TCJA to HR 1 - What the New Tax Bill Could Mean for You
Episode 25: In this episode of the Bellarmine on Business Podcast, host Jim Ray discusses the implications of the new tax bill, HR 1, with guests Alisha Harper, and John and Alyssa Ackerman from Ackerman CPAs. The conversation covers the potential expiration of the Tax Cuts and Jobs Act (TCJA), elements of the new HR 1, and the impact on individual taxpayers and small businesses. The guests provide insights into navigating state and local tax deductions, compliance tips, and the importance of having a CPA. They also discuss the political landscape surrounding the tax bill and the future of various tax provisions.
CHAPTERS
00:00 Welcome and Guest Introduction
01:54 Introduction to the Tax Bill Discussion
03:46 Implications for Individual Taxpayers
06:38 Small Business Considerations
08:27 Navigating State and Local Tax Deductions (SALT)
22:13 Compliance and Tax Preparation Tips
25:58 Employer Retention Credit and Other Business Credits
30:11 Political Outlook and Future Provisions
36:38 Final Thoughts and Resources
40:38 Conclusion
Welcome and Guest Introduction
Jim Ray
Friends, welcome back to this episode of the Bellarmine on Business Podcast sponsored by the Rubel School of Business at Bellarmine University, here in Louisville, Kentucky. My name is Jim Ray. I’m a 2008 MBA alumnus of the program and I now have a regional small business consulting firm here in town. I’m very happy to welcome three guests today in the studio. We have Alisha Harper, Professor of Accounting at Bellarmine. How are you? Absolutely glad to have you back. You've done enough for these. So I think you're an old pro at this at this point, right?
Alisha Harper
Doing good, Jim. Thanks for having me. Yes.
Jim Ray
I'm also proud to introduce for their first time, John and Alyssa Ackerman from Ackerman CPAs right here in town. How are you guys?
John and Alyssa Ackerman
We’re doing great, thanks for having us. Yeah, thanks.
Jim Ray
Now you guys have an interesting story that I'm really excited to introduce the audience about, before we get into that, here’s today's topic. For all of you accounting guys out there, here we go. “TCJA to HR 1, What the New Tax Bill Could Mean for You.”
So I think at this point with all the stuff that's been in the news lately, I think we're all kind of interested in what's going to happen. Are we getting a tax cut or not? Is it actually going to pass? Who knows? But I think we're going to try to break that open today, right? So let's do this. Let's jump in and introduce you guys to John and Alyssa. You all actually met at Bellarmine, is that right?
John Ackerman
We did. So we were in the business fraternity, DSP, at Bellarmine. So we met there. We're both accounting majors and then we started our firm a few years ago and Alyssa joined in 2019. Since 2019 we've been working together.
Jim Ray
Now, do you guys cater to any certain sector? Do you do individual tax accounting? Do you do corporate? Do you have a niche that you're trying to cultivate?
John Ackerman
So most of our clients are small business owners, LLC, Partnership, S-Corps, and then they're owners. So we do a lot of individual returns, but a lot of them are business focused.
Introduction to the Tax Bill Discussion
Jim Ray
That makes a lot of sense. So guys, let's do this. Let's jump in and tear open this big, beautiful bill and kind of figure out what the current status is and what you guys think could actually happen, including what it means for us and what could go right? Maybe what could go wrong? So big picture, why does it matter, guys?
John Ackerman
So the big tax cuts and jobs act that was end of 2017, early 2018, the Trump tax cuts, a lot of those provisions expire at the end of this year. So basically there needs to be another bill passed to extend those tax cuts and then also implement some new ones.
The big thing with this one too is basically, the process they're going through, the reconciliation process, the House and Senate essentially need to pass the same bill. I guess there is some question marks. So the House passed their bill, the one we're talking about today, the HR 1. So that's the one big, beautiful bill. And then actually, when we recording this last night, the Senate released their first draft out of the Senate Finance Committee.
There could be a lot of changes, but a lot of it is going to be kind of keeping the status quo for everybody.
Alyssa Ackerman
Yes, a lot of the things are the same in the Senate and the House bill. There are a couple of big ticket items I think will be argued back and forth, before the get a final approval in reconciliation.
