95: The Big Beautiful Bill: Proposed Tax Changes That Might Affect You

Welcome everybody to another episode of the Dental Boardroom podcast. It's Wes Reed, cpa, cfp. This one's going to be short. What I want to do is just quickly let you know what are the provisions in the big beautiful tax bill that is just got passed from the House and now is moved into the Senate. That it was passed narrowly by one vote and I'm not going to expand too much on the politics of it. I really just want to lay it out and also.

Sort of relate it back to you as a dental practice owner or even if you're a W2 employee, as an associate or an independent contractor. Some of these provisions also could relate to you as well. So if you're watching this on YouTube, you can see my screen. I honestly all I've done here is I went on ChatGPT, I asked it to outline the key provisions and I'm just going to share these with you. And then as a, as a, as a cpa, as a dental CPA and financial advisor and financial planner for my clients, I'll tell you how I think it might relate to you. All right, so the One Big Beautiful Bill Act HR1 recently passed by the US House of Representatives on May 22, 2025 by a narrow 215 to 214 vote. It is a comprehensive legislative package championed by President Donald Trump. This bill aims to make significant changes across tax policy, social programs, health care, immigration and federal spending. Below is a summary of its key provision. So there's tax policy changes, there's health care and social program reforms, there's defense and immigration funding, there's education and student loan modifications, which that's going to play a role for all of you who are in school now. I don't think it will affect many of you who are out of school, which is probably going to be virtually all of my listeners. It has a some provisions on energy and environmental policy changes, basically rolling back or repealing some of the clean energy tax credits and then I can tell you about the fiscal impact on it. The thing that I want to focus on now, the only thing I want to focus on in this short podcast is the tax policy changes. Actually I'll leave the other stuff out for you to research and interpret on your own. Now, I don't know if it's ultimately going to leave the Senate in the same version as it is now. So hopefully this isn't too out of date by the time I have this edited and released out to my listeners. If it is passed and has some changes, I suspect a lot of these will be in the final bill. Where it may change is the fact that this bill is projected to add, as you can see down here, about 4 trillion to to the national debt. So, so it increases the debt ceiling because we always have to keep increasing the debt ceiling because we're not getting our spending under control. So we have to increase the debt ceiling to allow us to borrow more money to fund the shortfall that is the deficit, which is the tax revenue less the spending has been running negative just like your own P and L. In some bad years, you may have less collection than you pay in bills. Hopefully not. But that's the concept here. And so I think the Senate may, I don't know, may try to curtail some of the provisions in here to get it to be a little more balanced. Because in spite of all of the discussion and rhetoric around eliminating waste, fraud and abuse, which we all want to do, this bill is certainly adding to the national debt by infinite amount more than, let's say, Doge. So that's why I think there's some Republicans who are a bit confused by the president that they voted for, who is all about waste, fraud, abuse and instituted Doge, and then is really supporting and championing a bill that is going to add an incredible amount of money to our national debt. I just did a podcast summarizing Warren Buffett's commentary on really on the market, on tariffs, on international trade and global sort of tensions. He had just such great wisdom shared as his last conference, investor conference, shareholder conference as the CEO of Berkshire Hathaway. He's now handing that baton over. So hopefully you can listen to that podcast and glean a few insights from it on the tax policy changes. Let's go through these. There are 1, 2, 3, 4, 5, 6, 7 main points here. The first one is a permanent extension of the 2017 Tax Cuts and Job Act. The 2017 Tax Cuts and Jobs Act TG TCJA signed into law by President Trump on December in December 2017, the most sweeping overhaul of the US tax code since 1986. Now, just a reminder, what he did is he lowered the tax rates. The top rate, for example, went from 39.6% down to 37%. And hey, if you're a billionaire, that extra 2.6%, that's a lot of money actually. And if you are making over 600,000 in taxable income, what's called your AGI and your taxable on your on your tax return less a few other things gets your Are you looking to Buy or Sell a Dental Practice if you're a seller, how do you find a strong list of potential buyers? There's no MLS or Zillow for dental practice sales. In such a fragmented market, many dentists selling their practice feel discouraged. 