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Listen "What The “Big Beautiful Bill” Means For Your Retirement Plan"
Episode Synopsis
Today, John and Nick dive into the Big Beautiful Bill and what its changes mean for retirees and pre-retirees as the year winds down. They break down updates to tax brackets, standard and senior deductions, SALT caps, and Roth conversion strategies, while sharing tips on avoiding common pitfalls. Plus, they touch on credits and deductions like charitable giving, auto loans, and solar panels to help listeners make the most of these changes.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Speaker 1:
This week on Retirement Planning Redefined, still a lot of questions out there about the Big Beautiful Bill and what happened earlier this year and some of those changes. So, we thought we would talk about that and touch on that as the year is winding down here on the podcast. So, stick around. Let's get into it. Hey, everybody. Welcome into Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find them online at pfgprivatewealth.com.
Guys, I know it's been around for a couple of months now, half a year or whatever, but still a lot of questions and things going on with the Big Beautiful Bill changes, especially as it affects retirees and pre-retirees. So, we thought we would dive back in and have a conversation on some of this and just maybe touch on some of the things you guys are still hearing a few months later and see if we can break this down a little bit for folks and help them out. John, how are you doing this week?
John:
Hey, I'm doing all right. Just getting ready for Thanksgiving here and just looking for some downtime right now.
Speaker 1:
Yeah, it's right here upon us. Nick, you're double whammy. You got Thanksgiving and then you got a wedding right after that. So, congratulations and happy holidays.
Nick:
Thanks. Yeah, it's going to be a busy end of the year.
Speaker 1:
Yeah, for sure. Well, speaking of, let's get into our topic here because there's lot of stuff that's happening and changes and whatnot. So, let's just dive into some of the things and break some things down. The big piece obviously was that the tax brackets that we were under the TCJA since 2017 got extended. All year, we were wondering if that was going to happen as the year was winding down. This stuff was going to wrap up at the end of this year, but they extended it and they made it permanent. So, talk to me about that, whoever wants to take this. That's interesting language and confusion for some people, but what's your thoughts on the tax brackets being extended?
John:
Yeah, so the tax brackets from 2017 now remain in place where they were set to expire. So, they're as permanent as I guess you could be when it comes to tax brackets-
Speaker 1:
To Washington.
John:
... to Congress. Yeah, exactly. So, obviously, Congress can make some changes at some point, but for right now, this is where we are. For retirees, important to take a look at historically where tax brackets have been and if you really pay attention where in some pretty low tax brackets if you look throughout time. So, now could be advantageous to some people to really develop some strategies to take advantage of this low tax bracket period for themselves because permanent doesn't mean too permanent as we just discussed. Depending on what happens, the next administration, things could not become permanent.
Speaker 1:
So I mean, one of the things Roth conversions has been really on the radar for many people for the last number of years because to your point of the historical tax lows, so now you do have some time to Roth over time for at least a couple more years anyway, until what, '28 or '29 potentially.
John:
Yeah, so Roth conversions is definitely something we implement for clients, and while this is going to be in place for the next few years. Maybe we get a little bit more aggressive and I think we're going to touch on it a little bit more in the podcast. We'll talk about some of the pitfalls to avoid with that because there are some new deductions that you want to remain below.
Speaker 1:
Yeah, yeah, for sure. Well, Nick, let's have you just jump in and tackle some of that. So, talk to me about some of the deductions, the standard stuff, some of these other pieces that they locked into place and some things we might want to know and think about.
Nick:
So for people that aren't familiar with the jargon when it comes to the tax or they don't prepare themselves, essentially people have two options. They can either use the standard deduction, which is what the majority of W-2 earners do especially or they can itemize. So, the reason that people would itemize historically is they would have enough expenses maybe through a business, maybe through interest from a mortgage or kids or different things that would allow them to itemize and there'd be a benefit to them from a tax perspective.
But when this was originally put into place and the standard deduction was increased, it really shifted it to people being able to just, for the most part, use the standard deduction, which previously about $29,500 for joint, $14,600 for single, and the updated number is going to be $31,500 for joint and then $15,750 for single. So, it's bumped up a little bit. Years ago, it was lower, and so there would be a lot of people that would get caught between the standard and the itemized, but it is a benefit for quite a bit of people.