Jim Ray
And friends, if you're listening to this, we may turn this into a drinking game. I have Alyssa and Alisha sitting right next to each other. So I'm trying to make sure I keep all the names proper. But if I screw it up, take a shot, have a good day. So Alisha Harper, let me ask you this. Could you give us kind of a brief overview of HR1, kind of what it means at this point?
Implications for Individual Taxpayers
Alisha Harper
So, HR 1 has a lot of provisions in it, right? We just keep talking about the one big, beautiful bill. That's kind of what it's being referred to. When we're talking about what's in that bill, we've got things for individuals, we've got things for small businesses, we've got things for large businesses. So when you talk about why does it matter, it matters because unlike a lot of small tax law changes, this one affects everybody.
John mentioned TCJA in 2017. It was the largest change that we've seen since 1986. When you look at the Internal Revenue Code, it's actually called the Internal Revenue Code As Amended From 1986.
One of the scariest things, I think, for practitioners and taxpayers alike is if nothing happens. Because that means we revert back to pre-2017, which is a huge shift. And one of the things, you know, we all talk about tax law changing all the time, which it does, taxes change regularly. But a significant shift like that in a 10-year period, I mean, that really throws a wrench in the works in terms of planning and what practitioners and taxpayers have been working on in the last three to five years.
John Ackerman
And it's funny because there's an accounting shortage right now. And there's a lot of CPAs that retired because when the TCJA was passed, they didn't want to deal with it. And then now if we have to go back to pre-TCJA, there's a lot of people that have no clue that that world and new CPAs. And so a lot of people retired. So we kind of want things to stay the same and help the small businesses with their tax breaks, the QBI deduction, which we'll talk about. I hate to use abbreviations, but we'll flesh that out somewhere.
Jim Ray
Well, we've referenced the TCJA, just to be clear for the non-accounting folk out there and non-tax people, it the Tax Cut and Jobs Act, and that was passed under the first Trump administration? Is that when that came in? Correct. Okay, okay, good. So again, as you're saying, it could revert back, could sunset and go back to who knows what, but hopefully we're moving forward and we can get not only those provisions renewed possibly, but get some other provisos worked into the bill, right?
John Ackerman
Yeah, and I think it's on everybody's list to get something passed. And I think the House and Senate, they'll make sure. You would think that something gets passed so that the Tax Cuts and Jobs Act is extended. But then the big question becomes that there are few discrepancies. How do they work those out?
Small Business Considerations
Jim Ray
Well, Alisha, let me, sorry, there's one. Alyssa, let me ask you this, Alyssa Ackerman. You mentioned that you all do a lot of work with small businesses. What does it mean for them? I mean, you know, a lot of times people are thinking, well, I'm getting ready to launch a new business. You know, there's entity formations and things like that. Sometimes you think of that as a legal structure, but there's also tax consequences or implications. How are you talking to your clients and prospective clients about that issue?
Alyssa Ackerman
So, first things first. Don’t panic. Right now, there are a lot of what-ifs, but we’re definitely keeping a close eye what’s going on. Also, we’re talking about different options because even things like the SALT cap and as that plays into the pass-through entity tax regime that a lot of states have put in place. Some of that will effect entity structure. So, if we had previously advised clients to become an S-corp, so they could take advantage of that pass-through entity tax deduction. If that is really no longer going to be available, well it would still be available for some tax payers, but maybe higher tax payers people who are not in what they call SSTBs (Specified Service Trade Businesses) like accountants, lawyers and doctors. This could really affect some of them. But don’t panic is the best thing.
Jim Ray
That's good to know because I think for a lot of people right now for whom this is confusing if you're not in this area of accounting, you really don't know what's going on. You're just hearing what we're hearing on the news and depending on which station you're listening to, you may get a slightly skewed issue here or understanding of it.
John let me come back to you. What about individual taxpayers? Why should they care about this?
Navigating State and Local Tax Deductions (SALT)
John Ackerman
Well, I always told people that after the TCJA, we never know what's going to happen with tax brackets and tax rates. But with TCJA, it kind of lowered them. We would say this is probably the lowest it'll ever be. Extending TCJA, keeping the tax brackets the same where they are, the standard deduction, which every individual can either take standard deduction or itemize their deductions. It was doubled under TCJA. So keeping that standard deduction doubled. And then child tax credit, the house bill would increase the top child tax credit for people with children.
