What does the One Big Beautiful Bill mean for everyday taxpayers? And how will it shape the financial future of federal employees across the country? In this episode, we continue our deep dive into the bill with Stephen Kimberlin of Forvis Mazars US, breaking down what it really means for people. (If you missed the first part of this conversation, make sure to go back and listen before diving into this episode.)
From state and local tax deductions (SALT) to charitable giving, the alternative minimum tax (AMT), and the latest on qualified charitable distributions, you’ll learn how these changes affect not just federal employees, but also business owners and high earners. Listen in as Stephen explains the nuances, clarifies common misconceptions, and provides practical insights to help you navigate this new tax landscape with confidence.
Listen to the full episode here:
What you will learn:
- What SALT is and how it might impact you. (4:00)
- What the AMT is and what you need to be aware of. (14:30)
- How being single may impact your taxes. (17:00)
- How charitable giving became more complicated. (22:00)
- The benefit of charitable giving. (25:20)
- Everything you need to know about qualified charitable distributions. (33:20)
- A welcome opportunity for many of us. (49:50)
- What will be changing about overtime pay. (56:30)
Ideas Worth Sharing:
- “You cannot be married and check the single box on your tax return. Just so you know, we’ve seen it happen. It’s similar with people who just change their name and don’t tell anybody. You can’t just file a single tax return, and if you’re going to change your name, you need to go through a process.” – Mason & Associates
- “We give for many reasons, and tax benefits can certainly be part of that, but we give because we want to give. There is no benefit from a tax perspective if you’re not able to itemize.” – Mason & Associates
- “Estate planning for 99.9% of the population is income tax planning and efficiency, and not avoiding the ’death tax.’ So estate planning is still very important, just for different reasons than what most people think.” – Mason & Associates
Resources from this episode:
- Stephen Kimberlin: LinkedIn
- Forvis Mazars
- Mason & Associates: LinkedIn
- Tommy Blackburn: LinkedIn
- John Mason: LinkedIn
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
John Mason: Welcome to the Federal Employee Financial Planning Podcast. In this episode, episode two of the One Big Beautiful Bill and the impact that it’s going to have on federal employees across the country, we’re going to discuss things that impact mostly the normal person, people who find themselves in the 10, 12, 22, or 24% brackets.
But of course, we’re gonna sprinkle in things that impact business owners and those that find themselves in the highest tax brackets as well. If you haven’t yet listened to our first episode on this topic, hit pause, go backwards. Make sure you listen to that episode first. As a quick reminder, the One Big Beautiful Bill was passed on July 4th, 2025, through reconciliation.
And we are continuing this episode with our special guest, Stephen Kimberlin from Forvis Mazars, which is the ninth largest accounting firm in the United States. And again, on this episode, I’m joined by my partner, friend, owner of Mason & Associates, Tommy Blackburn. Steve and Tommy. Welcome back for episode two of the One Big Beautiful Bill.
Tommy Blackburn: We’ve gotta be a unique group in that I think we’re having a lot of fun talking about this and yeah, when you think taxes and having fun, you know there’s probably something wrong with you. It’s great to continue the conversation. For our audience, we left off, I believe, on the enhanced senior deduction there, which, for those over age 65, you get an extra $6,000. We went over, it’s below the line, meaning that your income, that modified adjusted gross income number, could impact it. And I think now we’re gonna pick back up going over things like charity, some of those state and local tax deductions, as well as some many other things that came out of this bill.
With all that being said, yeah, Stephen, I honestly, I think I call you both. I hope you don’t mind. I’ve known you for years, so I hope I haven’t been offending you for years, but thank you, as John said, for being here with us and continuing the party.
Stephen Kimberlin: Yeah, no, I appreciate you having me on. And again, I’m hoping your audience is getting a lot out of this. I think there’s a lot of opportunity here, like I said in the first episode, so hopefully this is pretty educational for them and gives them sort of a starting point to start to do their own research or ask some questions that can hopefully put them in a better financial picture moving forward.
John Mason: I think it’s important, I didn’t say this in the intro today, but unlike many content creators, we’re financial planners first and we do this second, and in each episode we share real-life experiences of how we help our clients navigate the complexities of all the things that we talk about.