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Taxable income that was over roughly about 600,000 married filing joint. Then you are in that 39.6% tax bracket and that reduction of on every dollar above that amount you did save money on. He also doubled the standard deduction. This was huge. This. This one was big for a lot of people. Everyone. If you breathe you get a standard deduction and if you file your tax return of course and he Essentially doubled it from. Everyone got a 6350 standard deduction at the time. He increased that to 12. And for married, it went from 12,700 to 24,000. So he doubled the standard deduction. Now, if you itemize your tax taxes, like a lot of our clients do, from paying property taxes, interest on a home loan, maybe charitable contributions, you're itemizing your deductions, and therefore the doubling of the standard deduction don't matter for you. I mean, maybe, maybe if your itemized deductions were less than what was the new doubled or increased standard deduction, then you would switch from itemizing to taking the standard deduction on your tax return. But for most of my clients, even after that doubling, for most of them, they were still taking the itemized deduction route so for a lot of, for a lot of you, that, that part didn't really help. Eliminated the personal exemption for some of you that was already phased out, may or may not have helped. Expanded the child tax credit. This one's kind of big, from $1,000 per child to $2,000. Now, again, there was a phase out. And the phase out is you start to make too much money and you don't get that child tax credit. So it helped some of you, it did not help others of you. And then a big one for the blue states like New York and California, he imposed a 10% cap, meaning you can't get more than a $10,000 deduction on what's called your SALT, or state and local taxes. So if you're in California or if you're in New York or any state that pays state income taxes. So you're not in, you're not in Florida, you're not in Texas, you're not in Alaska. Your state pays state income tax. You could itemize that payment to your state tax body as a deduction on your personal tax return, federally speaking, on your, what's called your Schedule A, you could deduct that along with your home mortgage, interest, charitable contributions, you got to deduct your payment to your state tax body. And for a lot of you, like if you're in California and you're paying 30, 40, 50, $80,000 in state taxes, that was a deduction that now got limited to 10,000. Now, most of you are already paying more than 10,000 on the property taxes of your house. And so you already used up that cap, which, which therefore eliminated getting a deduction for paying your state taxes, which was a huge tax hit for a lot of people in California, New York. And it was a little bit of a punishment on the blue states, to be honest. The red states typically didn't, you know, the housing costs don't, aren't, aren't as high. And so it didn't matter as much for them. And what he, what the states then did is they created this pass through entity tax, PTE tax, which I did a whole podcast episode on a few weeks back. You can learn about that as a workaround for practice owners. The other thing he did is he limited mortgage interest deduction from where it was at a million. You could deduct interest on up to a million dollar home loan. And he dropped that to 750. Again, not favorable for people in California because their house, their houses are pretty much always more than 750,000. If you're in Nebraska, that may not be the case. And so that didn't really harm you as much. Again, a bit of a punishment on the blue states. Also, he repealed the Affordable Care act, mandate, individual mandate, penalty, and then there were a couple other temporary provisions. So those were the main changes of the Tax Cuts and jobs act of 2017, that this new one big beautiful bill is going to make those permanent because they're set to expire here shortly. And if they don't get extended, that will be a tax increase for a lot of people. It will be neutral for other people, but for most people, they will see some amount of tax going up. Okay, Temporary tax exemptions is the second item in the one big beautiful bill in Congress right now. It introduces temporary exemptions on taxes for tips and overtime pay. Now this was one of his campaign promises. To be honest, as a cpa, this is one of those areas where I'm like, okay, I get the concept, but the implementation of it can get crazy. It can get really difficult. Like the PPP loans and the EIDL and the HHS grants during COVID I get the concept of those. But I tell you what, the implementation was and continues to be an absolute nightmare. The IRS is all over the place. Their guidance is late, their guidance is unclear, and it's caused a lot of people to flee the tax industry because it's hard and confusing and it's hard to tell clients exactly what's happening with the IRS when we don't get guidance on it. So when you implement a certain policy that conceptually makes sense, the implementation can be a different thing. And that's sometimes the gap between political thought and politicians and the