SPEAKER_01: 0:00

This is the Empowering Healthy Business Podcast, and I'm your host, Cal Wilder. Each episode, we'll dive into topics important to folks who want to run businesses that are both nicely profitable, sustainable, and scalable, and who want to achieve balance in their lives and realize their potential inside and outside of work. The show is sponsored by SmartBooks, provider of bookkeeping and accounting for businesses. Let's get started. So I'm joined again here by Greg Reed, head of tax at SmartBooks, and we are recording this toward the end of September 2025. So we're approaching year end, and uh there are always some tax considerations to worry about as we approach year end. So, Greg, what should uh what should people be thinking about? What should they be asking their CPA about?

SPEAKER_00: 0:51

Yeah, this is uh this is an exciting year, um, you know, as as far as tax planning and tax law changes go. Um, we've got the the Big Beautiful Bill Act coming into play. Um, certain factors of that are are phasing in uh between this year and next year. Um, and so there's a lot of planning opportunities, a lot of things that you'll want to talk to your CPA about um and how they apply to your specific situation, things to be thinking about for long term. Um, so yeah, there's there's a lot to to go through here. The the bill itself is 400 pages long. Um, so I think we're just gonna focus on a few things for business owners, but there's there's a lot of meat here.

SPEAKER_01: 1:38

Well, where do you want to start?

SPEAKER_00: 1:40

Um so I think you know, we'll kind of start with the the more basic stuff and then kind of move down the list to some of the more complex stuff that you'll definitely want to bring to your CPA and and talk to, and uh you know, maybe long-term planning. Um, and so the the first one for business owners is 100% bonus depreciation is back. Uh and this is a huge thing for uh business owners who especially are maybe operating around like a um break-even or a loss, uh, that are uh buying new equipment, um vehicles, stuff like that. And the benefit of bonus depreciation is that you can put yourself into a loss situation. Whereas section 179, which is the other um accelerated depreciation method, that you can only go down to zero and then anything else carries over. Um, Section 179 is definitely more for small businesses. I think a lot of the of your listeners um probably don't run up against the Section 179 limits. But if you're a um a bigger business and you're buying lots of equipment throughout the year, you know, in excess of four million dollars, then um you know, Section 179 might start phasing out.

SPEAKER_01: 3:10

Okay, so we get the bonus depreciation for folks who buy assets, and if it puts you into a loss, you it's still like I'm always heard you cannot go below your basis in an escort for an LLC or something, but you so you might run into basis issues.

SPEAKER_00: 3:27

Um, so you know there's there's all these factors that you have to uh bring into play to see if it you know makes sense for you. Um the good thing about bonus in in 179 is you can make the election when you file the return. And so you can kind of see where you're at and say, okay, you know what, 179 makes more sense, or maybe it doesn't make sense to take accelerated depreciation accelerated depreciation at all. Let those assets you know depreciate over five, you know, 10, 5, 7, 10 years, whatever, and um, you know, take that deduction over time.

SPEAKER_01: 4:04

So this is something you can you are able to wait until February, Marks, and talk to you about.

SPEAKER_00: 4:11

Yeah, absolutely. Yeah. When I prepare returns, it's you know, do we take 179? Do we take bonus? Do we even need to? It's it's generally like I I know it's something that I'm thinking about, um, and I'm sure that you know most good CPAs out there are. Um, one thing to note about the bonus depreciation, um, and this is an interesting uh I don't know what you call it, but um basically it only even though it's retroactive, it's only retroactive to January 20th when President Trump was sworn in um for his second term. And so anything, any pieces of equipment that you bought prior to uh January 20th, so that that 20-day period is still subject to the 40% um bonus depreciation limit. Um also anything that if if you bought it uh under contract but it wasn't delivered yet, even that wouldn't be subject to the 100% bonus. So if you like you bought something um say, you know, a big piece of equipment, um you put your down payment down, but then you didn't receive it until February, unfortunately, that wouldn't uh that wouldn't qualify for a hundred percent bonus. So the contracts do uh make make a difference.

SPEAKER_01: 5:43

All right. So what else, Greg, do we need uh think about beyond the 100% bonus depreciation return?

