There may be errors in spelling, grammar, and accuracy in this machine-generated transcript

Roger Harris: Hello everyone. It's another federal tax update podcast. It's Roger and Annie, live and in person and flying solo today. Annie. No guest.

Annie Schwab: That's right. We we had a guest at the IRS forum. We just finished recording that one. I got a chance to actually sit with Roger and New Orleans. Um, but I'm back in Dallas. He's back in Georgia, and it's just the two of us today. [00:00:30]

Roger Harris: Yeah. It was it was good to to do something in person. And and if you didn't get a chance to listen to or haven't listened yet to the, to the podcast we recorded, I think it was really interesting. We had Maggie Romanelli from the stakeholder liaison part of the IRS, talking a lot about what they do and some of the challenges they're going to face because of the cutbacks and everything that's going on with the IRS. I thought it was really informative, because that's if you don't know a lot about the stakeholder liaison, uh, part of the IRS and you own a practice, you really [00:01:00] need to familiarize yourself with who they are and what they can do, because there's some things I hope you never have to reach out to them for. And there's some things that I think would be good to reach out to them. So go back and listen if you haven't already, to that podcast. And Andy and I were together in New Orleans, her hometown, and that's right. Ate some good food and got to go to the IRS forum. So what did you see different?

Annie Schwab: What was what was this one like? Number four. No. Three for you.

Roger Harris: Um, [00:01:30] Chicago, New Orleans. Where else have I been? Gotta go to Orlando next week, right? Um, then Baltimore, then San Diego. How many is that? Just. I think it was the second. Second IRS forum. Fourth conference.

Annie Schwab: There you.

Roger Harris: Go. To Natpe conference and an NBA conference. That's what it was. I knew I'd been flying a lot more than just the two places. But, you know, we're going to talk a little bit about what's going on with the IRS and what did you you you were [00:02:00] at the forums last year. Obviously we've we've seen all the cutbacks and things. What did you notice that was different about this forum compared to last years before all the.

Annie Schwab: Just the the.

Roger Harris: Prices?

Annie Schwab: Yeah. Really. Um, I mean, there were a few I felt there were fewer vendors out there. It was a little bit of, um, not your normal type vendors like they had, you know, the massage chairs out there, they had they had, you know, things that I was kind of like, I'm not sure how this actually relates to [00:02:30] the tax forum, but okay, I'll roll with it. Um, there was there was a sense of concern, maybe like you could just sort of like tell the Taxpayer Advocate had folks there, the, um, the liaisons were there, and it just seemed like everybody was a little uptight or concerned or worried. It just wasn't as free flowing as some of the years past had been. I mean, I remember, you know, just several months ago, we weren't even sure if the IRS forms were were going to happen. There was concern that [00:03:00] they wouldn't even be able to either afford them or staff them with the speakers, um, or get the content and all of the stuff ready. I do know that New Orleans was sold out, and I think everyone except maybe Orlando did sell out. So as far as attendance goes, I think that's great news. Um, I'm just, you know, some of the sessions, the content were felt a little different. Um, and I'm guessing it's because they didn't have either the resources or the time associated with developing [00:03:30] new content, um, to offer. So I don't know. What did you think?

Roger Harris: Yeah. I mean, a lot of the people that I'm used to seeing obviously aren't with the IRS anymore. So they weren't at the forums. Yeah. Um, we were actually across our booth in the expo hall was across from the IRS booth, and I think I mentioned to you, I looked over there and said, I don't know anybody over there, and that.

Annie Schwab: Is unusual for you.

Roger Harris: Last year. It's like I knew everybody there. Yeah. Also, one of the things and this will lead into [00:04:00] our next topic of discussion, um, usually at the forums, uh, they have a session in the middle where all the attendees come to one place as opposed to choosing different courses to attend. And it's either the commissioner speaking or someone designated to take his or her place, uh, and kind of convey the, um, future of the IRS, if you will. Uh, there was no there was a session, but [00:04:30] it had nothing to do. Obviously, there was no commissioners address. There was really no executive to step in in place for the commissioner. Um, I actually didn't attend it because I didn't have any interest in it when I. It was just two. Uh, I hate to say it, two of the IRS employees that still have a job, kind of just presenting some technical stuff. And, um.

Annie Schwab: And the script was very, very technical, I feel. Um, not heartfelt, [00:05:00] not, you know, huggy, friendly, you know, those kinds of things. I didn't I didn't get that vibe this year. Um, but I don't think a lot of people working for the IRS get that vibe right now.

Roger Harris: If you remember.

Annie Schwab: Uh, you know, if you still have a job there, I suppose.

Roger Harris: Maybe. No.

Annie Schwab: And you're lucky.

Roger Harris: That's that's a good feeling for you to have. And, Annie, you and I attended last year, uh, besides the the plenary session where everyone listened to, uh, [00:05:30] Commissioner Werfel held some. And I think we've talked about it on some of our podcast, held some working sessions where certain practitioners were able to come in and spend time talking directly to the commissioner. Obviously, that didn't take place. Um, which kind of leads to the fact that after we left New Orleans, uh, let me see how to say this without putting anybody on the spot? Uh, we had, I think, secured to have the commissioner as a guest on our podcast, [00:06:00] uh, while we were in New Orleans, only to find out shortly after we got back from New Orleans that he would not be appearing because he was no longer the commissioner of the IRS.

Annie Schwab: Yes, that is true. His his time as commissioner was quite short. Um, although I'm not, I can't say that I'm necessarily surprised, just given some of the criticism and the comments and the background and, um, you know, I guess the hearing sheds some light, but, [00:06:30] um, you know, it appears that, you know, President Trump has the has the authority to let him go. And that's exactly what he did. Um, and so we don't know who the next IRS commissioner will be.

Roger Harris: Um, not even any rumors that I've heard.

Annie Schwab: I haven't even seen one name. Uh, I don't yeah.

