, the less of cash available to pay dividends to the shareholders. And that's why the other reason we have less c corporations is because they've since c corporations have been around for much longer period of time, we now over the last, let's say, 25 years, we have more s corporations.
Chris Piciurro:S corporations were around 30 years ago. I believe it was, like, I'd have to look at when they when they came into play, but it's been at least, you know, let's say, 20, 25 years. But so now you have an s corp, which is kind of a hybrid between an LLC and a c corp. So you didn't have and LLCs weren't around when c corps were started. So the only way you can get asset protection when you back in the day, quote unquote, is being a c corp.
Chris Piciurro:That's why. So a lot of the now there are significant implications from changing to a c to an s corp as we know as tax professionals. And there's something called the big tax, BIG, built in gains tax. So if you have a c corp that deliques to be taxed as an s, there are significant tax ramifications based on the retained earning in the c corp and certain assets. So, like, receivables and inventory and that sort of stuff.
Chris Piciurro:So that's why c corps were more popular, but it's kinda harder to shift out of a c corp than than you you can't just simply elect that status and think it's it's gonna be easy, if that makes sense, without implications.
John Tripolsky:That's perfect. I didn't I didn't know that. I kind of assumed that it was just the structure offering had changed, but, yeah, that's a little history lesson.
Chris Piciurro:There you go.
John Tripolsky:You're getting very old you're not getting older, sir. You're getting wiser.
Chris Piciurro:See this? Probably both, Johnny t. Probably both. So, John, I don't know if you do you put salt on your pizza?
John Tripolsky:Believe it or not, my wife doesn't know how she married me because I do not like salt or sugar on anything, and she she has a sweet tooth. So
Chris Piciurro:I don't like salt on the you're putting it on the pizza. Now some people do. I I don't mind sprinkling a little salt on a yeah. Well, I like my soft you know, I've got a thing with my wife too. I love soft pretzels.
Chris Piciurro:They're one of my weaknesses. And I like I don't understand how people could eat a soft pretzel without it salted. I don't mind dipping the salted soft pretzel and mustard, but my wife loves to dip to basically dip their soft pretzel in, like, nacho cheese. And my thought is Okay. If a good soft pretzel doesn't need to be dipped in anything.
Chris Piciurro:Right? Why why I mean, it's good enough. The best steaks?
John Tripolsky:It's like going to a really expensive steak house and asking for steak sauce. They look at you a little crooked eyed. Right?
Chris Piciurro:If they don't
John Tripolsky:I'll have to tell your wife, and she'll probably appreciate this one, and you'll probably try to punch me in the jugular. I get a soft pretzel, and I wipe all the salt off of it.
Chris Piciurro:So Then why'd you get a soft bite? Persimito without the salt?
John Tripolsky:Sometimes they forget or it takes longer to make it. But
Chris Piciurro:Well, I know. Anyway.
John Tripolsky:The world the world is made of different people.
Chris Piciurro:Yeah. We need different strokes for different folks. But the salt tap so the salt deduction cap is set to expire. What's salt mean? Now it's not the stuff that John, for some ungodly reason, takes off a soft pretzel.
Chris Piciurro:It stands for if you're listening to this, you know it's state and local income tax. So with the tax cuts and jobs act, we saw a lot more taxpayers take the standard deduction in part because the standard deduction was much higher, but in other part because you can only deduct up to $10,000 of state and local income tax. So someone that's in those higher tax states, like New York, New Jersey, California, where you're paying a high Illinois state income tax or property taxes, you can only deduct up to $10,000 of that no matter how much. So that's that's interesting. Now president-elect Trump has signaled an openness to revisiting the cap, but that cap, you know, if that cap that cap was set to go away with the ex when tax cuts and jobs act goes away.
Chris Piciurro:So that's what you have to consider. If if you're you've got to really look at the SALT cap deduction. Right? There's we we if you there are some clients that we do we worked with for on the PTET, so pass through entity tax elections. So let's say you own a business and you and you pay a state income tax based on the profit of the business and it's a c core or s corp or multimember LLC taxed as a partnership or a partnership, we know that we could potentially elect to have the entity pay the tax and get a full deduction for it.