Then as well, one of the things that they're, the big argument, we say the SALT, so that's the State and Local Tax Deduction. So it's really prevalent for people that are in the higher income states, the New Yorks, the Californias, can they deduct their state and local taxes? And that includes property taxes on your homes, property tax on your car, but then also just state taxes and if you're in the city of Louisville, city of Louisville taxes you pay, can you deduct those or not?
Jim Ray
John, can ask you, at one point was that treated differently and then maybe an iteration or two back was that changed? I know they're talking about increasing it, but as a consumer, a taxpayer, I'm looking at that going, I don't live there. That's a state and local tax issue. Why am I worrying about that in the federal law?
John Ackerman
So pre-TCJA, and Alyssa, feel free to chime in as well. Pre-TCJA, there was no cap on it. There were some other, like if you're subject to alternative minimum tax, it could have impacted that. But TCJA made that cap $10,000. So that was a real sticking point with the high tax states. The House bill, the HR 1, wants to increase that cap to $40,000, where you could deduct up to $40,000 of the state and local taxes.
The Senate draft, which we won't get too into right now, because it was the draft from the Senate Finance Committee that came out last night. They want to keep it at $10,000. This is the big sticking point. So this is the one where people say, will these bills pass? What will pass with this one big, beautiful bill? Is getting the high tax state representatives to come to an agreement that they're okay with because they want that $10,000 cap to go up. For other states, it's not as big of a concern.
I know for us with our clients, there's a lot that cap out at the $10,000, but I feel like for the most part, they're getting in probably that $10,000 to $20,000 range. So the $40,000 cap, if you're in Louisville, Kentucky, you're probably going to be OK. But it's really for those New York, New Jersey, California residents.
Alyssa Ackerman
Well, I even think it's a consideration in Louisville too. Property taxes have been increasing. And so if you're rolling up all of those taxes under one $10,000, you might be able to pretty well hit that pretty quick. But also this is also the SALT cap, as a reminder, is only consideration if you're taking itemized deductions. So if you're taking the standard deduction, you're not really concerned too much about this cap.
But, if they do increase it to $40,000, there may be a lot more people taking an itemized deduction, which then things like your mortgage interest and if the, I think it's the $10,000 deduction for auto interest is passed like it's been proposed in this bill, it might be more significant for taxpayers who might be able to go way past the standard deduction on a given year.
Jim Ray
Especially once you start stacking those.
Alyssa Ackerman
Right.
Jim Ray
Yeah, I mean, the one thing I like about this is the no tax on tips. I'm getting ready to send an email, I think, to all my clients telling them, “Hey, I'm working for free, but I do appreciate your tips.” You know, and I charge a little bit more for a party of six or greater. Yeah, it looks like they're trying to put a limit on that, right? Maybe an income level of $160,000 or something like that.
Alyssa Ackerman
A lot of those, such as the no tax on tips and I think also the overtime compensation, those two things will be capped out. So, in theory, highly-compensated individuals won’t really get to participate in that. And that’s kind of the point. I think it’s to benefit those who are in that lower income level.
Jim Ray
So you're advising me to leave that in my draft form and not actually send that out, right? Okay, I that under advisement. I really appreciate it.
Alisha, let me ask you about this. There are some other issues here with small businesses or self-employed that we want to think about. Can you kind of explore that with us a little?
Alisha Harper
Yeah, so there's some really interesting things that are happening, I think, for small businesses and self-employed. I did want to mention, though, one of the things that we were talking about with the no tips, they're actually going to specify the types of industries that that will apply to. And my guess is consulting is not going to be one of them. That's just a guess. I have not dug into that.
Alyssa Ackerman
Yes, I think they said for industries that customarily receive tips. So, I think you might be out of luck.
Jim Ray
I'm going to have to update my LinkedIn.
Alisha Harper
So one of the things that came up was QBI, Qualified Business Income, and qualified business income deduction was a gift. At least we see it as a gift now. I'm not sure anybody saw it as a gift when it happened in TCJA. So it came out in 2017. And the idea was to put small businesses on par with the corporate rate, which had dropped to a flat 21%.