Roger Harris: Now, what's going to be interesting? And and I don't know that he was. Well, no one said he was fired. I mean, what has happened is Commissioner Long and many of you [00:07:00] probably know this, but for those of you who don't. Is now been appointed to be the ambassador to Iceland. Now, I don't know where that is. On the pecking order of ambassadorships. I know you know, there used to be, you know, how much you donated to a campaign kind of dictated, you know, like if you wanted to be the ambassador to France, that took a fairly hefty donation or to Morocco or some really cool place, you had to spend a lot of money. I don't know what it cost to be the [00:07:30] ambassador to Iceland. You know, I'm thinking that probably wasn't at the top of the list. So Commissioner Long, um, fired, resigned, reassigned, whatever. I don't know that anybody knows what the term term was.

Annie Schwab: Yeah.

Roger Harris: Uh, but now, uh, he is no longer commissioner of the IRS and the Secretary of Treasury, Scott Bessent is acting commissioner.

Annie Schwab: Acting who? Now he's got two jobs.

Roger Harris: Yeah. And I think [00:08:00] he's kind of busy with his other job.

Annie Schwab: I think.

Roger Harris: Uh, we're recording this right after he was in Alaska with the president meeting with Vladimir Putin. Today, they're having meetings in the white House with Zelensky and the leaders from Europe. I would imagine Secretary business in theirs in that meeting as well. So I don't know how much time he really is spending at the IRS right now. I don't know if he's there in name only. And I [00:08:30] have heard and read that the goal is to get him out of there as quickly as possible so that, uh, he can focus on, you know, the bigger things that Treasury does. But it's been interesting to that. I heard no names being kicked around. Um, I've heard a lot. And I'll ask you. I mean, you've heard reasons. I've heard reasons. What were the reasons? You heard that this change was made. And we'll compare notes because I've heard a lot of them.

Annie Schwab: So [00:09:00] I will say I was concerned over the, the tax credits that he was promoting, promoting um, prior to being um, elected or confirmed, I should say, um, there's also some talk about his involvement with the employee retention credit. Um, and as you know, we've talked about IRC, nearly every podcast that we've ever done, um, and the widespread fraud associated with it and the mills. Um, so, I mean, both, you know, his background [00:09:30] well, and his background is not necessarily, um, let's just say there's a lack of experience as the role of as being the IRS commissioner. And so those to me, those three things showed concern. Perhaps Maybe he wasn't the right person for the job. Um, but I and then I and then I know that there was also some criticism about, you know, sharing taxpayer data. And I'll let you go into that because I didn't follow that [00:10:00] that closely. But, um, yeah. I mean.

Roger Harris: Yeah. And the part you mentioned, I think a lot of us had concerns with that, and that's really what he had to overcome in the confirmation hearing. And that's why that was a party line vote. He got all Republicans and no Democrats, right? Um, yes. There was some pushback that we heard when, uh, different departments wanted information from the IRS. And Commissioner Long didn't go along with it. I've heard that was a concern. Uh, he was at the NEA [00:10:30] conference, uh, the week.

Annie Schwab: Oh, yeah. Oh, yeah.

Roger Harris: And I don't know if it was a slip up. If it was, he didn't. He got his his holidays confused. But he announced to the enrolled agents that tax season would start on Presidents Day.

Annie Schwab: Which after Presidents.

Roger Harris: Day, which would be a lot, uh, delay February, long delay in the start of the filing season and it got on social media. Then it got in the press. [00:11:00] Uh, the services had to since walked that back because there was, um, obviously no one really knows when it's going to start yet. And we'll talk about that. You know, I've heard I've heard some crazy things, like getting rid of him was just the beginning of abolishing the IRS. So.

Annie Schwab: Oh, yeah, I've heard that too, actually.

Roger Harris: Yeah. So I don't know that we'll ever. There was something about he was and I'll say this in his credit, you know, the people that we had talked to, that we still know at the service had said he had brought some [00:11:30] stability to the service, just in the sense that they knew who their leader was. They had one. He was reaching out to employees. He was he he has this UFO story that he tells, which is about, you know, how he treats people and wants to treat people. And something that was in the New York Times article announcing his resignation that he had decided to, through an email to let all the people at the IRS go home early because [00:12:00] it was his birthday or something. So I don't know. I, you know, I don't really think we'll know really what it was. All we'll know is he's now ambassador to Iceland. Uh, Scott Besson is now acting, um, you know, if we go for a regular commissioner. And again, this is only to serve out Werfel's term. This is not a five year, uh.

Annie Schwab: Commitment, right?

Roger Harris: This is so every day, you know, it's shorter and shorter. We've got to have a nominee. The nominee then has to go through background checks and do all that. [00:12:30] And another hearing, another confirmation.

Annie Schwab: So it took forever to get Billy Long set up. I don't know how long it I don't I think that was unusual. But it doesn't happen overnight I mean no no.

Roger Harris: So I mean, you know, we've had acting commissioners for an extended period of time. Um, a good friend of mine, David Cotter, served for over two. He served dual roles. He was in Treasury, kind of like Bess, and he wasn't Secretary of Treasury, but he was in Treasury. Uh, he was an acting commissioner. So it's conceivable they could just go with acting commissioners [00:13:00] for the next two years. Um, I think the staff would like someone. I think they recognize that Besson is just. He's not going to be involved in the day to day activities. He's going he'll be engaged in the big decisions because Treasury controls policy. I mean, I don't want to insult anybody's intelligence, but we all know Treasury does policy, IRS does administration. So, um, IRS has been very careful not to try to change policy or comment on policy. Their job is to just [00:13:30] administer what the Treasury Department and Congress gives to them. So it's kind of an odd spot for the Treasury secretary who would be developing policy than to be overseeing the agency that administers it, and I don't know what's going to happen. It's odd that it's been a week or so, and not a single name has.

Annie Schwab: I know, has.

Roger Harris: Just been leaked or surfaced.

Annie Schwab: Well, there has been chatter about the fact that one, it's already got a full plate [00:14:00] and he's lost senior employees that have the knowledge. So now you've got less resources, less experienced people helping him out. Plus he's got with with the OB three. He's got a lot on his plate as far as getting stuff done quickly and providing information. So for him to take on a whole nother role, I just I can't imagine that one, that he could be efficient and two, that it's even possible without, [00:14:30] I don't know, sometimes you hear the IRS is hiring again, and then sometimes it's like, well, now there's another, you know, layoffs going on. So I don't know how he builds a team to Him to support what he's what his job description is. Plus, as the acting commissioner. Um, and I think the staff is looking for leadership and some sort of consistency and, um, I don't I don't know how how they're going to do this so quickly. Um, especially when we even haven't we haven't even heard a name. So. [00:15:00] No, I don't know. I guess we'll see. I mean, the IRS seems to make it happen.