Well, Stephen, you’re the same. And I hope it’s abundantly clear for the audience today that there’s a difference between TikTok, YouTube. Obviously, we’re on YouTube, people who are creating content but actually have never helped anybody retire. It’s very interesting the amount of content creators out there who will tell you emphatically that they should do a Roth conversion or that they should do this with real estate, but yet they’ve helped nobody do any of those things, including themself.
So it is important to find somebody who is actively practicing. I think that’s something that makes us way different and unique in this content creation world. So we thank you for being that person with us today that hopefully, the audience, we do a professional job, but if you don’t like the way we part our hair or you don’t think we’re like a hundred percent the most buttoned up, it’s because our full-time job is helping real people do real financial planning and this is a secondary or add-on for us.
So if you like what we’re doing, give us a like, share, follow masonfp@masonllc.net. So guys, let’s dive right in. Social security is still taxable. We covered that last time. SALT, everybody wants to talk about SALT, not the salt you put on your eggs in the morning, or that’s on your bacon. SALT, state and local income tax.
This was one of the biggest issues in the TCJA of 2017. It used to be that you could have these massive itemized deductions for state and local income taxes. Think California, think Illinois, think high real estate, high tax states.
Tommy Blackburn: New Jersey.
John Mason: New Jersey, New York. Well, this kind of like equalized or leveled the playing field here because there are states that don’t have high real estate or high income tax.
So why does a millionaire or $200,000 earner in California pay less federal income tax than one in Virginia? I understand the point, I also understand the point that it made a lot of these states upset. So then all of a sudden we started creating things like the PTET and we started getting creative on ways that we could work around this state and local, cap at 10,000, but that was recently bumped to 40.
And then along with that, we want to talk about, I think, also mortgage insurance premiums and how that’s impacted here. So this seems to be a win on the surface. So I’ll give it a thumbs up, I suppose, but it also doesn’t probably impact the majority of the people listening to this podcast.
Stephen Kimberlin: Yeah, John, like you mentioned, if was the statistic like 90% of the people are currently taking the standard deduction, I mean, this section is not necessarily gonna apply to you. Depending on your personal situation, it could. For example, if you have maybe a second home with some real estate taxes or some property taxes, you could use the additional threshold to actually then trigger itemized deductions and you might be at a point where you can actually take those. So be able to benefit from some things like charitable contributions or some mortgage interest, particularly if you have a newer sort of higher-rate interest.
So again, it’s not gonna be a big deal for everyone, but for the handful that it could affect, it’s certainly a win for them.
John Mason: With home prices skyrocketing since COVID, you look at, in Virginia, parts of it are not the highest cost of living, but a $350,000 home in 2015 is now like a $600,000 or $650,000 home, and 2015 mortgage rates were three and a half today.
I think they’re still north of six, so 6×6 is $36,000 of interest deduction. And that’s pretty significant for a lot of people. I know not everybody owns a $600,000 house, but with interest rates being as high and then being able to have a little bit higher cap on that salt deduction. I think this is actually a younger professional, dual-income family who’s buying a house, raising kids, maybe stretched a bit to get into that single-family home. I see this helping them. I think about who is a new homeowner today. I don’t really see it helping a lot of our clients’ houses paid down or paid off, and unless they’re buying something new on a huge mortgage, I don’t think, I don’t think it’s too substantial, but I do see that it helps.
Starts in ‘25, Tommy, it looks like it ends in ‘29, and then we revert back to the 10K threshold again in 2030. And my understanding of why all this is done this way is budgets. It could only be so negative, right?
We could only raise the debt so far, or raise our deficit so far. So we had to do things, some permanent, some temporary to make the number. I’ll do this too, make the numbers work. I don’t think the numbers ever work, caveat, but to make the numbers work, that’s why we have this.
Tommy Blackburn: Yeah, it’s so, what do they say? Fugazi, fugazi fairy dust. I mean, it’s just all, yeah, it seems fairly made-believe these limits and rules were putting into place as to how we make the numbers work. But yeah, I agree with you. It is somewhat, I think it is probably Northern states. In particular, I say northern, your higher tax state, you went through, they were the ones really pushing for this.