Speaker 1:
Yeah. I mean, there's some decent numbers here we're talking about. When you take the standard deductions, it's going to be hard to get there, but you could really make a big dent. We'll talk about some of the add-on deductions as well here in a second. Does the SALT cap change a lot of things for you guys in Florida? I'm not sure versus other states like New York or California, New Jersey, and I guess maybe to clarify, John, what is the SALT cap and can you break that down a little bit?
John:
So I'll punt this to Nick. He just actually did this with a client. So, he can give a personal story, which is probably better than me.
Nick:
Yeah. So, the SALT cap is really state and local tax. It is or historically has been much more relevant in states that have higher property tax and/or state income tax. So, a lot of the northeast states, really just a lot of states in general. Here in Florida, we don't necessarily run into this a ton, however, we do have quite a few clients that do the snowbird thing.
Speaker 1:
Yeah, sure.
Nick:
So they have to incorporate taxes in other states and that thing. So, the reality is that it had previously been a benefit for people that were paying a large state income and/or property taxes. They could use it to offset the tax that they paid against their federal income. I guess when the legislation was changed, I think it was like 2017, 2018, they had reduced that SALT cap to $10,000. So, that really had an impact from the perspective of especially high income earners in states that had those different taxes that were applicable. It did cause a decently effective increase in taxes for them.
So, with the good old lobbying that's done, they went ahead and increased that from the $10,000 that's been in place for the last five, six years to $40,000 cap for incomes below $500,000. So, although we don't see it here, we have recently had some clients moving into homes that do have pretty significant property taxes. Although they're not paying state income tax, the level of the property taxes where they've gotten with the run-up in real estate around this area, it has become a little bit more relevant than it was previously.
Speaker 1:
And so that could make a difference. So, again, you want to make sure that of all these changes that are potentially there, you're talking with your financial professional and your CPAs and working together on making sure that you're being as effective as possible. So, John, you punted that one back over to Nick. I'll give you this one, the senior deduction. There was a lot of talk, obviously, a lot of campaigning on just getting rid of taxes on social security. They did their bartering and their deals and they came up with this senior citizen deduction. I mean, it's not bad for a number of years. It's like you're not paying social security taxes, but it's a little confusing for folks. So, can you break down some of the data on that?
John:
Yeah, so it was initially discussed as, "Hey, we're going to eliminate social security tax." This has come up a little bit with some clients asking, "Hey, did they get rid of it?" And the answer is, your social security still is taxed, but if you're above the age of 65, you do get what they call a senior citizen deduction. That's $6,000 per person, $12,000 married filing jointly, and there are some income limits to it. The single is $75,000 and the joint is $150,000. So, I would say over the last few months, we have been doing quite a bit of planning to make sure people stay below these thresholds to maximize the deduction and when we're doing our projections for this year and upcoming years, for some people, it's a big difference.
It's a nice little benefit for these retirees who unfortunately over the last few years are really impacted with inflation. I mean, the cost of everything is up. I know CPI recently, I think last year was like 2 to 3% or something, which doesn't feel like that, but if you're on a fixed income, this is a pretty big deal. So, it's nice to see some of these retirees get some relief, but especially with this one more than others, I think if you can stay below those income thresholds, now's the time to do it because as of now, they're expiring in 2028. So, you really only have about two or three years to really take advantage of this.
Speaker 1:
Be effective. Yeah. I mean to your point, Nick earlier was talking about the $31,500 for the standard, and then you slap another $12,000 for married, right? Then you slap another $12,000 on here. I mean, that's pretty hefty, right? So you could get really efficient with this. It's just a matter of making sure that you're, again, jumping in and taking advantage of it while you can. Any thoughts on that, Nick?
Nick:
Yeah, no, just like anything else, what you can see a little bit with some of these changes are that there's certain gaps that it's stepped in to help with. The reality is a lot of times it's going to be people that are middle, upper middle class, but from a tax perspective, so if they can keep their income under the 150 for a joint household, that tends to be a middle, upper middle class family.
Speaker 1:
Well, it's funny you say that because there was so much argument about, "Oh, they're going to do stuff for just the wealthy," but a lot of the changes that were put in on the Big Beautiful Bill really actually do help lower and middle class like these. So, I mean, I think there's some good benefits to the bill for everybody. There's some things that obviously are a little weird too.