Chris Piciurro:But keep an eye on the SALT tax deduction cap. If the SALT cap is lifted, itemized deductions could be more advantageous, and we might see you know, then you're looking at potentially deducting all of your real estate taxes and state income taxes and potentially more people itemizing. So let so keep your eye on that SALT tax deduction. Another thing to consider, a state and gift tax exemption levels. Right?
Chris Piciurro:The the tax cuts and job act, easy for me to say, tax cuts and job act temporarily raised the federal state and gift tax exemption, to $11,700,000 when it came out, and that's been index for inflation. So now it's about $13,000,000 per person. Well, without without the a linear legislative action, the amount's gonna revert to about $5,000,000 per individual after 2025. The, you know, the Trump administration has indicated that they want to keep or extend or make permanent these higher exemption levels, but that's a huge difference between 13,000,000,05,000,000 of a state tax or for the state tax exemption. You know, a lot of pea $5,000,000 of of assets is a lot of money.
Chris Piciurro:However, for certain people in, let's say, higher in higher cost of living areas, when you look at the value of your primary residence, life insurance, your retirement accounts, any type of assets, including vehicles, artwork, all that, that's part of your gross estate. So if that gross estate, again, estate tax exemption goes from 13,000,000 to 5,000,000, we're gonna have a lot more people doing planning. And so right now, you're gonna really, really look at that DSU e, that deceased spousal unused exemption. If you do have a a a client that one of the spouses passed away, you really look at that to lock that that higher exemption amount in. We're gonna have to keep our eye on this estate and gift tax exemption.
Chris Piciurro:Because if this gets goes down to, like, the about $5,000,000 per individual from 13,000,000, there's gonna be a slew of people that could be potentially part of this. And another thing, John, to consider is your the value of your business is is part of this. Right? So you've got a you might have peep when people think about estate tax, a lot of people think that, well, I don't have $5,000,000 of cash in the bank. I understand that.
Chris Piciurro:It's a total asset. So you could very well have someone that owns a property. Maybe they've lived in for, you know, 40 years. Right? Maybe they live in Northern California or or Napa Valley that they have a modest home, but yet it's very valuable.
Chris Piciurro:It's worth 3, $4,000,000. That's not an unusual or that's not maybe they have a $1,000,000 in their retirement account, and they have a life insurance policy for a $1,000,000. And they've got and let's say they own a small business that has equipment or they have a some something business that has a is is has some type of value. So a state
John Tripolsky:tax that with the businesses too. So so just to make sure that I'm hearing that correct. Right? Because I'm sure we're I'm sure you guys are seeing it, you know, a little little bit more often than not. But then also, I mean, I would say this is just a guess, you know, in the in the future, you know, decades to come.
John Tripolsky:People are starting so many more businesses now, it seems. You know, there's a there's a lot of small business owners that own multiple businesses, and they still have a a full time job. You know, they're getting a a w two. So there's a lot of that kind of in the mix. Right?
John Tripolsky:Where so, again, to make sure that I'm hearing this right. So, basically, if you own a business, I mean, taking out any other assets, you know, home insurance policies, etcetera. Say you have a business and you have, say, a $1,000,000 in equipment. So, I mean, that's you know, you can put a you can put a number on that. Say you have a a $1,000,000 of inventory, so you got a $2,000,000 business.
John Tripolsky:If you inherit a business and, like I mentioned, say there's 2,000,000 right there, does anything else actually go into that valuation as far as for in a get I mean, like, does I guess we don't have to get too far in the weeds with it, but, like, intellectual property valuations, like, all this other stuff. How does that work out?
Chris Piciurro:Sure. Oh, yeah. I mean, it it whatever the business is worth is part of your gross estate. Now Okay. There are some there it gets complicated.
Chris Piciurro:Right? Because there there's something called valuation discounts and and that sort of thing. So let's say you own something that's super proprietary, but without you, the business isn't worth as much. That's where you have to factor that in.
John Tripolsky:So if a key man kicks it,
Chris Piciurro:you know, what's the deal then? What if you yeah. I mean, think about this. What if you were what if you worked at a a Silicon Valley startup back in the day? You pass away, but you've got 1,000,000 of dollars worth of stock options.
Chris Piciurro:Now that's part of your estate.
John Tripolsky:Right.
Chris Piciurro:Right? So so there's so many. The thing is and and, again, tax tax professionals understand this is that your gross estate is the is an asset test, not a cash test. So if this if this, you know, state tax exemption goes down, we've really gotta take a look at that for for a lot of people. Right.
