Calvin: 0:01

Welcome to the Empowering Healthy Business Podcast, the podcast for small business owners. Your host, cal Wilder, has built and sold businesses of his own, and he has helped hundreds of other small businesses, whether it is improving sales, profitability and cash flow, building a sustainable, scalable and saleable business, reducing your stress level, achieving work-life balance or improving physical and emotional fitness. Cal and his guests are here to help you run a healthier business and, in turn, have a healthier life.

Calvin: 0:34

Welcome to this episode of the Empowering Healthy Business Podcast. We probably all know we had an event here a couple of weeks ago in the US we had a presidential election and election for a variety of other offices, and so whenever we have a presidential election, especially one that results in a change to the office, there's a resulting change to tax codes and policies and principles oftentimes, and so we're joined today by Greg Reed, who is head of tax at SmartBooks and a business partner on the tax side here, to talk about both. What are some issues to keep in mind as we go into a new presidential administration, as well as some things to keep in mind as we go into year end that you may want to do for tax planning or tax optimization purposes. So welcome back to the show, reg.

Greg: 1:26

Thanks for having me. It's been an interesting couple of weeks, that's for sure.

Calvin: 1:31

So the headline issues typically revolve around what's going to happen to the income tax rates, any change to the estate tax, the acts on social security or not, and this time around we have tariffs, so we need to think about what is it how does that play into our tax scenario?

Greg: 1:48

I might be looking for a job next year at this time I doubt it yeah, I don't know, we'll see. But yeah, I mean, at this point we know that obviously, president-elect trump is heading to the office and he's got the full support of congress now, so we should see some pretty significant changes. I think we'll see some things extended right. One of the things is that the Tax Cuts and Jobs Act has been in the news because a lot of those provisions are going to sunset and now, with Trump in office and the Republicans controlling Congress, I think what we'll see is a lot of those provisions extended and maybe even modified to what they originally wanted them to be back in 2017.

Calvin: 2:38

And so what does that mean for the small business owner listening to the podcast?

Greg: 2:43

So hard to tell, but I think ultimately this is going to be a good thing for small business owner listening to the podcast. So hard to tell but I think ultimately this is going to be a good thing for small business owners.

Calvin: 2:49

So remind us the Tax Cuts and Jobs Act. What were the key features there?

Greg: 2:54

So that was where we saw the reduction in the corporate tax rate to 21%. We saw the qualified business income deduction for pass-through entities. We saw the qualified business income deduction for pass-through entities. Some of the less liked provisions were the itemized deduction, the cap on taxes that you can take there at $10,000. And so it basically meant that a lot of people qualified for the standard deduction and couldn't itemize anymore, which for people in high tax states was an issue, Because if you were paying, you know, 20, $30,000 in property taxes, you were getting a pretty good deduction for itemized deductions. That changed with the Tax Cuts and Jobs Act. Now we'll see if we get the $10,000 cap moved up for itemized deductions, but to be determined.

Calvin: 3:54

Okay, cool. What has the Trump administration said so far about individual and corporate tax brackets?

Greg: 4:09

far about individual and corporate tax brackets, so I think we're not going to see a massive change in tax brackets. The idea was that corporate tax rates could go as low as 15% for manufacturers manufacturing in the US. I think the big push is to benefit those who bring more jobs within the US and produce here in the US. Now, leading into the tariffs that we've talked about or that we've heard about, we'll see what happens. Basically, a tariff is a tax on goods being imported to the United States. It's essentially like a sales tax. I think at one point the idea was that he wanted to basically wipe out income taxes with tariffs. A lot of economists, from what I've read, don't know if that would actually work. It would be hard to replace one with the other. Maybe there's a middle ground there where that could work, but we will see. From a planning perspective, I don't think I would plan on getting out of taxes anytime soon, though.

Calvin: 5:20

Right, right. And so, if anything, we might see a reduction in sales in income tax replaced by, you know, a higher sales tax or tariff tax right.

Greg: 5:32

Maybe unlikely, but yes, I mean again, I think a lot was said during the campaign and we'll see what actually sticks the campaign and we'll see what actually sticks.

Calvin: 5:45

Exactly. A lot of things were definitely said Tax breaks for everybody but the reality is we still have a huge federal government to fund right.