Nick:
Oh, for sure.
Speaker 1:
You got to be effective with it.
Nick:
Yeah, yeah, for sure. The devil's always in the details. Absolutely. That's the case with any legislation that is this large and this comprehensive. But those are the standard deduction and the senior citizen deduction are definitely two that are going to have a pretty substantial impact on a large group of people.
Speaker 1:
John, I'm going to go back to you for a minute because we were talking about the Roth earlier. We tossed that in there at the beginning piece there. Again, clearly, this is a good time to think about the fact that it is still alive for a little bit. So, again, Rothing over time is back on that table as we talked about, and so that may be a really effective part of your strategy. You do not want to ignore it because it still could be a limited window.
John:
Correct, yeah. So, definitely that's one thing we're looking at currently is what's the right amount of Roth conversions to be doing at this time. So, it is a great time to-
Speaker 1:
Any traps in there? Any pitfalls we should be aware of?
John:
Yeah, so I was going to say there's definitely a good time to be aggressive with it, but with this new senior citizen deduction, if you're doing some conversions, you want to make sure you stay below those thresholds to take advantage of that additional $6,000 per person. So, now is a great time to be aggressive with this, but at the same time, you want to be cautious because there are some things you could be missing out on if you get too aggressive. So, like we've always said, look at the plan, talk to your CPA, talk to your financial advisor. One of the most important things going into retirement is avoid unnecessary taxes. So, it's just an eroding factor on your money. So, if you can avoid it, that just helps you overall.
Speaker 1:
Well, people tend to stay confused if we don't do this about the whole brackets and the steps anyway, right? Because I think a lot of people think, "Oh, I'm in the 22% bracket. That stayed. Yay, cool. I'm still there. I don't have to go up," but every dollar is taxed at that and that's not how it works. That's what I think confuses people. So, when you're talking about maximizing your Roth or something like that, you want to maximize those steps in that bucket, if you will. So, that you just don't pop into the next bracket if you can. Is that accurate?
John:
Correct, yes. You definitely want stay within the bracket, not really jump up, and sometimes it's okay to jump up as long as you understand how much-
Speaker 1:
Yeah, not every dollar is going to be at 24 if you popped up to 24.
John:
Correct, yeah. I mean, we have some clients that are doing some Roth conversions from an inheritance standpoint, so they look at it and say, "Well, I'll pay 22 so my kid doesn't have to pay 30, whatever, whatever it is."
Speaker 1:
Right, yeah.
John:
Depending on your situation, you really want to pay attention to what bracket you'll be, what your effective rate is, and just don't do it willy-nilly. You want a strategy.
Speaker 1:
Yeah, if you have $1 million you want to convert from a traditional 401 over to a Roth, you want to make sure that you're not going bracket busting on that, right? Don't do it all at one time. Again, Roth over time, right? That's the conversation piece there. So, what else is of note in the bills, guys? Nick, what's some other things that jumped out at you?
Nick:
Yeah, I think it's definitely less applicable for many people, but they did bring back bonus depreciation for... It's typically used by small businesses or landlords, oftentimes applies to qualified business expense or rental property purchase. For example, it can have to do with vehicles, large equipment where a company can accelerate the depreciation into the year, instead of spreading it out over multiple times, which can help offset if they're having a really good year from an income perspective or just bring down the taxes in general.
From the standpoint of a couple of other things, I'll have John speak to the EV credit because he took advantage of pretty much all the EV stuff that you could. But one of the deductions, additional deductions that they had put in place is for auto loan interest deduction. So, it's an above the line. It applies to cars purchased in 2025 or later, and the car has to have final assembly in the US.
Speaker 1:
That's a funny one right there. It's like how much of that this qualifies, right? So what's final assembly mean? Is there a percentage break?
Nick:
There's definitely cheat sheets out there. Ask your local AI machine.
Speaker 1:
Or dealership I suppose.
Nick:
Yeah, yeah, the dealers will definitely know, but once again, there's an income threshold on that. So, income above $100,000 won't qualify. From a charitable giving standpoint, there is an above the line deduction for people that do not itemize. So, $1,000 per person or $2,000 for married filed and jointly.