So what they allow is they allow a deduction on qualified business income of 20%. It's obviously significantly more complicated than that, but in its simplest form, 20 % of qualified business income can be deducted. The House version proposed to bump that to 23%. The Senate is knocking that back down to 20%. My guess is it will probably pass at 20%. They'll resolve it that way and just leave it alone.
Jim Ray
I'm amazed when you think about it, you think large industries really generate the most tax revenue. Actually, when it comes to hiring people, when it comes to the tax rates, I think the small businesses actually are probably contributing more to the IRS. And I know they're employing a lot more than large corporations. It's really different from what people, I think, assume.
So, you know, anytime they can give an advantage to the small business, I really think that not only affects that business, but also the local community from which they're drawing for their workforce. I mean, there's just a lot that goes into that. And there's so many more of them than the larger corporations.
Alisha Harper
Oh, absolutely. The majority of the tax revenue that we receive comes from individuals. It does not come from corporate income tax by any means. That's actually a very small piece of the pie.
Bonus depreciation has come back at 100%. Bonus depreciation is one of those areas of tax that comes and goes. It ebbs and flows. I know it's been at 25%. It's been at 50%. It's been at 80%.
It's been at 100 % and then it went away again and now it's back at 100%.
And so that's the beauty of tax law. It's one of the reasons that those of us who are in the tax field and as tax practitioners love what we do because it's one day is never the same as the next. I think John Yoo had posted not long ago one of those great quotes that said, “The difference between death and taxes is that death doesn't change every time Congress meets.” That was a great quote.
So we've got bonus depreciation, which is back at 100%. I don't know how helpful that's going to be, particularly for small businesses, because they've upped the 179 to $2.5 million.
Jim Ray
And so, what is the 179?
Alisha Harper
So 179 allows you to immediately expense what we call depreciable property. So that would be any property that you purchase that would tend to be subject to depreciation, office furniture, equipment. Really, anything that you use in your trade or business that has a useful life beyond a year.
Jim Ray
So the Lake cabin?
Alisha Harper
Well, no.
Jim Ray
Well, if I do some podcasting from up there…
Alisha Harper
No, the IRS tends to frown on things like that. But it is nice and it will allow taxpayers and it will encourage taxpayers to really front-load their purchases and things like that. This is one of the things that I always say about tax law. Everybody talks about how complicated it is. And the reality is it would not be nearly as complicated if we didn't use it to make policy.
So there's a lot of policy that you're going to see built into one big beautiful bill. And you're going to see a lot of political discussions. But at the end of the day, this does have a real impact. It's not just political hype.
Jim Ray
Well, and I think, based on what I've heard in the past, a lot of this is hopefully going to have a stimulative effect in that if I can forward that depreciation, if I'm going to expand or whatever, this might be a good time to do it. So ideally, it'll drive maybe some job creation or some investment earlier in this term of the administration than later. That way, I guess the taxpayers will have a chance to actually see that in reality going, obviously, as you said, policy, going into the next round of elections, in a year and half and then two years out, when a new administration would be elected. I guess that's part of the impetus behind that.
Alisha Harper
That is exactly what we are looking at. We've got elections, obviously the mid-years are coming up and that's a big part of why they're pushing to get this done fairly quickly, actually.
Jim Ray
Well, in looking at the outline here, it talks about changes to the PTET and the SALT deductions interplay. What does that mean?
Alisha Harper
So I'm going to send that over to John or Alyssa and kind of let them talk a little bit about the SALT deduction and particularly PTET because PTETs seem simple, but it's really not.
Jim Ray
There is the punt, John, I hope you can feel it and run it back a few yards.
John Ackerman
Yeah, so, Alyssa, feel free to chime in. So the PTET is the pass-through entity tax deduction. Essentially, it was during TCJA, when they limited the SALT state and local tax deduction to $10,000. A lot of the high tax states were looking for workarounds. So their workaround was these pass-through entity taxes, which are on the business income. So it used to be all the business income if you own part of an S-corporation or partnership, they would just come to you. You would pay the state taxes on your personal return, take them as itemized deductions. But with the $10,000 cap, you were severely limited, so really hurt business owners.
