Govern yourself accordingly

I had a whole thing on estate planning but as is the want of the fed, they passed a medium sized, somewhat attractive law that has people’s attention, as it should. So, we will shelve the SNOT Wars discussion for month and instead turn our attention to the small, pretty in a northeast Iowa kinda way set of regulations that was enacted. This is written 1/3d of the way through the month and won’t hit the publisher until mid-month, so hopefully it remains valid and not subject to another executive order, national guard mobilization, or random internet fight.

Programing notes following the latest attempt to govern our behavior from the feds.

1. Estate tax federal exemption is 15,000,000 per individual and therefore using basic math $30,000,000. It is removed from the election cycle drama as it is permanent and indexed for inflation. No changes were made to step up basis rules for dying owning property. This should cool a lot of jets on gift giving and asset transfer as a tax avoidance idea, but the concepts remain valid for a host of non-tax reasons.
2. The SALT (State and Local Income Tax) federal schedule A (below the line for your old school folks) deduction is available for up to $40,000 of those type of taxes paid. It is not, as some might think, an exemption of $40,000 from income taxes.  Also, interest deduction is capped out at $750,000 of interest paid and HELOCs are not deductible.
3. Most people aren’t going to itemize, especially if they are older (unless they are in a nursing home environment)  as the threshold to itemize was bumped up. School teachers can deduct all of their classroom expenses, if they itemize, otherwise, a limited standard above the line deduction is still available. The amount of school supplies that would need to be purchased by a school teacher that doesn’t either have a giant mortgage interest amount (Fat chance of that) with super high real estate and state taxes or an uncovered medical condition that they are actually paying for, to make this unlimited deduction work appears to be as rare as the Trust Fund  6’5” finance blue eyed man.
4. Child tax Credits are made permanent, which just means they don’t automatically go away but once the nation has enough kids, they can always revoke it. The credit is still not enough to offset the diapers, toys, and exposure to Paw Patrol and Monster High.
5. Tip income, it’s not the deal you think it is. Tip income is still reported and up to 25K of it can be deducted for three years. Before you try to tip a teacher or a CPA it is limited to the customary industries receiving tips.  Also, what do you think it going to happen in year four when the government now knows what the industry average tips are. Data freely provided to the IRS yeah that’s a great idea. Oh, you think all the waiters and bar tenders already report their tips… Can I sell you a bridge in Arizona?
6. Overtime. Still taxed. Reported and taxed. You then get to deduct that portion that is overtime. The maximum deduction is $12,500 which is about a $3k or less reduction in income tax paid. Still better to own the business and pay reduced corporate tax rates than to work overtime for the corp.
7. Car Loan Interest. Made in the USA, Personal use only vehicles under 14K lbs, with loans on title, verified by VIN. Lenders get to file an information return to support the deduction. Limited to 10K of deduction and once you start making over 100K a year, the benefit starts to erode. It isn’t so much buy American as it is buy American final assembly, buyer and taxpayer be aware.
8. Starting in 2026, 1099’s for misc incomes (rents still need to be reported) goes to a threshold of $2,000 instead of $600. I am sure tax preparers will be amazed at all the prior $550 misc deductions that aren’t thoroughly documented are now $1950 misc deductions.
9. No more Green Energy support, when the cut of is imposed is already under litigation and congressional maneuvering.
10. QBI (a 20% reduction on   taxable income for businesses) is adopted on permanent basis which is a tax reduction unless you are in an industry that the government finds distasteful (known as SSTB- specified trade or Business) , like law, accounting , brokerages and investment, consulting, athletics, or  performing arts as these businesses don’t get full QBI treatment once you cross the Rubicon of$394,000 and absolutely no break once that SSTB income goes over $494,600. So  lawyers working   who make some money good, lawyer who make lots of money bad. Okay, that tracks…..
11. Bonus depreciation is back. Once again, you may throw caution to the wind and wildly manipulate your income in exchange for buying new specific types of property to deduct all at once. Jet airplanes, combines, and a large variety of capital assets that you might not pay for all at once but can claim the deduction all at once returns. It is like accelerated depreciation on drugs. 179 was beefed up as well, with the max deduction under that code section going to $2,500,000. Show rooms and auction rings should be overwhelmed. or wait what is the price of corn on the board?
12. QPP. Qualified production property. Sometimes, under the old tax code, you had to deduct the life of certain property, like nonresidential real estate buildings, over 39 years. That’s drag. No body can buy a vote that far in advance, so new law! Put a manufacturing, ag or chemical production or refining facility into service and you can bonus it all at once. No, restaurants do not qualify, they need better lobbyists. The office suite portion of the building doesn’t count so ensure you document what part is where the chemicals are cooked, and science magic happens and which part is where the books are cooked.