Speaker 1:
It's not a lot, but I mean it's still something, especially in the season of giving, right? It's above the line. So, give some money.
Nick:
Yeah, exactly.
John:
Better than nothing.
Speaker 1:
Yeah, exactly.
Nick:
For sure.
Speaker 1:
Yeah, for sure. Well, what about that EV thing, John?
John:
Yeah, so the vehicle EV credit went away at the end of September, so that one can no longer be used. So, that was if you bought new, there was a tax credit you could obtain and then if you bought used, there was something you could actually get as well depending on the value of the car. If you were actually leasing, basically, the dealership got the credit, which would hopefully reduce your payment depending on how good you are at negotiating.
Speaker 1:
Got you.
John:
But the big one that we've been talking to clients about, and I did myself, which Nick was referencing, was solar panels. So, after 12/31/2025, you will not get that 30% reduction for solar panel installation on your house.
Speaker 1:
Yeah, it might not be enough time now, huh? I wonder if you could get that done.
John:
It depends how quick your contractor is. I'll tell you, by the time I agreed to mine, I thought it'd be about a month out and I think within two to three weeks, they got me on the calendar and put it in. So, I had mine in much faster than anticipated, which I was happy about, but it's a 30% tax credit. If you put some solar panels on the roof, it just has to be installed by 12/31. It doesn't have to pass inspection or anything as far as I know. It needs to be installed by that date. But I'll tell you, for those that are comparing this, I just got my first bill from the energy company and there still is a fee to be on their grid.
In Florida here, apparently with these hurricanes, there's additional fees that we're getting charged to build the grid back up and to pay for the emergency services. A funny conversation with the person, I said, "Well, when it's built back up, does this go away or whenever we're done paying for the cost of the emergency services?" Yeah, that's a good question.
Speaker 1:
That's a question.
John:
Well, let's take a look at that.
Speaker 1:
On ours here in North Carolina, we have storm repair tax or whatever. It's been on there for a number of years now, and it's like, but when the storms are repaired, what then? Ongoing storm.
John:
I'm like, "Okay, so this is just an ongoing bill-"
Speaker 1:
Pretty much.
John:
... regardless of my usage that I'm doing here.
Speaker 1:
Another way for them to just hit us with something and go, "Oh, but it's necessary." Yeah. Okay. All right. Well, final one here I thought was interesting was the no tax on tips one, right? Might not affect necessarily your client base, but maybe their kids or grandkids, especially a lot of service industry in Florida. So, no tax on tips up to 25 grand, I think, and that's temporary as well, but that could be interesting. Any final thoughts as we go to wrap this up guys? Anything, Nick, on something we should do now or be effective as the year's winding down?
Nick:
I mean, I wouldn't say that there's a lot to do before the end of the year when it relates to this. I think this is a good example though, and one of the conversations that we have with people is that just because a certain strategy is best now doesn't mean it's going to be best in 5 years or 10 years or 15 years. So, when you see a bill like this and with the different changes, something's becoming permanent, something's changing, new rules that are built into sunset, it just shows you how important it's to plan, to build in flexibility, have options both now or later on in retirement, have different buckets of money and really just have a strategy moving forward so that you can benefit no matter what's happening.
Speaker 1:
All right. John, final thoughts from you?
John:
Not too much. I think we hit mostly everything. I think just being aware of where we are. Historically, tax brackets to me is something to take a look at because I think part of this new bill added, I think, 2.4 trillion of new debt over the next 10 years and I think 4 trillion increase in debt ceiling. So, there's a lot of-
Speaker 1:
Future tax liability.
John:
There's a lot of trillions getting created here. So, just be wary of what's down the road. So, it's good to just take a look at your overall strategy.
Speaker 1:
Yeah, good point. Timelines, definitely got still a couple of years left, but just be effective and get on it as soon as possible because we all know time just zings it right by. So, if you've got some questions, need some help, reach out to the team at pfgprivatewealth.com That's pfgprivatewealth.com and have a conversation with John and Nick and the whole team today and just get started. Don't forget to subscribe to Retirement Planning Redefined on Apple or Spotify or whatever podcasting app you enjoy.