So I assume they’ll get some help out of it. I try to think about it still, it will help some people, so I don’t wanna dismiss that at all. It is a win for them. But when you have a $31,500 standard deduction, I mean, we’re only getting a benefit to the extent of whatever’s in excess of that. So how much of a benefit we get?
And I think about too, ’cause I think you’re right about, it’s probably the professional with a family and so forth, paying income, real estate taxes, got a mortgage, but then it’s like you’re limited in that situation as to how much income you have. So you can only afford so many expenses, and to then be able to get over the standard.
And so I kind of wonder about like who, how many people this truly impacts. I guess it’s good for those that it does. And then the odd thing is to me is to phase out on this because as I think about like, who can probably afford $40,000 of state and local taxes, plus $36,000 over mortgage, interest deduction. It’s probably somebody with pretty high income and it could be living in a very high cost of living area.
The two would line up. But when it starts to phase out at 500,000, to me it almost seems like the people who it would help are probably gonna get whacked immediately, by this phase out. And it’s completely phased out at 600,000. I’m sure there are many examples of folks who are gonna get a benefit of this, and I don’t wanna dismiss that, but that phase out to me seems pretty nasty for those who probably would get a help out of this.
And again, as we were preparing for this and we were looking, it phases out quicker than I think that a hundred thousand would have you believe, because as it begins limiting that SALT deduction as you’re moving across the income, well, again, you’re competing against that standard deduction.
So I think you actually would flip back to a standard faster than just that 100,000 would display to you. This is again one of those stealth taxes, one of those complexity torpedoes we want to be aware of, ’cause as I, as we were looking at what we call range calc of was we’re planning, like let’s create income through here.
And as we see this beginning to phase out, essentially, it was tacking on an extra 10% to that tax bracket as we were eliminating the deduction. So this is again where things are not as they appear, is the easiest way we would say it. And we just wanna, it’s why you need a professional who knows what they’re doing and has the resources.
So I thought about, we’ve talked about having resources, John. Doesn’t take away, somebody can have software, but if they don’t know what they’re doing, they don’t know how to interpret it, they’re not aware of the pitfalls in the software, they’re more harmful to you than the prof–so you gotta kind of have both, you gotta have a professional who’s well armed to help you, kind of model all of this out and really be thoughtful.
John Mason: So as I think about our clients, it’s typical to see a hundred thousand dollars of retirement income, maybe up to like 300,000. And I haven’t run the numbers, but my quick off-the-cuff observation says for a lot of our clients in that range, this SALT probably doesn’t do much. So then 10% of the people are itemizing.
So we know that SALT for 90% doesn’t really help. Maybe SALT will flip some of those people over, but it’s probably in this threshold of like three to 500,000 of income that we helped, is my guess. Certainly, people below 200, maybe it comes in, but my guess is that we’re gonna see one or two percentage points flip to itemize and that you’re gonna see that in the three to 500 range is probably the sweet spot for the help.
But I guess the other cool thing here, Stephen, is that, PTET wasn’t touched, so you have a higher SALT deduction, which is helpful, but then business owners have the ability to still use this, the PTET, which is the pass through entity taxation, which allows us to ba basically pay individual income tax at the business level, to receive a federal tax benefit by doing so.
So that extending was a big win for professional firms people you work with.
Stephen Kimberlin: Yeah, exactly. And also the form in which it was extended as well, because they did talk about carving out potentially professional service firms not being able to utilize that, which was obviously something of a concern for folks like myself.
But, you’re right, so that was extended, which is helpful because that also does not have a cap. So there’s additional benefit there because you’re not only getting that deduction through that mechanism, but you’re also not being capped at a certain deduction. Whereas, again, on the itemized deduction side of it, you’re getting capped, plus you potentially have a phase out.
So there’s a little bit more benefit in that tool if you’re eligible to use that obviously as a business owner.
Tommy Blackburn: Yeah, you’re right. As I think about the evolutions as this bill was being crafted and making its way through Congress, yeah, John and I as well as you, I guess when it passed, for the most part it’s like almost like, “Whew,” like we kind of avoided a few bullets there.