Roger Harris: Yeah. I mean, I'll give him credit. You know, we got a big bill to implement, and we'll talk a little bit about that in a minute, but somebody's got to be in charge day to day. I mean, the day to day stuff that has to be done. And just the secretary treasurer is just not going to have time to do that. And you mentioned the mixed signals. I mean, we were talking to people in New Orleans with the service. There was times that they were hiring and firing on the same day, which makes no sense. And then you read, [00:15:30] well, they had to pull back the hiring ads because that didn't make sense. I talked to one person who said they got three different notices during all this time, not just since long came and went, but basically telling them that they were out, but they're still there. And, you know, they either got pulled back because they shouldn't have been sent. One got pulled back because the wrong person signed it, and then they got the right person to sign. But you just think about that as as someone who's working in three different times, you've gotten [00:16:00] the email that says you're gone or you're out or you will be out, whatever.

Annie Schwab: Yeah. Or move to this department or, you know, you have X days or whatever.

Roger Harris: And now you're back and you're still there. You never left and you're still there. You don't know if you're hiring or firing. Um, again, a lot of the senior, uh, executives have left and gone outside of the service, either in retirement or taking something else. Now, the confusion was this seven commissioners now counting Werfel.

Annie Schwab: Uh, yes, he was [00:16:30] the seventh. And so, uh, I don't know, I yeah, I can't predict what's happening. All I know is if I pictured this complete, chaotic organization where you're not sure who's on your team and if they're on your team today or they're in your, you know, support group or your job role or whatever, it could change tomorrow. And somebody new could be your new boss. And, you know, your job description could change. And I chaos and stress [00:17:00] and and all of the above I can't I can't imagine what these employees are going through on a day to day basis. Um, and those who have chosen to leave, I mean, nobody can fault them for that. That's a very tough position to be in. Yeah.

Roger Harris: Yeah. So yeah, I mean, they were they were given a and most of those were the senior people who had years and they had retirement and they had other options. You know what? I'm really kind of humorous in all this. I think it is the seventh. He lasted two months. And yet he's not the shortest. [00:17:30] There was somebody that lasted two days.

Annie Schwab: Oh, well, okay. Well then there you go. Maybe that's what he'll write on his ability.

Roger Harris: And that reminds me of another reason I heard he was let go. If you remember, we had a battle between Elon Musk and Secretary Besson, and one of those battles was over someone that Musk had suggested to be commissioner of the IRS. And so he got the acting job, and Besson got furious [00:18:00] and got him removed within two days. And that led to the supposedly, um, I don't think it was a fight, but a very terse exchange between Musk and Besson that led to Elon Musk leaving government. So the IRS commissioner that lasted two days probably is partially responsible for Musk leaving. So strange world, strange, difficult times. [00:18:30] I guess we don't really care about most of that. What we care about is how's it going to impact us and our clients going forward. And and before we get into the big beautiful bills kind of overview, there's a couple of things. And you mentioned it that the IRS has historically been faced with different challenges, big pieces of legislation getting passed in October and November and still having to.

Annie Schwab: Retroactive to.

Roger Harris: Retroactive to all these things. Um, so this is not new to [00:19:00] them, but they are down about 25,000 employees. A lot of, um, senior executives are gone. And basically, uh, to my knowledge, there's been two kind of statements made by the IRS. One was recent, which and we'll talk about it when we get to the thing about tips in overtime that they're not making any changes. I think this was a way to buy some time. They're not making any changes to their withholding [00:19:30] tables for 2025. So if you want the benefit of these tax breaks in your paycheck, you're going to have to figure it out on your own. That we're still going to go with the old tables.

Annie Schwab: Otherwise, you got to wait until you file your tax return to reap the benefits of the withholdings.

Roger Harris: Which is something you and I talked about on an earlier podcast, that this was going to be a challenge because people, I think were expecting when these no tax on tips and no tax on overtime got passed, that their paychecks would immediately go up. That's not [00:20:00] going to happen. As you said, it's going to happen on their tax return. And so if you want it now you have to change your withholdings. And the IRS has said that we're not changing the tables to reflect any of this.

Annie Schwab: Nor the form or the W-4 stays the stays the same. It doesn't reflect any of the no tax on overtime and no tax on tips, which we we were hopeful that perhaps it would be addressed sooner than later. But like I mean, we've talked about there's no way to get all of this stuff done in time. So they just came out [00:20:30] and said, you know, it is what it is for this year. We will address it. You can manipulate your current W-4 if you want to try to make changes. I mean, we're in August, so I mean, we're talking about making changes to cover, you know, two thirds of the year, or you just can wait until you file your tax return. Your refunds will go up. Um, but the immediate the immediate effect, um, is not going to happen.

Roger Harris: Yeah. And sometime in 26, we'll get new withholding tables, new form changes. They [00:21:00] can't make it much worse. The W-4.

Annie Schwab: I wish they'd go back to the old W-4.

Roger Harris: You know, it's an opportunity. If you're going to go in and make radical changes, what you're going to have to do, because this is going to be substantial for some people. I don't I don't remember how many years it's been since they changed the W-4, but I still don't think people get the new one. They're still trying to figure out how to put single with one or married with two, and there's no place for that, obviously, on the new withhold. So we're going to get changes. And I know we've addressed this actually with Maggie, [00:21:30] uh, who comes to our meetings and takes issues that if you're going to update the withholding tables whenever you're doing it, let's figure out a way to make it work, because it doesn't work today.

Annie Schwab: It's very complicated and confusing, and the employees are asking the employers, well, what should I put here? And they're getting a booklet of instructions that basically they're doing their own tax return using the booklet of instructions in order to determine what their withholding should be. Um, and you're right. It is [00:22:00] it is hard. And the W-2 is likely going to change. I mean, there's a spot on the W-2 for tips, but there's nothing on the W-2 currently that shows you know what portion is over time. So they're going to have to rework the W-2 in some kind of way to to implement this. So I guess.