You can find all that information again at the website as well or check the show links. There's some just stuff in the descriptions there. So, pfgprivatewealth.com. Guys, thanks for hanging out. Appreciate it. Hope everybody has a great holiday season and happy Thanksgiving everyone. We'll see you next time here on the podcast.
Helpful Information:
PFG Website: https://www.pfgprivatewealth.com/
Contact: 813-286-7776
Email: [email protected]
Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Speaker 1:
This week on Retirement Planning Redefined, still a lot of questions out there about the Big Beautiful Bill and what happened earlier this year and some of those changes. So, we thought we would talk about that and touch on that as the year is winding down here on the podcast. So, stick around. Let's get into it. Hey, everybody. Welcome into Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find them online at pfgprivatewealth.com.
Guys, I know it's been around for a couple of months now, half a year or whatever, but still a lot of questions and things going on with the Big Beautiful Bill changes, especially as it affects retirees and pre-retirees. So, we thought we would dive back in and have a conversation on some of this and just maybe touch on some of the things you guys are still hearing a few months later and see if we can break this down a little bit for folks and help them out. John, how are you doing this week?
John:
Hey, I'm doing all right. Just getting ready for Thanksgiving here and just looking for some downtime right now.
Speaker 1:
Yeah, it's right here upon us. Nick, you're double whammy. You got Thanksgiving and then you got a wedding right after that. So, congratulations and happy holidays.
Nick:
Thanks. Yeah, it's going to be a busy end of the year.
Speaker 1:
Yeah, for sure. Well, speaking of, let's get into our topic here because there's lot of stuff that's happening and changes and whatnot. So, let's just dive into some of the things and break some things down. The big piece obviously was that the tax brackets that we were under the TCJA since 2017 got extended. All year, we were wondering if that was going to happen as the year was winding down. This stuff was going to wrap up at the end of this year, but they extended it and they made it permanent. So, talk to me about that, whoever wants to take this. That's interesting language and confusion for some people, but what's your thoughts on the tax brackets being extended?
John:
Yeah, so the tax brackets from 2017 now remain in place where they were set to expire. So, they're as permanent as I guess you could be when it comes to tax brackets-
Speaker 1:
To Washington.
John:
... to Congress. Yeah, exactly. So, obviously, Congress can make some changes at some point, but for right now, this is where we are. For retirees, important to take a look at historically where tax brackets have been and if you really pay attention where in some pretty low tax brackets if you look throughout time. So, now could be advantageous to some people to really develop some strategies to take advantage of this low tax bracket period for themselves because permanent doesn't mean too permanent as we just discussed. Depending on what happens, the next administration, things could not become permanent.
Speaker 1:
So I mean, one of the things Roth conversions has been really on the radar for many people for the last number of years because to your point of the historical tax lows, so now you do have some time to Roth over time for at least a couple more years anyway, until what, '28 or '29 potentially.
John:
Yeah, so Roth conversions is definitely something we implement for clients, and while this is going to be in place for the next few years. Maybe we get a little bit more aggressive and I think we're going to touch on it a little bit more in the podcast. We'll talk about some of the pitfalls to avoid with that because there are some new deductions that you want to remain below.
Speaker 1:
Yeah, yeah, for sure. Well, Nick, let's have you just jump in and tackle some of that. So, talk to me about some of the deductions, the standard stuff, some of these other pieces that they locked into place and some things we might want to know and think about.
Nick:
So for people that aren't familiar with the jargon when it comes to the tax or they don't prepare themselves, essentially people have two options. They can either use the standard deduction, which is what the majority of W-2 earners do especially or they can itemize. So, the reason that people would itemize historically is they would have enough expenses maybe through a business, maybe through interest from a mortgage or kids or different things that would allow them to itemize and there'd be a benefit to them from a tax perspective.
But when this was originally put into place and the standard deduction was increased, it really shifted it to people being able to just, for the most part, use the standard deduction, which previously about $29,500 for joint, $14,600 for single, and the updated number is going to be $31,500 for joint and then $15,750 for single. So, it's bumped up a little bit. Years ago, it was lower, and so there would be a lot of people that would get caught between the standard and the itemized, but it is a benefit for quite a bit of people.