Like we were told our taxes weren’t gonna go up as part of the election cycle if the Republicans won and then as they were putting out initial proposals, it was, we’re gonna get rid of this pass-through entity tax, which allows businesses to deduct that state taxes they’re taking if they’re pass pastor entity.
So it was like that would’ve increased our taxes. Yeah, there were a few things. I think there was like, oh wait a minute, you guys, it looks like you’re gonna raise our taxes, if you fall into this group. And so yeah, thankfully we avoided those. As I’m trying to think, Stephen, I think maybe some other things on SALT, the state and local is, we don’t want to go down a rabbit hole too much, but perhaps we sprinkle in AMT. I don’t, if you can do it easily. I don’t want to set you up for a complex discussion and, also maybe the marriage penalty around this and certainly I’m happy to elaborate on what I’m thinking on those two if I’m being vague.
Stephen Kimberlin: No, no. So, just generally, the AMT is what’s called the alternative minimum tax. So it’s basically a separate tax calculation based on your, the items on your tax return. However, certain deductions are not allowed or certain deductions or adjusted out different tax rates apply. So it could be the case where you may think you’re getting a benefit from an income tax standpoint be, but because of the mechanisms of the alternative minimum tax, you may end up in a position where you actually didn’t benefit due to that alternative calculation.
And with the different rates that apply, you actually ended up in a different picture. That has been less of an issue in recent years just due to some of the changes in recent law that where the thresholds are a lot higher for that to become applicable. But again, it’s something you can think about, especially for someone who may have a one-time event that increases their income in a year.
Again, it’s one of those things you’ve talked about where you don’t wanna look at things in a silo and you wanna make sure you’re looking at it holistically where, again, you may have to take in some capital gains and it may make sense, but the downside of that could be, that could kick you into an AMT threshold, where now some of these deductions that you were hoping would offset some of the gains you may have had to take in, make it so that it doesn’t make as much sense.
So, to your point, it’s something to look out for because you could have some events that trigger it and put you in a position where you’re not actually getting some of the benefits, like the SALT deduction.
Tommy Blackburn: I think that’s very well said. By and large, I think AMT is gonna continue to be a non-issue for the vast majority of people.
However, there were some slight tweaks to it, or I think maybe some, it may be a little easier for a few more people to fall into it now. And just something to be aware of or that you would hope your professional helping you is aware of, is that these SALT taxes do get added back into that aim. So on the one hand, we’re happy we’re getting more deductions, more itemized, but it could impact if we’re one of those rare people that falls into that alternative minimum tax system, could actually end up doing us no good.
And the other thing I was thinking about, Stephen, was this marriage penalty as it’s called sometimes for this, state and local tax cap. And what I’m thinking of there is, so I’ll just, yeah, go ahead and say where my mind is. If we’re single, under the old rule, it was single could deduct up to 10,000 and married could deduct up to 10,000.
So in theory, you could have two single people operating as a married couple, but just not be married, and they would get to deduct $20,000 of state and local taxes by having their individual tax returns. Whereas when they got married, they lost 10 and it would appear to me that this just made it worse because now a single person gets 40,000.
Now, married file is separate, only gets 20, they cut that in half. But if you’re truly single, you get 40,000 that you can deduct just like a married couple with two people and two incomes, potentially is married, limited to the 40,000.
Stephen Kimberlin: Yeah, you’re absolutely right. And that shows up in multiple aspects of the tax return as well.
It’s not just the SALT deduction; there could even be situations where, if you’re married, filing separately for whatever reason, you actually may lose out on some deductions and credits entirely. But you’re right. Hopefully, at the end of the day, again, you’d have to run the numbers and see if it works out in your favor.
Hopefully, with the sort of tax brackets, being sometimes more beneficial, you may end up unharmed. But again, that’s highly dependent on the facts and circumstances. If you have two married higher-income earners, you may not end up ahead, whereas you could be in a position where, if one of the spouses doesn’t work, perhaps you end up benefiting at the end of the day.
So you’re absolutely right. And again, it’s just something to monitor as you’re doing the planning, because you could run into these pitfalls thinking that you’d be eligible for something or that something wasn’t gonna harm you, but because your facts and circumstances was a little bit different or there’s just something specific about it that ends up triggering something that could be where you end up running into these unexpected surprises and you really don’t want to be in that position to where you end up owing a lot more money because you weren’t aware or weren’t thinking of different things without proactive planning.