Roger Harris: Well, and even and it's conceivable that some of the tips won't qualify. So I mean.

Annie Schwab: Oh, that's true because you have to be in that certain industry to even qualify.

Roger Harris: Yeah. And and you know, we don't. And again that leads to the so the two things that [00:22:30] we've gotten so far is we're not changing the withholding tables, and we expect to have some guidance out, I'll say early October. I think they may have said the second, I don't even know what.

Annie Schwab: Day October 2nd, it was like. Exactly. You know, however many months when it got passed. And so October 2nd is when we're supposed to hear from Treasury, um, not just on, you know, tips and overtime, but but on a lot of guidance as it relates to existing updated extended [00:23:00] new provisions of um.

Roger Harris: So, yeah. So the marker has been laid, uh, and I think the legislation made some reference to 90 days. So I mean.

Annie Schwab: That might have been exactly.

Roger Harris: That. That's probably what it is. But now that means that that we a lot of the questions that we're going to have, we hopefully will get at least some answers to by October the 2nd, or we'll start getting answers on October the 2nd. But again, [00:23:30] even though they've done this before, they've never done it with with this piece of legislation, which fortunately for them, a lot of it's just extending current law. So there's some things that don't really require a lot of effort or form changes, because it's just keeping what we had. But there are some.

Annie Schwab: Like 900 and something pages.

Roger Harris: Oh yeah.

Annie Schwab: I mean, it does have a it has a lot of tax stuff and it has spending, um, provisions, immigration, defense. Um, there's a whole bunch on energy credits, healthcare. We've we've seen we've talked about that [00:24:00] before too. So it's not just a tax piece of legislation, but it is, you know, I mean, it's it's a sweeping 900 something page package, um, with some major impacts across all different areas. Um, so digging through that and making sure that they, that one, that how do you implement all of this stuff and, and get it tracked and get the information out to the public is going to be a large job, right?

Roger Harris: And we may [00:24:30] get more. There's talk that the Congress is back now working on. Well, they're not back. They're still in their August recess, but. Right. Um, they've got to do spending bills. And in those spending bills, there's already talk of other tax changes. Uh, you know, some things that they had to use this bill to get done, they want to change and some other things. So it's conceivable we could get more tax changes between now and the end of the year. We're going to have to get some sort of spending bill to keep [00:25:00] the government open. So that'll be the focus, I think, when when everybody gets back. But you never know when you have a bill like that, you can throw little things in there. Um, and we don't know. I thought, Andy, let's, let's kind of walk through at a high level what's in the bill, what's an extension, what's new? We're not going to get into huge details, because I think we're kind of waiting until October because the questions that we have, we can't answer. So we'll try to point them out. But I [00:25:30] think it's good. Maybe just to walk through it in a, in a, in a high level talk about what's just the same and has been made permanent or extended versus what is actually new.

Annie Schwab: New.

Roger Harris: We need to know about and plan for us. Going back to the forums, I don't think there was a single class offered on the how many names does how many names does this bill have? I know it's been called the Big Beautiful Bill OB three.

Annie Schwab: Which [00:26:00] that one made me giggle. Um, and I don't know if it was officially changed, but now, like, you know, all the research and different things are now just referring it to something short and sweet, which is 2025, act like just, you know, um, so it has gotten some nicknames, I suppose. Um, and perhaps now it is officially referred to as the us, the 2025 act. But yeah, it's.

Roger Harris: And the Democrats have some names for it too, that aren't [00:26:30] the same as what it's not the big beautiful bill. I don't remember all the big bad bill or the big something. So.

Annie Schwab: Right, right.

Roger Harris: So let's let's walk through. We got we got a few more minutes and just remind people what's in it. Um, kind of break it into categories. Um, highlight any the individual stuff. What what did this do for individuals? What did it change? What did it leave the same. Uh, sure. Again, without granular detail here.

Annie Schwab: No, I mean, so I mean, just [00:27:00] off the top of my head, you know, the the individual tax rates, um, that were applicable since 2018. Um, those are favorable rates compared to other, um.

Roger Harris: What they were before.

Annie Schwab: What they were before, but those were made permanent. So now you've got as low as a 10% tax bracket and the highest tax bracket would be 37. So again, that's, that's favorable. Um, as far as like gift and estate goes, that has increased significantly. So you're looking at the exemption amount being set at [00:27:30] $30 million for joint filers, 15 for single. But that's going to continue to be adjusted for inflation. So it's going to.

Roger Harris: Go up from there.

Annie Schwab: Yeah it's only going to go up from there right.

Roger Harris: That's going to eliminate almost all of our clients from having an estate or a gift.

Annie Schwab: I would I hope I.

Roger Harris: Don't have.

Annie Schwab: I have to struggle to make that right. Yeah.

Roger Harris: I don't think I got anybody that's going to owe any there.

Annie Schwab: Right. Um, we've we've seen, if you remember, we had the personal exemption and then we removed the personal [00:28:00] exemption and we increased the standard deduction, and that has been made permanent. Um, and it's also subject to inflation adjustments. So we've got for 20, 25, uh, like 15, 750 uh, for, for single or married filing separate. Um, it's like 23, six for head of household and 31 five or something like that for married filing joint. So those have gone up. Um, and that's, you know, creates some, some simplicity for taxpayers [00:28:30] who who we're never going to meet those thresholds. You were. Yeah. You were itemizing or you never were going to itemize. And now here's your new threshold. So that was that was good. Another a big one that was, um, debated I guess I should say is that is the Salt tax deduction. And so that's the state and local tax deduction. It's previously been at 10,000. Um, and I don't know during the during the campaigns. And then also, you know, trying between the different versions of the bill and the [00:29:00] House and the Senate, I it ranged from, I don't know, I even saw 70,001 time and then I saw it take it away altogether. But but we have it has been temporarily increased. Um, and so now it's 40,000. So went from 10 to 40. Um, again, it'll increase over time until 2029. And then I guess they couldn't couldn't explain how to fund anything past 2029. So it's set to revert back, um, in 2030. Back to that 10,000. [00:29:30] But who knows, by then something could change.