real world. People have to implement these things. Well, when it comes to Tips and overtime pay. I'm curious how that's going to work because a lot of industries where there's tips, they may say, you know, my cost, and I'm going to exaggerate here, but my cost is a dollar and the rest can be paid in tips. And if there's a certain relationship between the buyer and the receiver, the payer and the receiver in that transaction, if the relationship is there, they can simply manipulate that to show a lot more being as tip. And my understanding is the person paying the tip still gets a tax, if it's a, if it's a business expense, at least still gets a tax deduction and the person receiving the tip doesn't have to pay the tax deduction. Now if it's a personal tip like at a restaurant, well, I don't get a tax deduction for that anyways. Well, I call a lot of my meals business, to be honest, and I do get a tax deduction, at least a partial tax deduction for it. So they're going to have to somehow, I don't know how they prevent manipulation on that. The other thing I sometimes wonder is, okay, the person making the meals and, or cleaning the dishes, they don't get, they don't, they don't get a tax benefit out of this. I guess it's only certain people are favored with that benefit. Other people are not. And that's, over time that, that gets interesting. So now people are motivated to do overtime. So now you may want people working their 40 hours in three days where they get, I don't know, 10 hours of overtime. And now they don't have to pay as much in taxes. So you're gonna have a lot more people not wanting to work straight hour days. They're gonna want to sort of compress their pay into fewer days. I don't know what the fallout or the implications of all that would be, but I can tell you it's gonna create some real interesting behavior within the HR employee area of businesses. Very interesting, actually. Again, I think this may be something where the unintended consequences may be unexpected relative to what the benefits end up being. But we'll see. I could be wrong about that. I think this is, this is one that will probably get shaved off or at least altered as it goes through the Senate. Right. Auto loan interest deduction. Most, most people take out a loan to buy a car. Now if you're with practice cfo, we're usually having you buy that car through the business and then we take the interest deduction already. But what he's doing is saying anybody, business owner or not, can take a tax deduction of up to $10,000 in interest for an hour loan. So let's say you buy a $40,000 car and over the life of that five year loan, let's say you pay $10,000, you could deduct 100% of that interest on your 1040 tax return. Again, if you're running your car through your business, this really doesn't help you at all. You already get that tax deduction. It is required that that car was assembled in the U.S. by the way. All right, number four, increased standard deduction. This raised. This one raises the standard deduction. So the tax cuts in jobs act of 2017 doubled them. And then what he's doing here is he's raising them by another thousand dollars for single filers and 1,500 for head of household and 2,000 for the married couple filing joint. Again, most of you are itemizing your deduction, so probably won't get a lot of benefit out of that. Now, if you're a W2 taxpayer, you don't own a home, or you're not contributing much to charity at all, then you probably are going to benefit from this since you do elect to take the standard deduction. All right, the next one is enhanced child tax credit. This is an area that promotes or helps people who have kids. Kids are very expensive. So I understand the concept here. And we do need to promote people having kids in order for those kids to take care of all of us as we are 60, 70, 80, 90 years old and need Social Security money coming in from current workers to help take care of us as we get older. And so this is promoting a trend that's been very alarming for a lot of people, which is the baby boomer generation is mushrooming. While we don't have enough new supply of workers coming into the workforce in order to have a support of this social program known as Social Security. So an enhanced child tax credit is to promote basically new workers, really, and people that have families and kids. And it increases the child tax credit to 2,500 per child through 2028, reverting then back to 2,000. So it added a little sweetener there. When is the child tax credit phased out? I think it's right around 400,000. It's hard to keep track of. Yep, $400,000 for married filing couples. So if your, if your taxable income is more than $400,000 as a married person or if you're single $200,000. You phase out of the child tax credit and you do not get it anyways. So that may or may not benefit you depending on if your income is under that threshold and you are having a child. The next one is the SALT deduction, the state and local deduction cap increase. So I talked about how the 2017 tax and jobs Cut act limited the ability to deduct your income tax payment to your state tax body to 10,000.