Tommy Blackburn: And to be clear for our audience, that it is just more of an observation and a gripe in that I don’t know that Congress fully thought through that. It just seems like a little bit of an injustice. My point here is to not discourage people from getting married. It’s not anything like that.
And as you said, maybe look at your situation. I think marriage is far bigger consideration than just our SALT deduction on our tax return. So that should not be the guide there. Just a little bit of a soapbox gripe as you look at it, where it’s like,
“Ah, it seems like a little bit of an injustice to married folk.”
John Mason: Oh, and to be clear, you cannot be married and check the single box on your tax return. Just so you know, we’ve seen it happen where they’re like, “I just wanna be single.” And it’s like, “But you’re not.” It’s like, that’s similar with people who just change their name and don’t tell anybody.
They’re like, “Okay, you can’t just file a single tax return. And if you’re gonna change your name, you need to go through a legal process.” So, mortgage insurance premiums. I think this one’s a quick hit. This is probably for our audience, maybe their kids, or maybe some of our listeners, folks who do not have 20% down when they buy a house.
This would be FHA, VA, or conventional could have mortgage insurance. And I don’t think that was deductible previously, but now it is. So this goes into the itemized deduction category along with the SALT deduction that says, “Okay,” like it’s probably, if you trust the talking heads, it’s pretty hard to buy a house right now.
Interest rates are high or historically average. Real estate is high and income has not kept pace if you listen to all the people out there. So any benefit that we can give, and that’s what the tax code generally does, is try to incentivize people to do things. So it’s hopefully incentivizing or making it a little bit easier for young families to buy a home by being able to make a 6% interest rate, effectively four and a half if they are able to itemize, deduct some of those mortgage insurance premiums.
It’d be interesting to run the numbers on, you know, does it make sense to pay all the MIP upfront versus over time? I don’t really, I haven’t run those numbers, but something for young homeowners to look at, or those of you who may be buying a home and for whatever reason don’t wanna put 20% down.
This I think happens for loans that started after 2017, because the loans prior to 2017 had the million-dollar loan balance that interest could be deducted on up to a million dollars. But starting in ‘17, under TCJA, the deductible amount changed to 750,000 times the interest rate, so I think this is just for those loans too.
So newer-ish and new going forward. And I just wanna say one other thing as we move on to charitable, is that we’ve created like, we had our above the line deductions, which happened before adjusted gross income. Then we have our below-the-line deductions, which is typically your standard deduction or your itemized deduction.
And soon we’re gonna move into the below the below your line deduction, which Tommy, I think is what you said, which is like a second category of itemized deductions.
Tommy Blackburn: Yeah, it’s complex.
John Mason: It’s bewildering. Yeah, it’s bewildering. It’s like, how did we get here? But charitable giving just got more complicated. For what reason? We don’t really know.
Tommy Blackburn: So the line, just to go back for the audience, ’cause we do this all day when we think about it, is that a GI line that income on the top of the 1040, everything above adjusted gross income was historically above the line. And then everything below that income line was below the line, which is, you said, John, was typically your standard itemized, and now it’s almost like we got a below the below the line. So it’s, yeah, it’s funny how things are working. I was thinking with that mortgage insurance premium too, like if you really wanted to target folks that that was applicable to, probably a better strategy would’ve been to break it out of that itemized deduction area and have made it one of these new below the below the line subject to x, x, x. But that’s not the case. So just again, just conjecture there. But going on back to charity.
John Mason: Yeah. So to your point, it could have been an above the line deduction or a below the below the line, but guarantee that it’s deductible is what you’re saying. Like when you throw it on the schedule A, itemized return, 90% of the people don’t get any benefit from that. So if you really wanted to incentivize new home ownership, you would’ve put it somewhere where it was guaranteed. Stephen, do you wanna touch on some of the changes that happened to charitable giving? You want me to toss that over to Tommy for his initial thoughts?