So what the states did, they came out with these pass-through entity tax deductions that the companies paid the taxes directly, and then treated them as business deductions. So they were just deducted on the business returns and the individuals didn't have to worry about them. They basically got that extra deduction and it was a business deduction. So, you know, it's for adjusted gross income, so it's even better.
But with the House bill and the Senate has kind of made some changes to this as well. They're going to kind of go back and separately break out these pass-through entity tax deductions now and make them itemized deductions, as well.
The House bill was really punitive to service businesses and basically saying your attorneys, doctors, accountants, they couldn't deduct the past-through entity taxes. Why? Nobody knew. Targeted attack on accountants. But maybe we have good lobbyists, who knows? The Senate bill removed that section. So it's not being punitive to the service businesses anymore.
But the Senate bill, I really liked their language, so hopefully they keep it. They're basically going to make the past-through entity taxes separately stay on the K-1 and basically give the business owners, there's a couple other limitations, basically up to $40,000 of the past-through entity taxes you can deduct on your itemized deductions, in addition to the $10,000 cap. So it would really make pretty much every business owner, if you have profitable business, you're probably going to itemize your deductions if this came through because your state and local taxes in and of themselves will probably push you over the standard deduction limit, which when we talk about this separately as well, that would really impact planning because a lot of planning for individuals comes into standard deduction versus itemized deductions. So if you're going to be itemizing every year, that really impacts your planning a little bit.
Anything to add on the pass-through entity type? You're the expert.
Alyssa Ackerman
Yeah, I would say states definitely had to come in and do something about this, especially the high-income states. Even though the Senate bill came out and it was going to be not as punitive toward those accountants and doctors and lawyers, they are still putting more limitations on it.
So, definitely not as favorable. I think they really want to rein in those deductions for those taxes and all the states were trying to get smart and go around that. So, so not as favorable, but hopefully the Senate will win out on that so it doesn't attack us.
Compliance and Tax Preparation Tips
Jim Ray
Well, Alisha, one of the things I saw in here was the proposed repeal of the direct file program. What is the point to that and what do you think that's meant to accomplish?
Alisha Harper
You know what, I would love to chime in on that, but that's not something that I generally deal with because I am not a practitioner. So I'm going to push that over to Alyssa.
Alyssa Ackerman
So we don't have all that much. Obviously, we don't do the direct file. It's taxpayers filing directly with the IRS through their systems. And it really seems taking that away really affects taxpayers who maybe have a more simple return where they largely have a W-2, take the standard deduction. It really, it's not going to affect high-net individuals and complicated businesses because they weren't, well, the direct files for individuals, but it'd be more targeting those like lower-income taxpayers. And I know there's still things like VITA out there that they could use, but this was something that I think was last year or the year before the IRS rolled out with it. it was still kind of in beta and probably just with all of the cuts to the IRS, they were like, we don't really need this.
That was my feeling on the matter, but I think it's more going to affect people who would not necessarily need a tax preparer anyway.
Jim Ray
Well, with that being said, there's always that issue of compliance. And do you have any tips for maybe staying compliant as all this is kind of rolling out? I mean, obviously we're not filing taxes right now, but I mean this is going to change a lot of things. I mean, depending on how it works its way out. You know, we're not in the room where it happens (a Hamilton reference there) but eventually this thing is going to come out and it's going to impact a lot of different people in different ways.
Alyssa Ackerman
Yeah, so for a normal taxpayer, I would say get a CPA. And these things are really complicated and they are constantly moving. If you have any sort of complication at all on your tax returns, having a professional, whether it be a CPA or an enrolled agent, someone who is going to be kind of your ally and going to be on top of this, sending out updates and letting you know what you should be doing and when, and kind of giving you your options too. Otherwise, it's really hard, I think, to keep on top of this when you're not in the profession or very familiar with tax provisions and things like that.