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And for those that were already paying property taxes of 10,000 on their home or more, they got zero benefit for taking the for making the state tax payment. Now that was big. California, you might be 10, 11, 12% tax rate. That might be a hundred thousand dollars a year for a successful dentist. And you just lost what was a $40,000, $45,000 tax benefit. Now you're paying $4,000 more per month in taxes. To put that in perspective, because of that $10,000 cap that Donald Trump put into place. So what he's doing here, what happened is a lot of states have instituted a workaround called the pass through entity tax deduction, which I mentioned that and we do that for every single one of our clients who own a practice or have a corporation here at Practice cfo. Every single one. It's the lowest hanging Easy tax fruit. It's amazing how many new prospects I get that show them their tax return on their tax. EPA didn't instruct them to make their PTE tax pay and they lost out on many thousands and thousands of dollars more than they even pay us. Just that one thing alone. So what I think Donald Trump is wanting to do here is to sort of reverse this and say, okay, we want to get rid of the pte, this workaround. And what we're going to do is we're going to meet in the middle and we're going to let you deduct up to $40,000 of your state and local taxes as a federal deduction. Now if you bought a home and you're paying, let's say $15,000 a year in property taxes, that leaves you 25,000 to hit that $40,000 cap. And so if you paid $25,000 to your state government for tax income taxes, then you're getting as much benefit as you possibly can. But if you were paying $60,000 to the state and state income tax, you're still losing some tax deduction that you would have had before the 2017 tax changes. So that, that may help some of you, it may help some of you a little bit, it may help some of you a lot and it may some of you really get you back to the pre2017 benefits. So that is the state and local tax deduction cap increase. What may harm you is if we get rid of or he gets rid of the allowability of the pass through entity tax, that workaround by paying it out of your corporation to your state government and therefore it's treated just like you're paying Henry Schein for supplies, you get the same tax deduction that's going to go away. So if your state tax was $80,000 because you're a high producing dentist, you're going to be harmed by this. Because let's say you're paying 20,000 in property taxes, you're only going to get to deduct $20,000 of that $80,000 payment to your state government. That's it. Because you're no longer going to be able to do the pass through entity tax and pay it out of your corporation and get 100% deduction. So for a lot of our clients, this is probably gonna hurt them all. Right. The Trump accounts for newborns. This is interesting. I think it's a way that our main Donald Trump wants to have his name live on as a legacy. Every child born will receive account with Donald Trump's name on it. And the goal there is to give every newborn a thousand dollar savings account that will grow. And so by the time they hit college, who knows, maybe that turns into 3 or 4,000 and can help them with college or something else dubbed the Trump account. So that is a summary of the tax policy changes that would be implemented. If the bill as it currently stands, the one big beautiful bill, passes through the Senate, lands on Donald Trump's desk and he signs it, then it would be implemented. I may do a new podcast episode on any changes from this that are made in the Senate and ultimately get passed. So we will see what happens and we will then report back on how this is going to affect you. And we here at Practice CFO will adjust our tax planning and our tools to optimize your cash flow for whatever the outcome is. Whatever the outcome is, to the extent that we can control how that outcome affects you. We are going to do that at Practice CFO to minimize your taxes, because taxes are one of the, if not the biggest friction. I would say overspending is probably the biggest friction, but one of the biggest frictions to you becoming financially independent, independent. And so we are going to keep our eyes very closely attached to what's happening with the one big beautiful bill. Until next time, have a great one.