SPEAKER_00: 5:51

So for those uh pass-through entities, we always had the qualified business income deduction, uh, which is kind of that 20% deduction. Um, I always equate it to uh the it it's Congress putting the lower C Corp tax rate and the pass-through businesses on the same playing field, right? So like they lowered the C Corp tax rate to 21%. All these pass-through businesses were like, what the heck? I'm subject to potentially 37% at my individual tax rate. So they enacted this 20% qualified business income deduction, um, which in in a way uh evens the playing field. Uh that's going up to 23% starting in 2026. So not something you get for 2025, but um something to think about for 2026.

SPEAKER_01: 6:52

So it would seem like that uh benefit is here to stay at least for the next year. That is the three and a half years.

SPEAKER_00: 7:00

Uh so it was made permanent. Again, nothing's ever permanent, but technically it was made permanent.

SPEAKER_01: 7:09

And that's huge because I know when I do my tax returns, we're a pass-through entity at uh SmartBooks. And uh it's always a bit of a mystery to me, uh, this whole QBI deduction. Um it seems like it's a big benefit, but it's kind of a black box. So at least I know it's good for probably another 30 years or so.

SPEAKER_00: 7:29

It's here to say I honestly I think it would be detrimental to Main Street America small businesses, because most small businesses are uh pass-through entities, and you know, now if you don't get that 20% deduction, you know, a lot of people get buried.

SPEAKER_01: 7:51

Okay, cool.

SPEAKER_00: 7:52

What else do we need to be thinking about these days? The so uh state and local tax salt, um that schedule A deduction on your individual return was limited to$10,000 a year. Um, and it was the aggregate of your um state taxes, your personal property taxes, uh excise taxes on your vehicle. Um if you want the sales tax route, then you know, sales taxes that you paid. Basically any um taxes that you paid from a personal standpoint, that would get limited to$10,000. Um this really hurt people who live in high-tax states. So if you're in California and your you know tax rate between um you know federal and and state is like 50%, um, and your property taxes are really high. Um basically your your schedule A went from a your itemized deductions. So when I say schedule A, I mean itemized deductions, went from a giant number to a uh very low number, and a lot of people just phased out of schedule A, and it was just more beneficial to take the standard deduction. So, like when I first started working, or I guess pre-2018, most of my clients took uh Schedule A. And then after 2018, most of my clients don't have a schedule A. Um anyways, the 10,000 is is going up to 40,000. Unfortunately, that is not here to stay. That's only here for a few years. Um, we'll see what happens. I think I want to say it was like 2030. Um, I might be wrong on that, but we'll see who's in office. Um we'll see, you know, how things shake out. Maybe it'll get extended, maybe it'll be made permanent. But for now, that 40,000 is here to stay. Now, that being said, um, a lot of these states who you know a lot of people are moving from California to Texas or you know, to these your Florida, you know, these lower tax, no tax states. And um a lot of the states started uh enacting this pass-through entity tax. So for business owners, basically you would get to pay your individual tax at the entity level. You take a deduction for that on your um on your PL on the business, and then you get to take a credit on your personal tax return. Um the government or the the IRS or or federal government didn't love this, but they didn't really have much to they didn't have much ways to get around that. Um and so that is actually I mean, I think this is like one of those planning opportunities where you get to kind of look at both sides to see what is more beneficial, but I would say that for most successful business owners, which if you're thinking about the pass-through entity tax, you're a I would say you're a successful business owner, um it still makes sense to do that. Um but you do have the 40,000. So um if you're in a high tax state, high property taxes, you're probably still gonna be in that forty thousand area, and you still get to utilize the past identity tax. So maybe it's a a double whammy.

SPEAKER_01: 11:53

Yeah, well, I hope everybody who's listening is paying more than their forty thousand dollars because that means you have a nice high income and a nice big house. Yes, yes.

SPEAKER_00: 12:06

Um the let's see. Oh, okay, so getting into some more um niche or advanced uh tax savings opportunities. A lot a lot a lot of people may not even realize that this was happening, but um back in 2021, the IRS said that, or Congress, I guess, said that you could no longer take your RD expenses in your in the year that you incurred them. You had to take them over a three-year period.

SPEAKER_01: 12:50

And this was a big deal for startups, especially eventually.

SPEAKER_00: 12:53

This was a big deal for startups, especially so pre-revenue startups. Yes, it's a big deal. Um, it just meant that you know, maybe your NOL got you know deferred a little bit. But where it ran in where I ran into issues was the companies who were doing RD selling a product, um, maybe it just like at break even after you know their RD expenses, and all of a sudden now they have taxable income.