Jim Ray
Yeah, this is the one issue that I'm always careful with as a business owner because, again, I have some simple rules. I don't cut my own hair and I don't do my own dental work and I certainly don't want to get anywhere near my own taxes. Just because of the ramifications, I mean, you know, when the IRS comes knocking, they carry a big stick sometimes and it's just, it'd be better to enlist the services and the knowledge and the perspective of a CPA versus trying to go it alone and then making a mistake and then asking for forgiveness. This is probably not one of those times.
Alyssa Ackerman
Yes, and there have been an uptake in notices that people are receiving from the IRS with these cutbacks. I think that's kind of the trade-off is using technology. And so some of these notices are just automated depending on what's on your account and what comes through in your tax returns. Or if there's a delay in processing, you may get a notice before your returns even process. So, having someone on your team that, well, we don't have a direct line to the IRS, but there are some practitioner priority hotlines that we can utilize and we can help people get in touch and figure out the issues. So just make sure that you have someone in your corner.
Employer Retention Credit and Other Business Credits
Jim Ray
That makes a lot of sense. John, let me come back to you and let's talk about some individual and business credit issues.
John Ackerman
So one of the big ones in this, the House bill, I'm not sure if the Senate touched on it, but they were going to end the employer retention credit early. I think it was January 31st, 2024? I didn't have my notes. January 31st, 2024. They're going to end the employer retention credit early, which that was one of the COVID credits, the RC credit that a lot of people took advantage of and lot of people fraudulently took advantage of. At least for that one, I don't think it will impact too many businesses because a lot of the ones that had valid claims took advantage of it in 2020 and 2021, when they were actually impacted.
As far as other credits with both bills, I mean, they're definitely going to scale back the energy credits and there's, that could be another six hours to talk about energy credits, but they're going to really back off the energy credits in both bills. And then as far as kind of what to track, what to do, we always say, just stay patient.
We're in a world where people don't necessarily have patience, but you have to just remain patient with this because even with 2017, 2018, the Tax Cuts and Jobs Act, it got passed right at the end of the year. There were some retroactive provisions. There are also a of provisions we didn't really understand for years later. There were some provisions that may have been written incorrectly, and they're still trying to correct them in this bill, with R&D expensing and items like that.
Be patient and just wait and see what's going to happen. A lot of the tried and true deductions and tax planning items are still going to be around.
You know, for us and our clients, the biggest things we really see for small businesses, the QBI deduction, that Qualified Business Income deduction, that was huge. That was just a great help to nearly all of our clients. And that impacts a lot, kind of what business entity you're going to be. If you're just going to be a single member LLC, Tax and Sole Proprietorship, or if you're going to be an S-Corp, the QBI deduction interplays with that a lot as well.
A bonus depreciation is big. We've got a lot of clients who are real estate investors and they love their cost segregation studies, which basically lets them write off a huge chunk of the building very quick. So they love 100 % bonus depreciation.
But as of right now, we're still kind of a wait and see. It is kind of a, let’s see what happens. You think that something's going to happen, but until it's signed into law, we're dealing with politicians. So you don't really know what's going to happen until there's a pen to paper.
Alyssa Ackerman
And a lot of times they like to make retroactive provisions. So where they sign something in now that affects the beginning of the year. So it's like the wild, wild west.
Jim Ray
You guys must just be at a dead sprint when all this happens because I mean, again, you can plan for it somewhat, but you don't know what provisions are going to be in or out. And now everybody's in a rush to try to make sense of it and then advise your clients, you know, much more than just handle the returns. And what about the tax planning aspect of it? With that being said, is there any guidance you all might offer on what's going on with the student loan provisions? Is there any anything out there in this bill?
John Ackerman
The student loan provision, the employer payments of student loans, which essentially employers could assist their employees with student loan repayments. They did make that permanent. Well, in the House bill, they're going to make that permanent. The House bill was also going to expand usage of 529 plans. But I think the Senate bill actually was taking some of that away. So that could be an area where we look at as well.
It's, it is kind of wait and see, see what happens with the two bills and what they come to an agreement with.
Political Outlook and Future Provisions
Jim Ray
Wow, that is amazing. And we're this late in the game. Well, we'll see what happens.
Alisha, let me come back to you and ask about the political and maybe just a practical outlook. As this is going on, what are you thinking in terms of you've looked at these bills, you've kind of seen how it's played out so far. Anything you can add to the conversation related to the political side of it?