Chris Piciurro:And that's your bonus depreciation. Remember, tax cuts and jobs act brought bonus depreciation up to a 100%, and we were able to do utilize that within real estate using a cost segregation study. And it's, you know, it went down to, 80%. You know? It started phasing out, so now we're where we've gotta figure out, you know, what we what's gonna happen with that?
Chris Piciurro:What's going to happen with bonus depreciation? Is it going to be completely phased out? You know, we're in 2025, so we're at 40% right now. It went to 80% in 2023, you know, 60% in 24, 40% in 2025, 20% in 26, and then it goes away in 27. Will the will this get reinstated?
Chris Piciurro:Based on what president Trump ran on, his administration aims to reinstate a full expensing of qualified capital improvements, meaning bringing depreciation, 100 bonus depreciation back to a 100%. That's a big deal, especially for real estate investors, utilizing their cost segregation studies. Right now we're at 40% for 25. Now most of the you know, as as tax professionals, we're gonna be working at on tax returns and for the so in the for the 2024 year, meaning assets placed in the service for 2024, we'll get the 60% bonus depreciation. However, there's a chance that this comes out, that that this gets gets goes up to a 100% retroactively.
Chris Piciurro:Remember, we had the HR 7024 come into play in 2024, the tax relief for American Families and Workers Act of 2024 that passed the house January 31, 2024, went to the senate and finally got kicked out of the senate on on August 1st. That bill would have retroactively made bonus depreciation a 100% to 23. So I'm not predicting this. I'm just saying keep your eyes on this and see what what shakes down. I think there's we're gonna see we're gonna see some movement here in January of 2025.
John Tripolsky:Right. Lot lots of movement. It's gonna be it's gonna be a busy, busy start to a new year, I think.
Chris Piciurro:Right? It is. I mean, we're we'll see what happens. Now one of the main issues that that president Trump ran on is introducing higher tariffs for for imported goods to the to the United States. You know, when we think about I mean, I could affect some it could affect the cost of certain things.
Chris Piciurro:It could affect a some taxpayers in a certain business. But, ultimately, when we look at a personal client, in general, there's not gonna be too much direct effect other than, again, could mean pricing prices of things change. You know, that that's one of the because ultimately, if we're gonna cut taxes significantly, then something else has to there has to be some revenue generated somewhere else. And that's the question of where else can where can it you know? Now where what how's extra revenue gonna be generated?
Chris Piciurro:It could be via payroll taxes. Right? Maybe tax rates are lower. People are employing more individuals. We just don't know what what's gonna happen there.
John Tripolsky:Right. Right. Yeah. Because you're you make a a very good point there. Right?
John Tripolsky:It's not where there's a cut, there's always a a gain in some point, usually, we should say.
Chris Piciurro:Exactly. And and as we kinda talk through, you know, some of these other things, like, I wanna jump into, you know, the other things that that the that president Trump said that they're they're were they're proposing. Let's put it that way. Right? So let's take a look at that, and then we'll we'll kind of then we'll dive in what you should do if you're a business owner or or an individual.
Chris Piciurro:But some of the other things, we talked about tax cuts and jobs act. We talked about restoring the bonus depreciation, talked about making this state tax exemption higher and more permanent. But we talked about the corporate tax rate being 15% for domestic production. Interesting. He BNT ed about creating an itemized deduction for auto loan interest again, potentially.
Chris Piciurro:Also, exempting tips from income taxes, exempting social security benefits from income tax, exempting overtime pay from income tax. So tips, overtime, social security income. Those are things that that the president either hinted and or just came out and said, hey. This these are some of the proposals we'd like. Many tax professionals, and I'm not speaking for myself, but many tax professionals based on my experiences of of spending a lot of time with 100 of them in the in the winter, Thought, okay.
Chris Piciurro:I don't they don't feel very confident this is gonna get passed, and they thought that potentially because I remember vice president Harris agreed on the overtime and not being not overtime, but the tips not being taxed. But this might just be a way to get some votes. You know, this could be could this actually pass? If but let's break these down real quick on if they did pass. Right?
John Tripolsky:They would probably be one of the hardest things ever to to govern, you should say. Right? It's, like, to actually enforce.