Stephen Kimberlin: Yeah, no, well, I think the big thing that you’re kind of pointing to, especially in sort of the audience here, is probably gonna be the charitable contribution that you can take in addition to your standard deduction. So, backing up a little bit, charitable deductions are part of your itemized deduction.
So if you don’t itemize your deduction, you’re not essentially getting any benefit from those, from a tax perspective. However, it is now being allowed that even if you have a standard deduction for a single taxpayer, you can deduct up to a thousand dollars of charitable contributions on top of that standard deduction. For married filing jointly it’s $2,000.
So for the first time, you’re now able to take advantage of those deductions, even if you’re not an itemized filer. So definitely a benefit there. I think for the most people, there’s definitely some charitable contribution there. It may not be the big headline-grabbing amounts that you may see in the news or things like that associated with colleges or otherwise.
But it still allows a lot of folks to go ahead and take a benefit for things that they support, whether it be a church or another charitable organization, arts organization they support, they’ll be able to get some benefit from that support on their tax return now.
John Mason: Well, I want to give you a kudos real quick, Tommy, if I can.
You said it doesn’t give you any benefit from a tax perspective, and I think that was such a well-said statement because five years ago or something, I was helping somebody bunch charitable contributions, and I said, “Your charitable contributions do nothing for you.” And I just stopped and they were like, “Well, we firmly disagree.”
I was like, “Whoa, I really screwed up.” Like, yes, I understand. We give for many reasons, tax benefit is certainly part of that. But we give because we want to give, hopefully, there’s some sort of tax benefit to doing so. So I really love what you said, Stephen. There’s no benefit from a tax perspective if you’re not able to itemize.
There was, for a year or two, a few years ago, you could deduct like $600 using the similar–
Tommy Blackburn: It’s also often missed, too, when you would look at tax returns. And I think, sorry to jump in on you there, John, but as I’m thinking about a takeaway here from this, so this starts in 2026. This, I don’t know if it’s actually clear, if it’s above the line, below the line, how they’re gonna do this to, but up to 2,000 for married.
Save those charitable receipts, give them to your tax, you know, have the records. Your tax repairer probably doesn’t want the receipts. If you can give them an itemized list is all they’re really looking for and knowledge that you have those, but also just something else for our tax repairers to keep up with there is now small donations. And I say small against all relative. Again, we’re comparing it to being able to do itemized charitable, which we have to get over that 31,500. sSo now everybody should be able to get this, keep up with them. And John, I think you and I, and probably Stephen, I like this. I mean, it seems simple and it gives people who are doing, still impactful with smaller donations a benefit, to giving, a tax benefit to giving.
Stephen Kimberlin: Yeah, and it’s good that people understand kind of the rules and to your point, to point out that it is 2026, ’cause it may change just a little bit of a timing. I know a lot of folks give charity towards the end of the year, but it may make sense this year to hold off writing that check, maybe till January 2nd or January 3rd or whatever it may be, instead of kind of around the holiday time.
Ultimately, you’ll still get to support the charity, but at the same time, by a simple act of just changing the date by a few days that you actually make that donation, you could actually get a better benefit out of it. So it could be a win-win, obviously, for both you as a taxpayer and then also as the charity, because ultimately they’ll still get that contribution from you.
So it’s something to keep in the back of your mind as you sort of plan out your contributions or plan out different things that you’re doing. That’s just a very small change. It’s very easy to do and can provide quite a bit of benefit.
John Mason: One of the biggest gripes, I think, ’cause I don’t run a 5021 C3, is that when the enhanced standard deduction came into play in 2017 and SALT limited itemized deductions, it was like charitable giving is way down, or people aren’t going to give to charity because they’re not going to receive a tax benefit.
I don’t really know whether or not that’s true or not true. I don’t know if people who give regular started giving less because there was no tax benefit. But certainly, what we’ve read in this tax legislation is that the government wants to encourage or incentivize charitable giving and they recognized that maybe people did stop giving because there was no direct tax benefit.
So giving you this like kind of freebie or easily accessible $2,000 deduction, I think, counteracts some of the negative of what happened in 2017. Again, I can’t quantify, I don’t know if anybody actually knows the numbers, but again, this is the government wanting to encourage charitable giving.