Alisha Harper
So I mean, we talked about the TCJA extensions. I mean, I think the extensions will go through. I think that that's probably a no-brainer at the very least, because that big of a shift back, I think, would be incredibly unsettling and incredibly unwise, given that we're about to come up on midterm elections. That's just my, obviously, opinion. But that's kind of what I would say is even when I look at the House bill, when I look at the Senate, those extensions I think are the one area that everybody can kind of agree. We don't want to do a complete reversion to pre-TCJA. I think there's a lot of political back and forth. I think we will get some of these provisions, but I don't know that we're going to get everything.
One of the great things about the way that writing law, whether it's tax law or any other law, works is, you get the House version, the Senate version, and then we wind up with something in between.
The one thing that we didn't mention that had struck me when I was going through the beautiful bill is kind of bringing back that production activities deduction. Now, it's not a full, domestic production activities deduction, like we had forever in a day ago where you can deducted a percentage of your domestic production activities. But the way that this is written, think, correct me if I'm wrong, John or Alyssa, it's a 100 % deduction based on non-residential manufacturing property. So at the end of the day, if you are building a manufacturing plant, it's a 100 % deduction on purchase, build, whatever the case may be. And again, that's policy, right? I mean, we're obviously looking at policy and wanting to bring manufacturing back into the US.
Jim Ray
I hope that happens. I think that'll be good for us to, to again, stimulate the local economies, to stimulate the state-based economy, then on the federal level. If it's out there, we can grow some small businesses. Hey, as an owner, I'm very happy to see that happen.
Let me ask you this. They're trying to get all this wrapped up by July 4th. Is that kind one of the initial target dates that you guys are hearing?
John Ackerman
Yeah, that won't happen.
Alisha Harper
Yeah, that's not going to happen. I actually think I was surprised that we even got the Senate version by July 4th. So they're doing better than I thought they would. It's, you know, John and Alyssa have both mentioned this, that it's really not that much different. We talk about the differences, but it's not that much different, which really gives hope that we'll see enough compromise to get this done before December, which as you guys remember, happening with TCJA. And that was a nightmare going into tax season.
Jim Ray
I tell you, the sad thing about that is, you know, for all of the things that are going to get into this bill and to really take effect and actually begin to affect the small business community, affect individual taxpayers, it may not have enough time to really grow legs and get going before we run into midterms. So I would have hoped that we'd be a little bit further along. As you all know better than I, this is complicated stuff. And there's always a give and take. It's just, mean, wow.
Alyssa, let me ask you this. And this is, I guess, directed more toward the tax professionals out there. What should CPAs and ultimately taxpayers do now versus waiting on? Is there any advice you might be able to offer?
Alyssa Ackerman
Yeah, so as I said before, don't panic. A lot of things could change between now when the reconciliation passes. So make sure that, I said it before, get a reputable tax preparer to be kind of on your side as far as for taxpayers. And one of the things I think proposed was allowance of contingent fees for taxpayers. So the bigger your refund and we could charge a contingent fee based on that.
There might be a lot of tax preparer scams. So make sure that you are getting a reputable preparer and you're not getting scammed. We saw a lot of scams with ERC mills when all of the ERC was happening. And also have patience. Once this gets passed, tax forms have to come out. We have to learn all of these new provisions. then the states kind of have to catch up too.
So, once it gets passed, know that preparers and everyone's on your side and we are going to try to take care of our clients and prospective clients and everyone's working toward the same thing.
Jim Ray
And hopefully we get there. I mean, it's a frustrating area, you know, for a non-accounting professional, for a non-tax person, it's frustrating. You know, I'll get questions from my CPA, I'm like, I don't know. I mean, what should the answer be? And, you know, I don't know where this is coming from, or that's coming from. It's confusing. So anytime there's a level of uncertainty, which this whole thing is wrapped in uncertainty, it raises the emotion a little bit. So I like your advice, just, you know, don't panic, take a deep breath.
Alyssa Ackerman
Ask questions.