Chris Piciurro:Yeah. So so my thought is this. Let's talk about Social Security benefits. This one is get a and I'm I'm kinda stumbling around, but I don't like that Social Security is taxable. You know, we didn't get it when we John, when you let's say you were a w two person, I'm a w two person.
Chris Piciurro:I mean, I do receive w twos from a couple different sources. I I contribute to social security. I don't get a deduction for that. So I don't know why I should have to pay tax on my on this the benefits. But that's just the way it is.
Chris Piciurro:Now the employer match is is a deduction for the company, so I can see social in my the way I'm looking at it is the maximum tax on social security should be 50% max. But I don't know how we're going you you know, if that if Social Security benefits became not taxed, I mean, that would that and let's say it's temporary, that would that would spur many people to start taking money out of their retirement accounts in those years because right now, we know that social security benefits are taxable based on your income. And so for many people that have a pension or have required minimum distributions, they're paying an 85% tax on the social security benefits. So that one there, you know, when we look at the Social Security and and some of the concerns about it funding, I don't know what the relevancy is, or I don't know what the chance that that actually occurs is. Probably not the best.
John Tripolsky:Right.
Chris Piciurro:Right. Right. Exempting tips from income tax? Now I I see I see a couple things going on here. They had bipartisan support.
Chris Piciurro:You could consider a tip a gift. So you can theoretically, John, let's say you're, you know, you're delivering pizza. We're going back to pizzas. Right? You're delivering pizzas and you get tipped.
Chris Piciurro:I could see in theory, someone saying, well, that's just a gift. Now I think that it's in relation to the work that you're doing. So I do think it it's some type of wage. But what if we why would why would the government say we're not gonna attack? We're gonna exempt tips from income tax.
Chris Piciurro:Probably because they realize that not too many people are paying tax on those tips, unless it went to a credit card.
John Tripolsky:And I I can't remember if it was one of one of the episodes here on the MRR show or if it was one of the teaching tax law ones we did where we talked about this. I think it was one of the TTF ones that we kind of analyzed, you know, the proposed tax plans from from either candidate. And I I can't remember if it was myself or you or somebody that was on with us were brought up you know, it's pretty much any QuickBooks. QuickBooks online, I think, has done a a really simple job of doing it to where you can invoice for a service. You could be a plumber.
John Tripolsky:You could be anything. You could send an invoice for a dollar, and then, you know, you could add the tip column in there. I know there's some other platforms. HoneyBook, I think, is another one. A lot of these online invoicing ones where they give that option to activate, wanna quote activate the the tipping section on there.
John Tripolsky:So you could always go into a house and say, listen. You know, I'll give you a little bit of a discount. I'm gonna invoice you for a $100. It's a $10,000 job, and just give me a 9000, you know, 9,000 something.
Chris Piciurro:So the that would be tough to manage. Like, you're saying, what what
John Tripolsky:Right.
Chris Piciurro:Disguising tips for for religion and compensation and should people at least get paid the minimum wage and and, gosh, there's a lot of things. Is it is it give report on a w two? Can someone deduct the tip if you're not paying tax on it? You know? And then
John Tripolsky:over time,
Chris Piciurro:you know, exempting overtime from tax is another interesting thought. And I'm just thinking about how complicated those w twos are gonna be. You know, how how it's going to be really difficult in when it says, you know, exempting overtime pay from income tax, I still think that tips would be subject to Social Security and Medicare tax and unemployment tax. It didn't. So there's just a whole you know, I don't wanna get down in the weeds too much about what's ifs and buts and with this, but we've gotta really look at the is that going to occur?
Chris Piciurro:You know, is that gonna is that gonna happen? So we'll have to see. You know? Now
John Tripolsky:Yeah. It'd be tough. A lot of it again. Yeah. We're just basing it off of what's what's been proposed.
John Tripolsky:Right? That's the that's the best leg we have to stand
Chris Piciurro:out at the moment. Exactly. That's the key. Okay. So let's talk about individual taxpayers.
Chris Piciurro:Like, given the expected law changes or kind of the the tea leaves, what if you're an individual, what should you be considering? We know under tax cuts and jobs act, we are, I've been saying for many, many years now, taxes are on sale. And if the tax the tax cuts and jobs act is set to expire, you I really would consider those Roth conversions, either backdoor or just straight up Roth conversions. Right? Because either so when we're in that lower tax rate environment, the Roth conversions make more sense.