Speaker 1:
Yeah. I mean, there's some decent numbers here we're talking about. When you take the standard deductions, it's going to be hard to get there, but you could really make a big dent. We'll talk about some of the add-on deductions as well here in a second. Does the SALT cap change a lot of things for you guys in Florida? I'm not sure versus other states like New York or California, New Jersey, and I guess maybe to clarify, John, what is the SALT cap and can you break that down a little bit?
John:
So I'll punt this to Nick. He just actually did this with a client. So, he can give a personal story, which is probably better than me.
Nick:
Yeah. So, the SALT cap is really state and local tax. It is or historically has been much more relevant in states that have higher property tax and/or state income tax. So, a lot of the northeast states, really just a lot of states in general. Here in Florida, we don't necessarily run into this a ton, however, we do have quite a few clients that do the snowbird thing.
Speaker 1:
Yeah, sure.
Nick:
So they have to incorporate taxes in other states and that thing. So, the reality is that it had previously been a benefit for people that were paying a large state income and/or property taxes. They could use it to offset the tax that they paid against their federal income. I guess when the legislation was changed, I think it was like 2017, 2018, they had reduced that SALT cap to $10,000. So, that really had an impact from the perspective of especially high income earners in states that had those different taxes that were applicable. It did cause a decently effective increase in taxes for them.
So, with the good old lobbying that's done, they went ahead and increased that from the $10,000 that's been in place for the last five, six years to $40,000 cap for incomes below $500,000. So, although we don't see it here, we have recently had some clients moving into homes that do have pretty significant property taxes. Although they're not paying state income tax, the level of the property taxes where they've gotten with the run-up in real estate around this area, it has become a little bit more relevant than it was previously.
Speaker 1:
And so that could make a difference. So, again, you want to make sure that of all these changes that are potentially there, you're talking with your financial professional and your CPAs and working together on making sure that you're being as effective as possible. So, John, you punted that one back over to Nick. I'll give you this one, the senior deduction. There was a lot of talk, obviously, a lot of campaigning on just getting rid of taxes on social security. They did their bartering and their deals and they came up with this senior citizen deduction. I mean, it's not bad for a number of years. It's like you're not paying social security taxes, but it's a little confusing for folks. So, can you break down some of the data on that?
John:
Yeah, so it was initially discussed as, "Hey, we're going to eliminate social security tax." This has come up a little bit with some clients asking, "Hey, did they get rid of it?" And the answer is, your social security still is taxed, but if you're above the age of 65, you do get what they call a senior citizen deduction. That's $6,000 per person, $12,000 married filing jointly, and there are some income limits to it. The single is $75,000 and the joint is $150,000. So, I would say over the last few months, we have been doing quite a bit of planning to make sure people stay below these thresholds to maximize the deduction and when we're doing our projections for this year and upcoming years, for some people, it's a big difference.
It's a nice little benefit for these retirees who unfortunately over the last few years are really impacted with inflation. I mean, the cost of everything is up. I know CPI recently, I think last year was like 2 to 3% or something, which doesn't feel like that, but if you're on a fixed income, this is a pretty big deal. So, it's nice to see some of these retirees get some relief, but especially with this one more than others, I think if you can stay below those income thresholds, now's the time to do it because as of now, they're expiring in 2028. So, you really only have about two or three years to really take advantage of this.
Speaker 1:
Be effective. Yeah. I mean to your point, Nick earlier was talking about the $31,500 for the standard, and then you slap another $12,000 for married, right? Then you slap another $12,000 on here. I mean, that's pretty hefty, right? So you could get really efficient with this. It's just a matter of making sure that you're, again, jumping in and taking advantage of it while you can. Any thoughts on that, Nick?
Nick:
Yeah, no, just like anything else, what you can see a little bit with some of these changes are that there's certain gaps that it's stepped in to help with. The reality is a lot of times it's going to be people that are middle, upper middle class, but from a tax perspective, so if they can keep their income under the 150 for a joint household, that tends to be a middle, upper middle class family.
Speaker 1:
Well, it's funny you say that because there was so much argument about, "Oh, they're going to do stuff for just the wealthy," but a lot of the changes that were put in on the Big Beautiful Bill really actually do help lower and middle class like these. So, I mean, I think there's some good benefits to the bill for everybody. There's some things that obviously are a little weird too.
Nick:
Oh, for sure.
Speaker 1:
You got to be effective with it.