SPEAKER_01: 13:31

They could not deduct all their RD expense up front.

SPEAKER_00: 13:35

Yeah, exactly. Um, so yeah, you'd have like the RD credit, but um at the end of the day, uh you'd you'd have this you know giant add back on your on your tax return. And you know, I would get a lot of questions of you know, what is what is this, why are my uh why is my why do I show net income on my tax return, but uh a loss on my financial statements. Um then everyone thought that I was a really bad tax preparer for a couple of minutes. Um until I had to explain to them that unfortunately this is the law and and you know it is what it is. Well, now we can actually retroactively go back and either amend tax returns to take those expenses, or we can elect to take those expenses in um in 2025 or and or 2026 and so huge benefit and huge planning opportunity for businesses. You know, do we continue to depreciate or amortize those expenses? Or um, you know, do we take these exp these expenses now? Do we go back and try to um amend returns? There's a this is one of those situations where you're gonna have to kind of take a look at your very specific situation and see what makes the most sense.

SPEAKER_01: 15:16

So for anybody who's incurred a large amount of research and development expense last couple years, this year, next year, something to look really closely at to figure out how to optimize the tax situation.

SPEAKER_00: 15:30

Absolutely, yeah. This is I mean, I think as tax professionals, we all knew it was coming because it was so in in my opinion, and this is just my opinion, but it was like egregiously unfair.

SPEAKER_01: 15:44

Um Right, you're spending a whole bunch of money, you're investing in hoping something works, but you cannot even deduct it now. Right? Yeah, you're taking a whole bunch of risk, you can't deduct it. Maybe it works out, maybe it doesn't. You may never get any tax benefit from it. So I can see where you're coming from. It doesn't seem particularly fair to the entrepreneur who's taking all that risk.

SPEAKER_00: 16:05

Exactly. And so, you know, and the whole point of the RD credit is to promote research and development here in the US. So um unfortunate that it was something that got passed back in 2021. Um, but I'm glad that it's been rectified at this point. Um cool.

SPEAKER_01: 17:03

Is there uh anything else significant major that we need to think about going into your so there's one that I just learned about today.

SPEAKER_00: 17:13

Um and the I'm gonna give you like the high-level, you know, Cliff Notes version, but there's a lot of it's such a good benefit that there's a lot of gotchas.

SPEAKER_01: 17:27

And Greg, you're uh certified tax coach, right, with the American Institute of Tax Reparers or something like that? Yes, I'm a certified tax coach. So you get like the inside scoop on all these developments as they happen and how to implement them for cloud. This is actually where I got it from.

SPEAKER_00: 17:45

Yep. And so the benefit of being a certified tax coach and being part of this organization is that not only do I get the inside scoop, but I also get these uh I also get a lot of cases uh that are basically you know audit-proof because you know maybe there are clients who have already been audited by the IRS, um there's a lot of people in the organization who have clients that maybe have already done this, so we kind of get the that protection in in that way. Um but between 2026 and 2031 if you if you build a building for manufacturing, so you have to manufacture, it can't be office space or um it can't be like an Airbnb or anything like that. It has to be a um commercial building for manufacturing, you can write off a hundred percent of the purchase price.

SPEAKER_01: 19:00

That's huge because normally you have to write off buildings over like 35 years or 39 years.

SPEAKER_00: 19:07

And so this is you know what's funny is like as I was going through this, you know, I always tell clients, you know, don't buy a building just for the the tax benefit, because chances are unless you do a cost aggregation study, you know, you have to depreciate over 39 years. You know, you get the land piece and and whatever. Um this wipes that comment out of out completely, because if you know, again, if you if you meet all the criteria and you can um depreciate that over or you or you can take that deduction over, you know, um in in one year. That's massive.

SPEAKER_01: 19:55

So listen, everybody listening, if you manufacture anything at all, you're gonna talk to Greg. This is a huge tax benefit. This gets you, you know, you have a million-dollar building, you can deduct a million dollars over the course of one or a few years versus 39 years.