Jim Ray
Yeah, ask a lot of them. If you don't understand, ask your professional again. It's a service-oriented business. And if you feel like you're lost or intimidated or you just don't understand, ask them to clarify. That's your all's job as the CPAs. You guys are really good at that. That's what you look for in terms of a good service provider. And you guys have been around for a while, obviously.
John, let me transition over to you for just to of wrap it up and maybe to add some key takeaways to the discussion.
Final Thoughts and Resources
John Ackerman
Yeah, I think the key takeaways, you know, definitely need to monitor the state and local tax deduction. That'll impact a lot. How they treat the past their entity taxes will be key for small businesses, as well as the qualified business income deduction. And then, for individuals, there could be a little more charitable deductions that people will be able to take and dealing with the itemized deductions. And just stay patient.
One thing we learned with the tax cuts and jobs acts that may have been overlooked when it was going to be passed by lot of practitioners. It's just the state and local impacts because everybody has to file federal, but there's a lot of people that file one federal return and file five state returns. So it's one of those that every state, they may or may not conform to this. So we all focus on the federal, but then you got to also just be aware of states and cities and how they'll conform to all this as well.
Jim Ray
Yeah, it's a fun time. It's a fun time. Alisha Harper, let me ask you this, any closing thoughts, any wrap ups from your side?
Alisha Harper
So a couple of things that I would mention. One, if you, and this has been said multiple times, if you have a CPA, if you have somebody that you're working with, reach out to them. That's what they're there for, is to kind of calm your nerves a little bit.
If you do not have a CPA and you can afford one, consider getting one. If you cannot, please think about the VITA program, Volunteer Income Tax Assistance. With the CPA shortage, I know that it's a struggle for low to mid-income taxpayers to even find a CPA that is willing to take them on, and I can appreciate that. But the Volunteer Income Tax Assistance program is a fantastic program.
The persons preparing returns get IRS certified. They will direct file both federal and state and it's free and surprisingly the AGI cutoff is like $67,000. So a lot of people don't realize that if they're in that $40,000, $50,000, $60,000 range, they think, I don't qualify. You do. So really, if you don't have a CPA, can't find a CPA, really think about the volunteer program. Even with direct file being gone, I think VITA is still there. I don't think, I know VITA is still there. And so that's certainly an option for taxpayers.
Jim Ray
Well said, well said. And that's the thing, just don't panic. I mean, it like that's kind of a theme for, I think, the whole episode. So Alyssa, let me ask you this. If somebody's listening to this episode and they're thinking, “Yeah, I'm going to take Alisha’s advice, I do need to get a CPA. I do need to do that.” How would they get in touch with you at Ackerman CPAs?
Alyssa Ackerman
The best way to get in touch with us is to go to our website, is ACK.cpa. It has a lot of different information, our contact information, and kind of what we do and services we provide. So that would be the best way to contact us.
Jim Ray
Well, I want to thank everybody for your time. It's been a good episode here. A lot of different topics to kind of, sub-topics I guess, to go in along this one. And thanks for your preparation. You guys came in with just a boatload of notes for this stuff and you guys shined through on this one. So I really, really appreciate your time and your preparation for this. It's always a pleasure to get this many Bellarmine Knights in one studio. It's kind of fun.
And John, you've done some podcasting before, right?
John Ackerman
Yeah, I had a podcast for a few years. We need to get back on it. My other host, my podcast partner, he moved to Columbus, Ohio, so I blame him for it kind of dying on the vine right now.
Conclusion
Jim Ray
There you go! Well, friends, if you've been listening to this, I hope there was some advice in there that you took away and I hope there was some good information in there. They kind of gave you a little bit more clarity on what's going on and what might actually be the result of all this back and forth and all the headlines that you're probably reading. But again, I really appreciate the time you took to listen to this episode.
If I could ask one favor, that would be please take a moment to share this episode out on your social media. There are a lot of people out there that may not be connected yet with the Bellarmine on Business Podcast. And if you share it on your social media, Facebook, LinkedIn, whatever, that'll help other people find the information here and learn a little bit more about the kind of topics and themes that we cover here on the podcast and hopefully learn a little bit more about the Rubel School of Business and Bellarmine University.
So from all of us here at the Bellarmine on Business Podcast in Louisville, Kentucky, Swords Up and Let's Go Knights!
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