Roger Harris: Yeah. Anytime you see an expiration date, which was kind of what brought us to this point. That is done for budget purposes, because if you score, if you make something permanent, then in Washington, how they go and put a dollar value on that bill, it's higher because it's indefinite. So when you put an end date on it, it makes it the bill more affordable so you can cram more stuff in. If you let them expire. So the salt tax went [00:30:00] to 40, but it does run out in 2029. Mortgage interest is still 750.

Annie Schwab: Oh yeah. Mhm.

Roger Harris: Good one. So so you know you can't write off mortgage interest over 750. The standard deduction for a married couple is over 30,000. Yeah. You know uh charitable deduction I mean, medical expenses still have the income threshold. I mean, it's almost unless you are a huge giver of money.

Annie Schwab: Yeah.

Roger Harris: It's going to get harder and harder to to to itemize.

Annie Schwab: Yeah I agree. [00:30:30]

Roger Harris: What about families. Any I mean these are more individual. Any anything that's going to impact a family.

Annie Schwab: Sure. I mean so the child tax credit has been something that's that's been around. It it remains it is still there. Um, there's it did increase the credit. Not too, too much. It's up to 2200. I think it just went up like 200 bucks or something. Um, but it does make permanent the refundable part of it. Um, and it will be adjusted for inflation. So we're still seeing the benefit of the child tax credit. There are some thresholds [00:31:00] that were adjusted. Um, you know, when you start to phase out for parts of the credits or the nonrefundable part of the credit. Logistically, it still works the same way. It's just the phase outs and the amount have slightly been, um, more favorable, I should say. Um, the we've always had the child and dependent care credit for as long as I can remember. And and that remains. Um, there's been some adjustments to the amount. Uh, there's been some adjustments to the phase out, but again, theoretically consistent with how [00:31:30] we've treated child and dependent care, um, in the past so that, you know, shouldn't be different, so to say. Um, but there is the there was a significant, in my opinion, significant increase to what an employer dependent care assistance can be. And so that was at 5000. And so it's now at 7500. So you know that's a that's a nice that's a nice um increase for dependent care assistance I have two kids. And dependent care is outrageously expensive.

Roger Harris: So [00:32:00] 7500 is not enough.

Annie Schwab: But it's not not enough. But I'll but I'll take the $2,500 increase. Um, for for me. Um. Let's see, we've got some. There's some paid leave benefits here. Um, the credits went up from 12.5% to 25% of wages paid to workers on leave. Um, so that that again, significant increase in my opinion, adoption credit hasn't isn't something new. Um, but it's up to 5000 now on the credit [00:32:30] and it's going to be refundable in 2026. So there's a refundable portion of it that you can get or at least carry forward, um, to future. So, you know, I think those are some family wins. Um, you know, you look at raising kids is super expensive, and only the only thing second to that is getting them an education, paying for their education.

Roger Harris: So they've made some changes. One thing I'll caution everybody to do here while the bills, you know, the law is not changed [00:33:00] in a lot of places, some income thresholds have changed. So you got to check on that. Some percentages have changed. Some amounts have changed. Like like you said, dependent care is not new.

Annie Schwab: Right?

Roger Harris: We've had it. But the bill did tweak again income thresholds, percentages, dollar amounts. That's what we have to pay attention to.

Annie Schwab: And some are permanent. I've tried to I think I've tried to mention which ones are but but not all of them are permanent. Um, so, you know, you do need to take a look at that if you're talking to somebody about, [00:33:30] you know, planning however many years out. Um, I mean, clearly we can get a new tax bill at any time. Um, so, you know, there's there's that. But yeah, you're right. It's the it's the fine print that you just need to, to look at, um, at least as it relates to provisions that we have had in the past years. And it's just a little bit of tweaking.

Roger Harris: Yeah. You don't have to learn a new part of the law. You got to learn some new thresholds and rates and maybe expiration dates. A lot of student and education [00:34:00] stuff.

Annie Schwab: Yes, yes.

Roger Harris: Uh, touch on some highlights there of what? There's a couple of new things. And then there's some things that are just expanded.

Annie Schwab: Expanded. So the most I would say most notable new change is this idea of Trump account. So it created, um, another avenue of savings. It's a vehicle for savings for children, and it's only for children under 18. Um, and it's seems to be structured very much like what you would see or participate in, like [00:34:30] an IRA. But these are specifically designed for minors or children. Under under 18, you can contribute $5,000. Um, and it is going to be in um indexed for inflation. Um, and so, you know, you can receive contributions from individuals, from employers, charitable organizations. And this first year, only this first year, um, the government is funding what they're calling a pilot program. So they're [00:35:00] going to put $1,000 into an account for each child born between 2025 and 2028. So they're going to sort of use this as a the government funding $1,000 per child. And you don't have to, like, opt in. You don't have to. It doesn't seem to be something that you have to volunteer for or it's not part of, like first come, first serve. It doesn't seem to have a limit on the number of participants. Um, so it'll be interesting to get more information on what these Trump accounts are. [00:35:30] But if I mean any tax advantaged savings vehicle that helps children get, you know, education savings accounts, I think this is I I'm excited about it.

Annie Schwab: Um, I'm hoping it will be implemented and administratively, not a headache. Um, but we will, I guess. Just have to wait and see. But, yeah, Trump accounts are new. Um, and then just some of the other common things, like, uh, [00:36:00] there is a new federal tax credit for contributions to kindergarten through 12th, any kind of contribution to a scholarship granting organization. So if you are assisting with these scholarship organizations, then you can you can get a credit. Um, and then some of the other stuff was just kind of like expanding, uh, you know, what qualifies as eligible expenses, you know, to a 529 plan? Um, they've added some post-secondary credentialing, um, [00:36:30] and just made it a little bit broader, which it seemed reasonable to me that the, the extension of it, um, it didn't, you know, it didn't seem too crazy. So we'll see. We'll see how it, you know, we'll see how it goes. It's like like I said, there's opportunities for tax planning and education funding. The big new one here is the Trump account. So we'll keep a focus on on that. Um but yeah I mean.