Now, the other things that change with charitable giving is on the itemized side. So this was a below the below the line kind of freebie that we were just talking about. But on the itemized return, this also starts in 2026. For the first time in my career, and maybe the first time ever, there’s a 0.5% floor, meaning kind of like the medical deduction, right?
So for medical exemptions. You don’t get to deduct anything until it exceeds 7.5% of adjusted gross income. For charitable giving, it’s going to be similar. You don’t go, you don’t get to deduct anything until it exceeds 0.5% of AGI, and then there’s gonna be all these rules about the amount that was not allowed, could it carry forward?
And if it carries forward, it can be used maybe for one year, but not two years. And then, oh, by the way, keep in mind there’s like a 60% AGI threshold, a 50% and a 20, I believe. So we’ve got different thresholds, different securities, different rules, and then now, and now a random cap or a threshold that’s been thrown in there. Floor, yeah.
Tommy Blackburn: Yeah. And that whole 50, we do have to still keep track of those. We have things like appreciated securities, like you said, which are limited to 30% of AGI if we’re going. And that’s a great way to give. And this whole 60, 50 thing, that to me is like really weird because they said it’s permanent now.
So if you give cash donations to the normal, regular charities, you can deduct up to 60% of your income. And it’s been that way for a long time. And we just said it’s now permanent. So I don’t know why we still call it a 50% subject to 60% because it’s a whole lot of words. Maybe they’ll fix that one day, maybe they probably won’t.
As I think about this, from my perspective, this new hurdle rate, I guess it makes us think again about like, maybe some timing of things. So maybe it’s not huge, right? Like it’s not a huge haircut that you’re taking, so I don’t know that it should drastically changed their behavior. But it is more of an argument to maybe do more giving in 2025 before this takes effect.
Because there is no haircut in 2025, as I’m calling it a haircut. This 0.5% hurdle, that you don’t get any, that you don’t get this first 0.5%. What are some other takeaways here on this? Oh, and again, if we’re not gonna itemize, maybe that’s pushing you back to what Stephen was saying of maybe wait in December until January so you get the one that’s not subject to all these crazy rules.
Some other thing, I think it makes QCSs a little bit more powerful, right? Because they’re, one, they don’t even hit the tax return from an income perspective, which is great, and they continue to not be subject to any haircut, ceiling hurdle thing we gotta get over on the itemized deductions.
Stephen Kimberlin: Yeah, Tommy, I think you’re generally correct. I think it’s more just kind of pointing out that I probably need to put some time into planning these things to see how it’s gonna affect you, where you’re gonna end up, either from a standard deduction or an itemized deduction. And depending on where you’ll be, at that starting point, does it make sense to go ahead and contribute early if you’re gonna itemize because you don’t wanna be subject to the floor, or can you afford to wait if you’re gonna be a standard deduction and get some benefit later on?
So probably for the vast majority of taxpayers and also the ones sort of that we’re addressing today, probably not a big change, but it does put a little bit of thought and maybe when you want to give how much, and again, looking at QCDs, do you bump that up a little bit more this year just to kind of get some additional deductions in this year and maybe pull back next year?
It depends on the individual situation, but I think the overall concept is more just have some time to think through that, make sure, make intelligent decisions, and having the conversations with your advisors.
John Mason: Well, you guys, throughout qualified charitable distribution. So audience, quick definition here, this is for those of you who are 70 and a half or older, this can be from an IRA or an inherited IRA, currently not 401k or employer-sponsored retirement plans.
You would also not do this with a Roth, but it allows you to take distributions from an IRA that would otherwise be taxable and send it directly to a charity. And it’s like you never had to realize the income. So it’s a super efficient way for charitable giving. It’s the best because it’s an above-the-line reduction.
And this is really impactful for folks who have required minimum distribution. Those forced IRA distributions that happen between 72 and 75 now. So QCDs are great. Again, timing makes all the sense in the world. Like if you are somebody who’s 69 who’s gonna get caught up in this charitable giving hoopla that’s going on in these changes, maybe you just delay your charitable giving a year and then backfill once you make it to 70 and a half if that’s something you’re comfortable with. We know that you, the charities that are important to you may not be able to wait that long. One thing that I’m excited about, Stephen, and I know you have to be as well, is that I believe there is a new reporting requirement for qualified charitable distribution.