Greg: 5:56

Yes, yes, I think from an individual tax standpoint. He talked about lowering taxes on social security income, tips and overtime. I mean, we'll see, we'll see how that all shakes out. I kind of like the idea of lowering taxes on overtime. Anyone like me that. I remember when I was in college and I was an intern. Once I hit 40 hours I got paid time and a half, which I think at that point was like $19 an hour. It was very motivating to work overtime and make that extra money. I can imagine that there's other people out there that would say, hey, if I can work overtime and not have to pay tax on all this income, that's a huge benefit. So we'll see.

Calvin: 6:44

And then surveying a few other types of taxes. Sometimes, you know, there's talk of a change to the capital gains rate. I don't remember hearing much discussion during this election cycle around changes to capital gains.

Greg: 6:56

I don't think that we'll see a change in cap gains rates, potentially maybe a change in the brackets between 0, 15, and 20, but I think those will probably stay the same. I think a lot of the tax breaks that we see will revolve around the child tax credit. Like I mentioned, the tips overtime.

Calvin: 7:22

Someone might say all the details are in the loopholes. To be cynical about it, right.

Greg: 7:27

Yeah, yeah.

Calvin: 7:30

Okay, and then the third rail of politics around Social Security and Medicare. I assume nobody said they were going to cut that stuff right?

Greg: 7:40

No, I don't think that those things are going to be cut. I think there's been a lot said about what could happen, but I don't think that anyone's stealing your Social Security anytime soon.

Calvin: 7:51

Yeah, there was no talk of completely privatizing it and doing away with FICA tax. We'll see what Elon and Vivek come up with there. It wouldn't surprise me if there was a plan to sunset those programs, but I didn't seem like anybody wanted to tackle those things anytime soon.

Greg: 8:07

I think that, if anything, I was listening to a few podcasts where people who passed away were still continuing to get their social security, and so I think that, if anything, I was listening to a few podcasts where people who passed away were still continuing to get their social security, and so I think it would be maybe some cleanup there, but I don't think that we're going to do away with any of that.

Calvin: 8:23

And the other tax type I wanted to ask about was the estate tax, which is both federal and state. So here in Massachusetts there are some changes ongoing, I know, but at the federal level was there any discussion around major changes to estate tax?

Greg: 8:38

Not that I'm aware of. I know the clients that we primarily deal with aren't too worried about the estate tax. I believe it's pretty high now $13 million or so, and I might be making that number up but I don't think that it's anything that we need to particularly worry about right now, or for our clients at least. Maybe the ultra high net worth people need to be worrying about stuff like that.

Calvin: 9:03

But I hope to one day worry about that, Craig.

Greg: 9:07

As do I. How do I? So as far as, post-election tax strategy goes is there anything for 2024 based on the election results that has changed with your advice to clients? Not really. I think 2024 is going to be pretty quiet because I mean, think about when Trump's going to get into office and when, you know, the Republicans take over Congress. It's going to be the year's already going to be closed. So some things that we might see and this is just me speculating and I haven't seen this anywhere is potentially a, the bonus depreciation reverting back to 100 percent, and then that state and local tax cap that I referred to earlier, the 10,000 cap. I wouldn't be surprised to see that get raised, but that might be more of a 2025 thing. Okay.

Calvin: 10:03

So the bottom line is for 2024, there's not much clients really need to worry about. You can worry about what's going to happen in 2025 and beyond, but anything in particular for 2024 to worry about.

Greg: 10:13

You can kind of read through, you know, read between the lines. I think we can kind of almost I don't want to say guarantee, because nothing's ever guaranteed but I think we can see that tax rates will go down for business owners, people higher net worth, stuff like that. Potentially pushing income into 2025 might not be the worst idea. Alternatively, bringing expenses into 2024. So that might not be the worst idea. You know there's always bunching. You know if you're an individual, you can bunch deductions. If you are planning on giving to a particular charitable organization, maybe do more now instead of a little now and a little in 2025. The green energy credits so home efficient improvements, the electric vehicle credits those are probably going to be on the chopping block. So if you wanted to make any energy efficient improvements, now's probably the time. But yeah, 2024 is going to be a quiet year in taxes. I don't think we're going to see too much going on. Like I mentioned, depreciation If you're going to buy an asset or you need to buy an asset now, obviously before the end of the year, is probably better than next year, because we're either going to see one of two things right we're going to see either 100% bonus depreciation, retroactive to 2024, or we're going to see the Tax, customs and Jobs Act continued to sunset and it's going to be, instead of 60% bonus depreciation in 2024, it's going to go down to 40% in 2025. So I think, ultimately, you're getting more bang for your buck if you purchase assets before the end of the year.