Roger Harris: Yeah I think the one I know I was out at NEA and they were extremely excited. [00:37:00] You know, you talk about the expansion of 529 plans that, you know, you can use money in a 529 plan for continuing education required for recognized post-secondary credentialed. So like if you've got if you're out there and you're thinking about studying for the exam, right. Um, and you have a 529 plan, you can take money from that plan for the courses, the testing and all that sort of thing. So, um.

Annie Schwab: It says anything to for a, like a professional [00:37:30] license or an industry recognized certificate. I mean, I feel like this could get really broad, right? Um, but you.

Roger Harris: Gotta have a.

Annie Schwab: 529. Yeah, I like it just, you know.

Roger Harris: So I guess, you know, when I saw the Trump accounts, I'm trying to think, I guess, you know, you've made it in life when something in the tax code has your name on it. Because I can think of. Yeah, we got Roth, which was named after, uh, someone Coverdale accounts was named after someone. Now we have Trump. I [00:38:00] wonder how many different places in the tax code.

Annie Schwab: Now you're going to make me want to go Google that or something.

Roger Harris: Named after somebody.

Annie Schwab: Yeah. Yeah.

Roger Harris: I don't know if it has to be your idea, or you just have to be famous enough to get it.

Annie Schwab: To get it named after you, I don't know.

Roger Harris: We'll know if we've made it when we get the Schwab deduction or the Harris credit or something like that.

Annie Schwab: I guess that's what I can just hope for one day. Be in the tax code.

Roger Harris: That's the ultimate compliment to to someone in our industry [00:38:30] is as part of the tax code that's named after you. Yeah. Um let's touch we touched on a little bit. You know, obviously for workers, there's, uh, a couple of things here. We've I think we've probably done a whole podcast on them, but the idea of tips and overtime that are.

Annie Schwab: These are new. I mean, these.

Roger Harris: Are brand new and brand new.

Annie Schwab: They expire, but they're also retroactive to the beginning of the year, which makes it makes it a little difficult, um, [00:39:00] to, to administer without. I mean, hopefully by October 2nd we'll see a little bit more guidance. As we mentioned earlier, the IRS has already announced, I think, early August that they were not going to make changes to the information returns or the withholding tables. Um, and so, you know, this is just what we what we have is what we have through, you know, the end of the year. Um, and so one the tip deduction does expire. Same with overtime and expires in 2028. So we've got it from now until 2028. [00:39:30] But basically there's no tax on tips that are customarily paid voluntarily by the customer. So those are some terms that we probably need a little bit more definition for. And there's certain industries, um, that are obvious, like, you know, the restaurant worker, but there are going to be some industries that we need more clarification on. Um, and there are some phaseouts, um, it is capped at 25,000. And that was something that was negotiated back [00:40:00] and forth, I feel like, to the very last minute between the Senate and the House, um, and there's some phase outs, but for most, you know, of your restaurant workers, um, you know, a tipping industry that is very customary. Um, we'll see some changes there. And then same with overtime. So qualified overtime compensation now, um, it's capped at 12.5, uh, for single filers and then 25,000 for joint. Um and it. So this is also interesting. [00:40:30] And I think we were talking to Thad about this where let's say only once you're married filing joint, but only one spouse works. It's not 12.5 per person. It's whatever your filing status is. So it could technically be 25,000 for the husband if they're filing a joint return. So interesting dynamics on that one in my opinion.

Roger Harris: Yeah.

Annie Schwab: Um, but but yeah. And it's going to take some time to, for the IRS to provide, I mean FAQs at the least. But you know, [00:41:00] they're going to have to change the reporting forms. And then how do you do this in the software. So the software is going to have to be updated to take into account, you know, the non-tax part of this. So I don't know. It's going to be this is something that I do think is going to get a lot of attention. Um, as we get closer, I kind.

Roger Harris: Of think this is where they're going to focus in this October guidance because this is this impacts so many people. Yeah. You know, like, you know what is a voluntary tip. Obviously service charges are a big point of contention there. You know, [00:41:30] does that is that voluntary. Just because you know you're going to pay it you know, that sort of thing. Uh, when you get into overtime. 11. that I when we were in New Orleans, I was talking to to practitioners didn't they didn't understand this part. So I'm going to repeat it. And I don't mean to, um, if you know the answer to this to act like you wouldn't, but let's say you're, you're you're being paid $20 an hour and you work overtime based on the Fair Labor Standards Act. There's all kinds of other [00:42:00] overtimes that got to be reconciled. But for right now, we're going to just keep it simple. So you're $20 an hour. So your overtime pay is $30 an hour. Well people here no tax on overtime. And assume that means the $30 is tax free. Only the ten, only the additional ten. So don't don't allow your people if they're trying to change their withholding or trying to plan for the future. Remember, it's just that additional $10 that that will be, uh, tax free. And then again, there's limits to income [00:42:30] and amount. So these are two areas where there's it seems simple when Congress passes it. And yet when you dig into all the possibilities, and we said this on one of our earlier podcasts, I read an article the other day where, uh, some big organization caught up with us and said, it's going to be really interesting in the restaurant business to see if they don't let service charges count as tips for tax free. What's it [00:43:00] going to do to the, uh, behavior in a restaurant of the waiters and waitresses. When a table of six has to have a service charge, which means they pay tax on it versus a table of five when it's tax free, or they, you know, what's going to happen. And.

Annie Schwab: Right.

Roger Harris: And so motivation and overtime to go away from you know I'm paid a salary or I don't want a salary anymore, I want you to calculate based on hours so I can have overtime. So it's going to create some interesting dynamics in businesses once they know the rules. [00:43:30] Yeah. See how to.

Annie Schwab: But they'll only stay until 2028. And then and then the incentives are going to change after 2028. And so you're going to see this whole employer employee dynamic going on, you know, in these industries. Um.