Chris Piciurro:I mean, that's just the that's just the way it is. So if you're an individual taxpayer, that's something to consider. We do a ton on Roth conversion analysis for clients to try to keep them. I mean, there's a ton of people that maybe they're in their early retirement. We wanna keep them in that 12% marginal tax bracket by doing Roth conversions and if the situation's correct.
Chris Piciurro:So charitable contributions. Remember I said the standard deduction's a little higher? Now with tax cuts and jobs act, if the standard deduction stays higher, that's where you might wanna consider bunching your deduction. So let's say you're right on that cusp of, do I itemize or try to take the standard deduction? And maybe you maybe your chair, maybe you donate $10,000 a year to charity.
Chris Piciurro:And if you donate the $10,000 a year, you're still getting the standard deduction. You might wanna donate a little less than 1 year, and then the and then, like, every even year you donate $20,000, and then you have a odd year, you might not donate as much. Something like that. Same with property taxes. It could you could you know, when we didn't have the salt limits, you would do the same thing with bunching deductions.
Chris Piciurro:So bunching charitable deductions or using donor advised funds could really be beneficial. The donor advised funds is nice because you don't have to distribute all the money to charities the year you make the contribution you make in most financial advisors do offer donor advised funds. That way, hey, I wanna put to you know, let's say I'm I'm your marketing $50,000 as a charitable contribution for this year. I don't want to it's December 28th. I don't wanna decide hey.
Chris Piciurro:My wedding anniversary. I don't wanna decide what charities they go to at the second. So I'm gonna put it in a donor advised ones and take that deduction this year and then make sure that we follow the rules and get that distributed. Mhmm. Absolutely.
Chris Piciurro:Oh, go, Hans. I'm sorry?
John Tripolsky:No. No. No. You're good, man. Go for
Chris Piciurro:Yeah. 529 plans. I mean, right with the 5 29 plans, there's been some tax law changes where we can now use them for, k to 12 private or parochial schools. We can now you could always change your beneficiary. You can you can make you can convert them up to $35,000 into a Roth IRA down the road.
Chris Piciurro:If there are certain rules you have to to hit as far as it has to be an account for 15 years. But the point is 5 29 plans are much more flexible than they used to be, and they could provide you with tax free income and growth. So that might be something to consider as an individual taxpayer because we're in a lower marginal tax rate right now getting that tax free growth. If we think tax rates are gonna be higher in the future, could be more beneficial. And then state and gift tax.
Chris Piciurro:Right? If we I mean, if this it's set to go down to 5 about $5,000,000, That's a that's a that's 40% approximately of what the current estate tax is. That's significant. So planning for that for people that have businesses and and any type of assets, significant assets, because the estate tax could be up to 50% of the amount above that. So I think a lot more proactive planning might occur with, you know, if if we think that exemption is gonna go down.
Chris Piciurro:We've gotta take advantage of these high exemption levels right now. So this might be the time, you know, if you do have appreciated assets also to move them out of your name and into maybe a family trust. Now work with an estate planning attorney. Don't just do this on your own, but let me give you an example, John. Let's say you, you know, we know you like cars.
Chris Piciurro:Right? What's your favorite kind of like what I know you have some family history in the, in General Motors, specifically with Corvettes. So what's, like, the most valuable Corvette you could imagine?
John Tripolsky:Oh, as bad as it is, I don't even follow Corvettes anymore. Oh,
Chris Piciurro:I'm sorry.
John Tripolsky:Well, you know, what we'll do is we'll we'll just pick a car. We're gonna say an original AC Cobra, so a Shelby Cobra. A an original now. So 1,000,000 of dollars.
Chris Piciurro:1,000,000. Okay. Let's say, John, for some reason, you you've inherited that many years ago. You've had it in your garage. You've got it insured, and it's worth, like, $5,000,000.
Chris Piciurro:I'm just gonna okay. And you don't want to car might be not a great example, but let's say you bought okay. Let's say you had stock. You you let's say you were
John Tripolsky:even a builder. Let's say I inherited a commercial building.