Nick:
Yeah, yeah, for sure. The devil's always in the details. Absolutely. That's the case with any legislation that is this large and this comprehensive. But those are the standard deduction and the senior citizen deduction are definitely two that are going to have a pretty substantial impact on a large group of people.
Speaker 1:
John, I'm going to go back to you for a minute because we were talking about the Roth earlier. We tossed that in there at the beginning piece there. Again, clearly, this is a good time to think about the fact that it is still alive for a little bit. So, again, Rothing over time is back on that table as we talked about, and so that may be a really effective part of your strategy. You do not want to ignore it because it still could be a limited window.
John:
Correct, yeah. So, definitely that's one thing we're looking at currently is what's the right amount of Roth conversions to be doing at this time. So, it is a great time to-
Speaker 1:
Any traps in there? Any pitfalls we should be aware of?
John:
Yeah, so I was going to say there's definitely a good time to be aggressive with it, but with this new senior citizen deduction, if you're doing some conversions, you want to make sure you stay below those thresholds to take advantage of that additional $6,000 per person. So, now is a great time to be aggressive with this, but at the same time, you want to be cautious because there are some things you could be missing out on if you get too aggressive. So, like we've always said, look at the plan, talk to your CPA, talk to your financial advisor. One of the most important things going into retirement is avoid unnecessary taxes. So, it's just an eroding factor on your money. So, if you can avoid it, that just helps you overall.
Speaker 1:
Well, people tend to stay confused if we don't do this about the whole brackets and the steps anyway, right? Because I think a lot of people think, "Oh, I'm in the 22% bracket. That stayed. Yay, cool. I'm still there. I don't have to go up," but every dollar is taxed at that and that's not how it works. That's what I think confuses people. So, when you're talking about maximizing your Roth or something like that, you want to maximize those steps in that bucket, if you will. So, that you just don't pop into the next bracket if you can. Is that accurate?
John:
Correct, yes. You definitely want stay within the bracket, not really jump up, and sometimes it's okay to jump up as long as you understand how much-
Speaker 1:
Yeah, not every dollar is going to be at 24 if you popped up to 24.
John:
Correct, yeah. I mean, we have some clients that are doing some Roth conversions from an inheritance standpoint, so they look at it and say, "Well, I'll pay 22 so my kid doesn't have to pay 30, whatever, whatever it is."
Speaker 1:
Right, yeah.
John:
Depending on your situation, you really want to pay attention to what bracket you'll be, what your effective rate is, and just don't do it willy-nilly. You want a strategy.
Speaker 1:
Yeah, if you have $1 million you want to convert from a traditional 401 over to a Roth, you want to make sure that you're not going bracket busting on that, right? Don't do it all at one time. Again, Roth over time, right? That's the conversation piece there. So, what else is of note in the bills, guys? Nick, what's some other things that jumped out at you?
Nick:
Yeah, I think it's definitely less applicable for many people, but they did bring back bonus depreciation for... It's typically used by small businesses or landlords, oftentimes applies to qualified business expense or rental property purchase. For example, it can have to do with vehicles, large equipment where a company can accelerate the depreciation into the year, instead of spreading it out over multiple times, which can help offset if they're having a really good year from an income perspective or just bring down the taxes in general.
From the standpoint of a couple of other things, I'll have John speak to the EV credit because he took advantage of pretty much all the EV stuff that you could. But one of the deductions, additional deductions that they had put in place is for auto loan interest deduction. So, it's an above the line. It applies to cars purchased in 2025 or later, and the car has to have final assembly in the US.
Speaker 1:
That's a funny one right there. It's like how much of that this qualifies, right? So what's final assembly mean? Is there a percentage break?
Nick:
There's definitely cheat sheets out there. Ask your local AI machine.
Speaker 1:
Or dealership I suppose.
Nick:
Yeah, yeah, the dealers will definitely know, but once again, there's an income threshold on that. So, income above $100,000 won't qualify. From a charitable giving standpoint, there is an above the line deduction for people that do not itemize. So, $1,000 per person or $2,000 for married filed and jointly.
Speaker 1:
It's not a lot, but I mean it's still something, especially in the season of giving, right? It's above the line. So, give some money.
Nick:
Yeah, exactly.