SPEAKER_00: 20:11

Yeah, and and so I think it's when you place the building in so the building has to be placed into service before 2031, and you have to break ground obviously between 2026 and 20 2031. And so again, this is like all high level. I probably need to do a little bit more reading on it, but um if you know, I have some clients they've got a lot of money, they don't know where to put it, maybe some form of manufacturing building, you know, let's deep dive into what um so I guess manufacturing production and refining. And so like the um webinar I was listening to, the guy was talking about um a coffee bean roaster, which like didn't even dawn on me. But you're refin you're taking your product and you're refining it, and then you're um right.

SPEAKER_01: 21:17

So you're not talking about like smelting steel.

SPEAKER_00: 21:20

I mean it could be making coffee. This doesn't have to be like Detroit where you're like building cars or something. You can, you know, roasting coffee. Cool. Um, yeah, so I I thought that was really cool. Um I'm excited about that one. I I I can't wait to try to put that one into into play with a client. Um be fun to see that giant deduction. The other uh this is this one's not as exciting, and maybe I shouldn't have uh finished with this one, but um the 1099 thresholds are going from$600 to$2,000.

SPEAKER_01: 22:03

To$1,000 or$2,000?$2,000. Oh, okay. Well, that's nice. That saves people paperwork. It's just such a compliance headache to have to deal with.

SPEAKER_00: 22:12

So it really is.

SPEAKER_01: 22:13

Nice to add some relief there.

SPEAKER_00: 22:15

So it was 1954 that that$600 was set into place. It was never adjusted for inflation. Had it been adjusted for inflation, we'd be looking at like a$7,000 threshold now, but I'll take two. Uh that's for 2026, though. So unfortunately, when you're filing your 1099s in 2025 or in January of 26, 425, you're still dealing with the the$600 threshold.

SPEAKER_01: 22:56

All right. So, you know, we're recording this in late October, and I hope you've all taken the opportunity to like schedule a tax planning meeting with your CPA as we go into year-end. Um, last thing I ever want for any business owner is to get that surprise tax bill in March or April, and even worse, not have the cash to pay it. So I always encourage business owners work with their CPA. If you can work with SmartBorks, work with Greg, get a tax planning meeting on the calendar, figure out what your tax uh projection looks like and what moves you could take advantage of between now and the end of the year to get that tax bill down.

SPEAKER_00: 23:39

Yeah. Um, of course, you know, I'd love to talk to as many people as I can. Um, but you know, if you already have someone you're working with, definitely get on their calendar, figure out um, you know, A, like what your tax liability is gonna be, and then B, how can you get it down? So there's tax projection and tax planning. Um, these are two different things. Projection is this is what we're gonna owe in April. Planning is how do we get that number down? Um other things to, you know, one other thing to think about is now is the time to look at entity structure. Um, you know, there are some professionals out there who are trying to make the case that you know C Corp is actually starting to look a little bit more beneficial for small business owners. Um, I don't know if I disagree with them. Uh I think it again, it depends on everyone's kind of personal situation. But you know, if one of the things, one of the questions you should be asking your CPA is, you know, how is my entity structure? Are we structured in like the most tax advantageous way, not for just this year, but for you know the next five to ten years.

SPEAKER_01: 24:59

Yeah, completely agree, Greg. So if folks want to have a discussion with you to make sure they've optimized the tax situation, what's the best way for them to reach out to you?

SPEAKER_00: 25:07

Uh, best way to reach out to me, um, you know, you shoot me an email, GRead G-R-E-D at smartbookstax.com. Uh, you can go to our website and book a meeting with me there. Um, and then yeah, get on my calendar and um you know, before year end, and we'll uh we'll help you out.

SPEAKER_01: 25:29

Awesome. So, listeners, take advantage, get on top of this tax train before it becomes too late. There's a lot you can do over the next two months or so. Um, but you gotta talk to somebody who knows what they're talking about who can advise you to you know take the steps you need to do to keep your tax bill down and avoid those unpleasant year-end uh tax deprivation.

SPEAKER_00: 25:50

Thank you, Greg.

SPEAKER_01: 25:53

Yeah. All right. Well, this has been another exciting episode of the Empowering Healthy Business Podcast. See you all next time. Another episode in the books. Thank you so much for tuning in. For show notes and more, visit empowering healthy business.com. 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 calc empoweringhealthy business.com or message me on LinkedIn where I am easy to find. Until next time, this is Empowering Healthy Business, the podcast for business owners, signing off.