Chris Piciurro:Sure. Yeah. You inherited a well, a commercial building, and it's worth a lot more money now. And you let's say it's worth $5,000,000 and, like, well, if I pass away, it's gonna be a a subject to state tax, you know, once tax cuts and jobs act goes away. But I have a huge gift tax exemption right now, and I'm willing to use some of it.
Chris Piciurro:That's where you might wanna move that building into some some type of trust. Now I if you're listening to this and you're walking, jogging, driving, you might be flying off the road saying this CPA doesn't know what the heck he's talking about. We don't wanna I know we don't wanna lose our step up in basis. We're talking about some sig we're talking about a very advanced strategy where maybe John puts it into some type of grantor retained trust where he could still, family limited partnership, where he could still get the income from it while he's alive. Maybe there's a way to preserve the space to step up.
Chris Piciurro:But the point is, right now might be the time to get assets out of your name, and and you use up this this higher exemption number of of estate tax, estate and gift tax. So those are just things to the those are the things to consider. Now Your business we're gonna talk about business owners, and then we're gonna talk about real estate investors. Business owners. You could I said bonus appreciation is only 40%, and I say only in quotes, quote, unquote.
Chris Piciurro:Right? That's still very generous. But remember if it's reinstated, that's gonna make it more advantageous to invest in fixed assets. But even at 40%, that's not terrible. If corporate tax rates change, remember, Johnny mentioned, you might wanna reassess how your entities are structured.
Chris Piciurro:Right? You might want to maybe retain more income in your c corporation. You might want to think about now remember we've got the we've got the section 199 a deduction. Qualified business income deduction, section 199 a, that that we're gonna have to see what happens with that deduction. Right?
Chris Piciurro:Because that that if that gets continued on, then, you know, we've gotta look at s corp, c corps. But the point is we'll have to see if the c corp tax rate is significantly reduced. You might see LLC. So, John, just saying you could be an LLC and you'd like to be taxed as a c corp, and now you're c corp moving forward. There really aren't too many tax implications for that immediately.
Chris Piciurro:In general, that hasn't been very attractive based on corporate tax rates, but that might become more attractive. Keep your eye on research and development tax credits. There's been a lot of activity with policy changes, and there might be a lot more businesses that are that have r and d tax credit availability where we didn't before. And with especially with the secure 2.0 act, there's a lot more there's been a lot of changes to IRA contributions, retirement contributions, and who's eligible for so if you if you're a business owner and you have employees, you you might want you wanna focus on what could we do? How could we give people tax free benefits within your team?
Chris Piciurro:Now you might not have any employee. You might be the only employee or you and your spouse are the only employee. But look at those, you know, how can how can a business get a deduction and provide an employee with a with a benefit without having to with it being a deduction for the business and employee not having to pay tax? That's a that's a tax free fringe benefit. So that could be health savings account, retirement plan contributions.
Chris Piciurro:It could be an accountable plan for home office. It could be an accountable plan for mileage reimbursement. So if you're a business owner, again, think about where you're at right now, Think about what we think is gonna happen down the road, and should you restructure? I wouldn't make a, you know, a knee jerk reaction, but talk to your tax professional. Now real estate investors, we had a whole episode on cost segregation studies.
Chris Piciurro:Right? Cost segregation studies even at 40% bonus depreciations could still be extremely advantageous for you. Remember, if you bought a if you bought a an asset in 2020, for instance, and you do your cost segregation study for your 2024 return, you still get the 100% bonus depreciation. It the bonus depreciation percentage is based on the year the assets placed in the service. So tax pros, just because bonus depreciation is at 40%, doesn't mean cost segregations are studies are gone.
Chris Piciurro:Really look at potential cost segregation studies. Ma'am, John, I can't tell you how many we had engineer tax service, Heidi Henderson from engineer tax service on this podcast. I I I gave a lot of tax professionals their information when I was working on those tax season updates because we talked a lot about something called form 31 15, and that's how you do a change of accounting method based on a change of appreciation schedule. And cost segregation size are still really attractive even at 40%. They're even more attractive at a 100% bonus depreciation.
Chris Piciurro:So keep your eye on the bonus depreciation if you have clients that are real estate investors. 1031 exchanges are still out there and still available. So if you have real estate investors that are looking to defer that gain I was out this morning playing a certain sport that I will not mention, and a friend of mine came up to me and said, hey. I talked to you a few months ago about a 10 30 one exchange. Honestly, I didn't remember talking about the 10 30 one exchange.
