Mark Kohler breaks down a pending Senate tax bill with four provisions for small business owners. A married couple earning $100,000 in business income could save $4,000 to $6,500 in federal taxes through lower rates, a doubled standard deduction, a higher QBI deduction, and 100% bonus depreciation on equipment.
Chapters
Okay, business owners prepare. We are getting close. The Senate and the House are now negotiating to get a final bill signed by the President on Fourth of July. That's right. Fourth of July could be the new big beautiful bill. And it's been a big beautiful wait. All right, let's get to it. Business owners, I've got four things you need to know that really relate to you. If you have a side hustle, small business or a main hustle there, there's a bunch of other stuff in there. International tax, big corporations, those get tips or work overtime. But for you, the business owner, there's four things I want you to know and I want you to prepare because I think there's going to be a lot of benefits here for you. And I want to show you the numbers right now. Now the first two things I want you to know about are the rates and the standard deduction. The Senate has their twist on this. And if we add this with the standard deduction, we, we want to see what this will mean for you as we start to put the math together. Now, for example, I want to look at a married couple filing joint making $100,000. Now we'll add a couple other factors here in a minute, but this $100,000, what is the tax going to be on this $100,000 if they don't pass this bill because the Tax Cuts and Jobs act is expiring. So what is this difference and what is the Senate and House doing for you and me as business owners? So let's look at 100 grand married filing joint and we're going to look at pre Tax Cuts and Jobs act. And what would our tax be? Because the rates would go up and the standard deduction would go down. This couple would pay tax of about $9,849 in federal tax. We don't know what's going to happen at the state level, what state they live in. But now let's compare this to the new bill. What it will look like is the Senate and House reconcile it and in effect, hopefully in the next two weeks. What does that savings look like for us? Well, the tax on this is going to be around $7,649 now with the new bill. So we're looking at about $2,200 in savings for an average income business owner American in the United States loving this Main street business owner saving a couple grand when they pass this. But those are only the first two things I want you to know about. The other one is the qbi. Now The Senate took this qualified business income deduction from 20% to 23%. Now, let me show you how this works. This QBI deduction is pretty cool at 23%. What it means is this family, this couple that's making $100,000 in their business, they make $100,000 and they get to deduct 23,000 right off the top and don't have to pay tax on that $23,000. Now, if we combine it with the last example where we get that double standard deduction of $30,000, we've got $47,000 of taxable income. So this is a big deal. We have the standard deduction, which we wanted to see double. We've got the new $23,000 on 100,000 is 23% QBI deduction. So we're down to $47,000 of taxable income. So now with lower rates that we just talked about, now what is this couple going to pay in tax with this bill passing? This new tax is now going to be $5,183 compared to where were we? Look at this. It was going to be $9,849. But with these three provisions alone, lower rates, doubling of the standard deduction and the QBI, we now are down over $4,000 plus for that Main street small business owner in America. Which brings us to number four. Now, I like this last one. It's a big deal and many of you know it's coming. And that is bonus depreciation where you get to write off 100% of any equipment you buy. This could be a new work truck. It could be a new an auto versus a truck. It doesn't have to be a big old truck. It could be an SUV or a car. Depends on what strategy you're going with versus mileage versus actual. But anything you go to buy to invest in and build and grow your business, you can write off 100% of it this year and that's retroactive back to January of this year. Now, what would that look like? This is going to be pretty amazing. Let's say this couple says, well, we're going to go out and buy another vehicle. It could be a vehicle or a piece of equipment. Maybe they have a landscaping business. They need a couple more mowers and a trailer or that's a storefront, a restaurant, more computers in the office. They're going to expand, whatever. Let's say they're going to spend $20,000 on new equipment. Well, currently they can only deduct 40% of that under the current bonus depreciation rules. So they could deduct $8,000 of that. So they're going to have still $12,000 of write offs that are just sitting on the books they can't take advantage of. So if we stay with the same example, compare apples to apples. Now we're over here and they got their QBI deduction. They got that great standard deduction. But now we're going to insert a write off up here. We want to take a write off up here. And if we go out and buy this new piece of equipment or truck, and you might even buy it on credit, you put down a dollar and you go get a loan to buy this piece of equipment or vehicle, you still get to write off the entire purchase price, even if you didn't pay cash and you just put it on credit. This could even be a credit card for some equipment or something. So now we can insert a $20,000 write off in the middle of this when before it would have only been an $8,000 write off. And now we get to deduct the entire 20. So if we go and do the math again, now we're at $27,000 of income. Now, for you accountants out there, you've saw it coming. You're right. If we reduce the taxable income to 80, the QBI actually goes down to 18,000 because that's a 23% deduction on whatever the net income was. So our net income is this 80 now because we went from 100 down to 80. So, so we come back over here and let's make it clean. We've got $100,000 of income. We're going to write off this extra piece of equipment on top of all the other write offs we took advantage of. And now we have $80,000 of net business income. We're going to take 23% of that, which would be $18,000, which puts us at 62. And then we're going to take off our standard deduction that we did before. Now we're at taxable income of 32,000. Well, the tax on that is a whopping $3,362 compared to the 9,000, 849 that we were going to see without this bill. This is serious. We're looking at almost $6,500 in savings for this family on Main Street America, small business owner just making 100 grand a year. This is what stimulates the economy. And if I can make one Recommendation, use this $6,000 to save, get out of debt to save, put in savings and put another piece of this back in the business and continue to build wealth and live your American dream. This is not a new big screen TV and a trip to Hawaii. Please don't do that. Now, as a business owner, you know how precious 6,500 bucks is, so I hope this information has been helpful as we get the final bill. I'm going to break it down with more examples for you here in the near future. This is important. I'm excited about it and I think this is going to help us all as business owners this fall, create more income, put more money, our pockets that we can deploy to build wealth and continue to build our business. Bottom line, the American dream is real. Do not give up.