Roger Harris: So and you know, this is something I don't know if I've said this on a podcast that I find really interesting. You know, before this, you were beginning to see some negativity towards tipping because I haven't been to Europe, but I hear there's no tipping in Europe. You know, you just don't tip. It's [00:44:00] just. And. And now if I go get a $3 cup of coffee, they spin the machine around and ask me if I want a tip.

Annie Schwab: Not even at the kiosk in the airport, like I do it all myself. And it's still asking me for.

Roger Harris: Who am I typing.

Annie Schwab: Out?

Roger Harris: Like, who am I tipping?

Annie Schwab: You know, it is. It's it's gotten absurd.

Roger Harris: We have a negativity building towards tips. Now when you put on top of that, well, they're getting a tax break because I don't really know what makes [00:44:30] tip or overtime different than somebody who works 40 hours, busts their butts and gets paid a salary that's in the same income level as a waiter or waitress. Why is a tip better than a, you know, an hourly wage or wise overtime? You know, so what again, another dynamic. Is this going to effectively make people tip less because they know you don't have to pay tax on it? So, you know, I'm sure some waiter or waitress is going to say, well, I would tip you $100, but I [00:45:00] know you're not going to pay tax on it, so I'm just going to give you 60.

Annie Schwab: Mhm. You know you're getting the tax break but you know anyway.

Roger Harris: Yeah. So interesting. Lot of interesting thing there. Couple of new things we heard about. No tax on Social Security. We didn't get that. But we did get something for seniors.

Annie Schwab: We did. We got so taxpayers 65 and older can deduct an additional 6000 from their taxable income. And again this one's expires in 2028. There's a there's a phase out you [00:45:30] know all those kinds of things. But I think they wanted no tax on Social Security benefits. But I think I think they couldn't afford it. Right. Like you couldn't fund that. Um, and you may have also heard there's another one, um, on auto loan, the interest deduction. And that's up to 10,000 for interest paid on, on purchase of an auto loan. But the kicker here is that, um, the car has the final, final assembly has to be in the US. So we're going to need to get a little like, how are you going to track [00:46:00] that? How are you going to like is the dealership going to have like something that says this qualifies for interest deduction or not or, you know, whatever. So I think we're due guidance on that as well.

Roger Harris: Yeah. This is going to have some of the same feelings. And we'll talk about EV credits energy credits in a minute because they're going away. Yeah. If you remember when you know, this whole idea of you get a tax credit and what do you have to get from the dealer and the dealer.

Annie Schwab: Register on the website.

Roger Harris: And all that sort of stuff. This won't be that complicated, but it is going to depend somewhat [00:46:30] on the dealer certifying that the car qualifies. So, you know, we got to look for that. We got about ten more minutes. So let's try to run through some of the business things. There's a lot of it's just permanency here. But there are some new things here. So where do you want to start on business.

Annie Schwab: Um, well okay. So there was a lot of stuff that was in the Tax Cuts and Jobs Act, and we got to the point where it was a lot of this was going to expire. And if it doesn't, doesn't be made permanent or retroactive or extended or something. [00:47:00] And so one of the big ones is the qbi deduction, otherwise known as the 1099 deduction. Um, and so that was made permanent at 20%. So like I said, not much has changed in the mechanics of it or the qualifications in it or that kind of thing. Basically what you've got here is something made permanent. Phase outs have been placed inflation adjustment set. Um, and so we'll, we'll see that um, again we'll see that remain. There's some um, depreciation [00:47:30] enhancements like um, we're now permanently restored. The 100% bonus depreciation. Um, there's some qualified production property. The definition of that um expanded what would qualify. And we've seen that um also become permanent through I think that one's permanent. That one's permanent. Um, so we've got that and then R&D was another real big one. Um, this also makes the immediate expensing of research and development. That was also part of Tcja. [00:48:00] And that was very widely controversial, controversial with different party lines. Um, but where we landed was the immediate ability to deduct the cost. And it has to be domestic research expenses, um, that are, that are paid.

Annie Schwab: So that's another one. The business interest deduction again not new. The cap was restored. Um, and so it's offering more favorable business terms for those who can take the business [00:48:30] interest deduction. Um, and that is being phased in over time. But again, everything I've mentioned so far has been around, um, including including the 1099, NEC and 1099 miscellaneous threshold. So I if you've been around long enough to know that you've had this $600 threshold for many, many years, never, never, you know, indexed for inflation. Basically, if you paid somebody more than $600, you needed to issue them a 1099. [00:49:00] The employer would issue them a 1099 for contract work that has now gone to $2,000. So, I mean, clearly it's time. I don't know if 2000 is is the right place to be, but it's certainly better than than 600. Um, that does draw some concern, you know, with the with the higher threshold, will people actually report the money? Because just because you don't need to get the 1099 doesn't mean the income is tax free. It was always tax to report it. It was always taxable. It's just, you [00:49:30] know, when you're required to issue the form to that independent contractor. So we'll have to see how compliance, uh how how that gets affected.

Roger Harris: But when you're cutting back on compliance people. Yeah you're raising the threshold. They seem to be counterproductive.

Annie Schwab: Yeah.

Roger Harris: But you know, as a as a small business firm who represents small business, Reducing the burden is great.

Annie Schwab: Absolutely. Absolutely. And like I said, I mean, 600 was too low and it was there forever. 2000 [00:50:00] seems much more reasonable. I don't know what the I don't know what the sweet spot is between like, compliance and you know, all of that. But well right now it's 2000. So that's that's where we stand for 2025. Um.

Roger Harris: Another 1099 K stuff that we have discussions about. Well guess what. What'd they do to that?

Annie Schwab: So they have um, so that's the 1099 K that comes from like your your payment plan, your payment companies kind of your reporting settlement companies, third [00:50:30] party settling companies. Um, and so now it's 20,000 or 200 transactions. We've gone I've heard so many different thresholds and it's going to change and then it reverts back, and then it's been extended and we're pushing it out another year. And so we have landed on gross payments of 20,000 or more and more than 200 transactions. So 1099 case. Same theory again. The logistics of it all is [00:51:00] very, you know, didn't change just the those threshold amounts, right?