Chris Piciurro:But he you know, people just ask me random tax questions. It's like I'm I've got this property under contract, and now I'm thinking about doing the exchange. I don't need the money. I'm sick of being a landlord. He bought a commercial building in in, I believe, in Nashville many, many years ago.
Chris Piciurro:So so for someone like that, the 10/31 exchange is still in play. It's still a great opportunity for some people. The app qualified opportunities on funds are still in play, and and make sure that you're looking at the interest rates too. Like, you know, because interest rates are going to affect in many ways the price of properties, which could affect the 1031 exchanges. So, yeah, what we what we're looking at is, let's see, the the 2024 election results, I think are gonna have some changes on our tax policy.
Chris Piciurro:I think that's most you know, it seems like the tea leaves are saying the tax cuts and jobs act provisions will get extended. And I know if you're listening to this, you're very, very familiar with that. I so I think another theme is gonna be the reduction of corporate tax rates that seems to be imminent, and we'll have to keep our eye for individuals on that SALT cap. You know, we'll right now we have a lot less people itemizing their deductions, but if the SALT cap gets lifted, then we're gonna have a lot of people itemizing again. So let's yeah.
Chris Piciurro:We're gonna have to see how this shakes down and, you know, I wouldn't but but, you know, I'd say for 2024, we know what those rules are. Let's get let's get through tax filing season and really keep your eye on in the next couple months of what's gonna happen with with these tax laws.
John Tripolsky:Absolutely. So just like, the salt shaker, things will shake out in play. Right? There there's my dad joke of the day. That's the best that's the best one I could come up with.
John Tripolsky:But awesome, Chris. Well, it was I mean, it was good great to run through this again just to kinda reiterate to everybody all this, you know, this conversation is based off of the information that we're provided, have access to. As you know, things will most likely take place in some way, shape, or form where things may go one way or the other, and we'll see see how things go. So I look forward to kinda recapping this a little bit here down the road and seeing where things come out. I know, you know, next the next episode that we're gonna do here next month on the mister r show, we're gonna look at something totally different than this.
John Tripolsky:We're actually gonna look into implementing financial planning into a tax practice. So the great thing about why bring that up now as well is a lot of what's gonna happen here, I'm sure that your clients as a tax pro are gonna come to you with, well, what can I do? You know, what does the future hold? And, of course, you don't have that crystal ball. If you do, please share with us that everybody around you'll become a billionaire.
John Tripolsky:But incorporating something such as financial planning in there really gives you and, Chris, you can attest to this. Right? It gives you a more of an edge and more of a relationship value, if you will. Is that is that probably the best way to put it?
Chris Piciurro:Absolutely. And I and I think that, you know, having those longer term relationships with your clients is really important being in I guess my advice would be also don't feel like you've you none of us know what's gonna happen. Don't put that burden on yourself. Let's just monitor it. I would look at the, you know, monitor tax foundation dot org.
Chris Piciurro:You know, it seems like what's happening is let's look at let's look at you know, our tips gonna become tax free. Is overtime gonna be tax free? And are we you know, it seems like a a we have to understand the process, right, for something becoming a law. You know, it has to get go through both both chambers of the senate, and and there's a there's committees involved in writing these laws. And I think that the the sentiment is that instead of that there should the sentiment is, hey.
Chris Piciurro:Let's put together one bill that's going to really change the landscape of things instead of all these little different tax law changes. And and I I anticipate something like that is going to to come through in the next month or so. And we're recording this, what, in the very beginning of January to be, you know, to be to be clear. This could be who knows what's gonna happen? But
John Tripolsky:Things could change by tomorrow. Absolutely. We roll with the punches. But yeah. Thanks thanks for everybody for joining us.
John Tripolsky:Thanks, Chris, for for running through this with us. And, again, we'll we'll touch base on some of this content as things come into play. So we look forward to future episodes. Again, any ideas that you guys may or topics that you may wanna hear us discuss on the show or potentially even be a guest
Chris Piciurro:with us, we'd love to
John Tripolsky:hear from you. That's why we are here. That's where we built our masterminds around. Everything that we do through the MRR Institute is specifically and tailored for tax pros such as yourself. So until next time, we'll see you back here again on the Mr.
John Tripolsky:R Show.
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