John:
Better than nothing.
Speaker 1:
Yeah, exactly.
Nick:
For sure.
Speaker 1:
Yeah, for sure. Well, what about that EV thing, John?
John:
Yeah, so the vehicle EV credit went away at the end of September, so that one can no longer be used. So, that was if you bought new, there was a tax credit you could obtain and then if you bought used, there was something you could actually get as well depending on the value of the car. If you were actually leasing, basically, the dealership got the credit, which would hopefully reduce your payment depending on how good you are at negotiating.
Speaker 1:
Got you.
John:
But the big one that we've been talking to clients about, and I did myself, which Nick was referencing, was solar panels. So, after 12/31/2025, you will not get that 30% reduction for solar panel installation on your house.
Speaker 1:
Yeah, it might not be enough time now, huh? I wonder if you could get that done.
John:
It depends how quick your contractor is. I'll tell you, by the time I agreed to mine, I thought it'd be about a month out and I think within two to three weeks, they got me on the calendar and put it in. So, I had mine in much faster than anticipated, which I was happy about, but it's a 30% tax credit. If you put some solar panels on the roof, it just has to be installed by 12/31. It doesn't have to pass inspection or anything as far as I know. It needs to be installed by that date. But I'll tell you, for those that are comparing this, I just got my first bill from the energy company and there still is a fee to be on their grid.
In Florida here, apparently with these hurricanes, there's additional fees that we're getting charged to build the grid back up and to pay for the emergency services. A funny conversation with the person, I said, "Well, when it's built back up, does this go away or whenever we're done paying for the cost of the emergency services?" Yeah, that's a good question.
Speaker 1:
That's a question.
John:
Well, let's take a look at that.
Speaker 1:
On ours here in North Carolina, we have storm repair tax or whatever. It's been on there for a number of years now, and it's like, but when the storms are repaired, what then? Ongoing storm.
John:
I'm like, "Okay, so this is just an ongoing bill-"
Speaker 1:
Pretty much.
John:
... regardless of my usage that I'm doing here.
Speaker 1:
Another way for them to just hit us with something and go, "Oh, but it's necessary." Yeah. Okay. All right. Well, final one here I thought was interesting was the no tax on tips one, right? Might not affect necessarily your client base, but maybe their kids or grandkids, especially a lot of service industry in Florida. So, no tax on tips up to 25 grand, I think, and that's temporary as well, but that could be interesting. Any final thoughts as we go to wrap this up guys? Anything, Nick, on something we should do now or be effective as the year's winding down?
Nick:
I mean, I wouldn't say that there's a lot to do before the end of the year when it relates to this. I think this is a good example though, and one of the conversations that we have with people is that just because a certain strategy is best now doesn't mean it's going to be best in 5 years or 10 years or 15 years. So, when you see a bill like this and with the different changes, something's becoming permanent, something's changing, new rules that are built into sunset, it just shows you how important it's to plan, to build in flexibility, have options both now or later on in retirement, have different buckets of money and really just have a strategy moving forward so that you can benefit no matter what's happening.
Speaker 1:
All right. John, final thoughts from you?
John:
Not too much. I think we hit mostly everything. I think just being aware of where we are. Historically, tax brackets to me is something to take a look at because I think part of this new bill added, I think, 2.4 trillion of new debt over the next 10 years and I think 4 trillion increase in debt ceiling. So, there's a lot of-
Speaker 1:
Future tax liability.
John:
There's a lot of trillions getting created here. So, just be wary of what's down the road. So, it's good to just take a look at your overall strategy.
Speaker 1:
Yeah, good point. Timelines, definitely got still a couple of years left, but just be effective and get on it as soon as possible because we all know time just zings it right by. So, if you've got some questions, need some help, reach out to the team at pfgprivatewealth.com That's pfgprivatewealth.com and have a conversation with John and Nick and the whole team today and just get started. Don't forget to subscribe to Retirement Planning Redefined on Apple or Spotify or whatever podcasting app you enjoy.
You can find all that information again at the website as well or check the show links. There's some just stuff in the descriptions there. So, pfgprivatewealth.com. Guys, thanks for hanging out. Appreciate it. Hope everybody has a great holiday season and happy Thanksgiving everyone. We'll see you next time here on the podcast.
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