Roger Harris: The law did not change in either of those two. Right. The reporting that is required has changed. So. Correct. Again. Now when the 1099 k limits got down and all those sorts of things, again, the law didn't change. But miraculously we had a lot more activity than we'd ever seen before, evidently because we never heard about it before. Um, let's wrap up with energy credits. [00:51:30] And most of the the discussion about energy credits is when do they go away? This was this was clearly, uh, the Republicans telling the Democrats, we don't believe in a lot of your policies that came last year. Um, many of them. It wasn't just last year. Yeah. Yea. A lot of money being spent to incentivize people to alternate alternative, uh, fuel sources. So if you're going to do certain things, [00:52:00] you need to do it quickly. So talk talk through.

Annie Schwab: And this is not an exhaustive list. I picked some of the ones that we come across in small business, you know, servicing small business clients um or individuals. So by all means, this is just an example. Um, so if you have a client that is in a specific industry or business line that benefits from energy type credits, definitely take a deeper dive. But the first one is, you know, start September [00:52:30] 30th. So this is going to be like sort of the first big sunsetting of an energy credit. So September 30th is all those EV credits, very popular um, energy efficient cars and all of those kinds of things. So um, September 30th, keep that deadline in mind at the end of the year is when you see the homeowners. So that's the residential clean energy, and it's also the energy efficient home improvements. So EV in September, a lot [00:53:00] of the provisions related to residences, the individuals you're going to see those um, start to, to phase out, um, we've got the summer of 2026, the energy efficient new home credit that one's going away, and the energy efficient commercial building deduction again going away. And that's not like like I said, those are just examples. And there's some that are in 2027. There's some that are mid-year 2027 into 2028 like different sort of phase [00:53:30] outs. So but I would just keep in mind for 2025, you've got EV going away and you've got the residential clean energy and the residential energy efficient. Those those to me are the three that need to be, you know, for at the forefront. Um, yeah, they've been around for, well, not so much the Eve, but there's been for quite some time.

Roger Harris: It's been a while.

Annie Schwab: For homeowner ones.

Roger Harris: Yeah. And so the main, I guess piece of advice here is if somebody talks about an energy credit, the first thing you need to do is find out when and [00:54:00] if it expired, because, you know, and and if you're thinking about doing any of this stuff.

Annie Schwab: You gotta go now.

Roger Harris: You better get to work. Because clearly this was a target of the Republicans. Now, you know, that doesn't mean that 2 or 3 years from now they can go. You know, that really wasn't a good idea. Maybe we should go back. But that's what's in the law right now. So, uh, pay attention to the dates. Uh, yeah, exactly. That's the key, because they didn't really tell if they're making them go away, they don't have to worry about what's in the law because it's going away.

Annie Schwab: It's just [00:54:30] I don't see a lot of thresholds or dollar amount or percentages. It was more of like, okay, we're going to we're going to get rid of these. And this is what's going first. And this is sort of like a timeline of picking away at each little piece. Some are more business focused. Some are more individual focused. You've got, you know, the whole car focus thing. Um, so we'll see. Maybe it'll change. Maybe they'll.

Roger Harris: Come back.

Annie Schwab: Because again, if.

Roger Harris: A lot of money was was court was dedicated to energy credit. So by taking [00:55:00] those away again, going back to how bills are scored and how Congress works. Every dollar you take away is another dollar. You can either apply to deficit reduction or to some other thing that you'd rather replace it with. So energy credits suffered kind of is what I call a lot of people call payfors. In other words, getting rid of them, providing money to spend on other things. So it's it's a very controversial bill in the politics. I don't think [00:55:30] we know how the American people feel about it yet. There's studies, you know, that get into things not really in the tax part, but in the Medicare part, you know, talking about how an individual family is going to turn out at the end of this.

Annie Schwab: And so who's a winner? Who's a loser?

Roger Harris: Who's a winner? Who's the loser? And you know, at the end of the day, how Congress judges things and how the American public judge things can be completely different on paper. You might be a loser, but in your pocketbook, you might be a winner or vice versa. And, [00:56:00] you know, we'll see how popular this bill is, you know. Well, we'll get the first indication how popular the bill bill is in the midterm elections. You know, if the Republicans do well, then people like the bill. If the Democrats do well, people didn't like it because everything else is just political, just political chatter and news media doing stories. So, um, yeah.

Annie Schwab: So we've gone we've almost gone over today. Roger.

Roger Harris: I know, and a lot going on. [00:56:30] We'll continue to keep our eye on, um, what's happening at the IRS, what's happening in the commissioner's office? We'll hold IRS feet to the fire for October. Um. What else? Any any. Got two deadlines to get through.

Annie Schwab: We got two deadlines to get through. Hopefully. October 2nd we will see some some information coming out. Um, we are going to bring you some guest speakers. So um, again we appreciate everyone listening. And please continue to to listen.

Roger Harris: Yeah. [00:57:00] And Annie thanks. Annie did all the hard heavy lifting on this one. She did a webinar for accounting today and we used some of that content that she prepared for that. So thank you for all the work you did. Again a lot to lot going on for uh, the summer. And yeah, good luck getting through the next couple of deadlines. Go back and listen to the podcast with Maggie if you.

Annie Schwab: Yeah she's great.

Roger Harris: Get a chance to if you don't know what stakeholder liaison does, you really need to pay attention to that. [00:57:30] Any parting words, Annie?

Annie Schwab: No. Just keep your head up. Keep your, you know, working hard, listening to our podcast, staying in the know. Um, and hope everyone's summer wrapped up smoothly and hopefully it's cooling off for all of you people who live down south like me. Um, we have not seen our first fall, but I am anxiously awaiting for that first crisp air day.

Roger Harris: Uh, I'm looking for the leaves to change colors.

Annie Schwab: Yes, that'd be nice.

Roger Harris: And [00:58:00] keep your hopes up. You could be the next commissioner. There's still an opening, so. All right, Annie. Thank you. Uh, as always, thanks for all the work you put into it. Thanks to all our listeners. Uh, hope you enjoyed today's podcast. Hope you'll tell your friends about it and ask them to listen. And if you got any ideas about what you'd like us to talk about, shoot em to us. We we'll see what we can do. So, Annie, thank you as always. Thanks everyone for listening. See you next time.