Calvin: 12:11

So now we're getting into year-end tax planning a little bit, which I'd love to explore, since we're in mid-November as we record this episode. So what are the standard year-end tax practices that you recommend this time of year, and is there anything new in 2024 for people to worry about?

Greg: 12:26

So there is one new one that I'm pretty excited about. I haven't heard too much about it, and it's basically from the Secure Act 2.0, which I believe was passed earlier in the springtime. There's a credit for any businesses that start a 401k this year, I believe. The max credit is up to $5,000. So keep in mind that a credit is a dollar for dollar reduction of your taxes, so that's five grand if you max it out, five grand back in your pocket. So something to talk to your CPA about. If you did implement a 401k or it doesn't even have to be a 401k, just some sort of retirement plan this year to see if you do qualify for that and then, if so, this year to see if you do qualify for that and then, if so, how much could be a good one. Okay, and then what's the best practice now for business owners to start to plan for year end. 2024 is a quiet year. I think that we kind of stick to the tried and true approaches of deferring income to the future, accelerating expenses. If you can prepay expenses now for next year, great, let's go ahead and do that. Keep in mind not that I'm advising people to run up their credit cards, but if you swipe your credit card, it becomes a deduction at that point, not when you pay your credit card. So feel free to go out and maybe purchase things using your credit card and paying it off in January and get the benefit for it now, right, and then, like I said, we'll see what January has to offer. I don't know if we'll see a lot of changes in 2024, like retroactive changes, not to say that it hasn't been done. I believe a few years ago they even changed things into like February, which creates a lot of turmoil, not just for us as practitioners. But you know now this the IRS has to update their system. Tax software companies have to update their system. People who are eager to file maybe don't get to take advantage of that right away. They have to file amended returns, which becomes another issue the waters to see what happens in January and see where things are heading and maybe, if you're usually a January 28th filer, maybe you're a February 7th filer this year.

Calvin: 15:06

Right. So, give it a little time see if there are any material developments that emerge by end of January, early February, and go from there.

Greg: 15:15

Okay, I wouldn't rush it this year, that's for sure.

Calvin: 15:18

Nothing new with 1099s that you're aware of, Greg.

Greg: 15:21

I believe there is a new 1099. I haven't read too much up on it. I believe it has to do with crypto. You may get a few new 1099s this year. Just pass them on. It's nothing that we can't handle Same $600 threshold them on.

Calvin: 15:36

It's nothing that we can't handle. Same $600 threshold payable it's to a 1099 to service provider vendors and individual contractors who pay more than $600. Pretty standard on the 1099 front. Okay, cool. So, this is kind of a quick hitting episode quick election recap and year-end tax planning recap. Anything else, Greg, that is important to mention before we wrap up?

Greg: 16:02

I think just overall. The underlying theme here is let's not go burn everything down just yet. We'll see what happens. Congress still is Congress. They have checks and balances, and so, let's see how things shake out post inauguration and then we'll go from there.

Calvin: 16:24

All right, well, thank you, Greg. I appreciate the time, and if anybody wants to get in touch with you directly with any tax questions, what's the best way for them to do that?

Greg: 16:32

You can go to our website, smartbookstax. com, and then you can get on my calendar there, or you can email me greed@ smartbookstaxcom as well and I know that is greed, so, it's one easy way to remember it. But yeah, those are probably the two best ways to get ahold of me.

Calvin: 16:52

All right. Well, thank you, Greg

Greg: 16:58

Great. Thanks for having me

Calvin: 16:59

Reference show notes and find other episodes on empowering healthy businesscom. If you would like to have a one-on-one discussion with me or possibly engage smart books to help with your business, you can reach me at Cal C-A-L at empowering healthy businesscom or message me on LinkedIn, where I am easy to find until next time. This is empowering healthy business, the podcast for small business owners. Signing off.