So, for instance, Charles Schwab, when a client does a qualified charitable distribution, it comes out as a taxable distribution like any other IRA withdrawal or Roth conversion, and then it was up to the taxpayer and or the tax preparer to manually remove it from the tax return. So it was like code seven or whatever the codes are.
Normal distribution. It looks like effective this year, it’s going to be code Y. Y like Yankee or Y like yellow. That should help, one, all of those people who self-prepare, should be less questions in TurboTax and then should help tax repairs, you know, those people like Stephen and Forvis Mazars not have to ask as many questions and follow up and say, “Can you please tell me how much of this was a QCD?”
If I know anything about the business guys, I’m sure there’s gonna be a custodian that screws this up in some fashion. So I don’t know that we can expect perfection in 2025, but hopefully, we could expect close to perfection in 2026. And what’s interesting about this is that the IRA distribution form that’s typically required, it has to have some indication on whether or not it was a QCD, right? So if you submitted a distribution form in January, Tommy, and the only box that you could check on the Charles Schwab form was distribution, there’s no way for Schwab to know that it was a QCD.
Tommy Blackburn: I can’t imagine they’re going to go back either. Like it’s not worth their problem and their time. And it’s weird too, like how is a custodian to verify this other than I’m imagining it’s you, they’ll probably say like, yeah, there’s 70 and a half, and they check the box that says this was a qualified charitable distribution. And maybe we’ll go a step further and make sure that all the IRAs we have for them, they haven’t done over the hundred thousand plus the inflation to whatever the limit is now in a year.
But yeah, I imagine the onus, there’s still going to be some onus on the taxpayer and the tax preparer of like, “Hey, you can support that this was indeed given to charity,” right? Surely the custodian can say like, the check was written this way and some things were satisfied, but yeah, I just, I see this still creating some issues, but an improvement nonetheless.
Stephen Kimberlin: Yeah, so I mean, it’s always great to have more data and obviously something that’s easy to call out so we don’t miss something. But at the same time, you’re still gonna wanna do your diligence, ask the questions to make sure that you’re properly taking deductions or that you haven’t missed something.
So, again, gonna be helpful, should it be something that you should blindly rely on? Probably not, ’cause hopefully you’re having the conversations with your clients anyway and you’re well aware that they’re doing these charitable contributions and now it should be reported and taxed. So that should be kind of the fallback or the check figure.
But certainly it’ll be nice just to, again, you talked about software earlier with their financial planning software, our tax software can read those codes, so it will just make us a little bit more efficient in that we’ll hopefully put that in the right place the first time, ’cause the software is reading it for us, and we can spend our time more on actually analyzing the data to make sure it’s actually the right outcome instead of worrying about keying in the data correctly.
John Mason: So there’s gonna be custodian-level issues that come from this. I’m sure 2025 is gonna be a hodgepodge, but also like if you’re a do-it-yourself investor, you’re managing your accounts at Vanguard or you’re working with maybe an advisor who’s not up to speed with everything and doesn’t realize that the forms have changed and you’ve just been in the habit of checking normal distribution, normal distribution, normal distribution, and you don’t look five lines down and see QCD, you could fall into a trap of doing it the same way over and over and over again.
So attention to detail, custodian level issues, since we’re talking about custodians, we’re gonna jump if you guys are okay with it to Trump accounts. Then I want to come back and finish the below, below the line deductions, and then hopefully we’ve done the One Big Beautiful Bill, some big, beautiful justice. Does that sound like a plan?
Tommy Blackburn: I hope we can do it.
John Mason: Okay, so Trump accounts, the question is why I don’t necessarily understand the why and we’ll talk about that. But essentially, what I see from this, and you guys jump in and tell me your thoughts. It allows me to put $5,000 a year into an account from my son that’ll hopefully be there for his retirement. That’ll hopefully give him a jumpstart in life.
At a high level, I give it a thumbs up. At an implementation level and a confusion level, I give it neutral or a thumbs down because this is one of the things that we don’t even know how it works yet. So with that being said, tell me your thoughts.
Stephen Kimberlin: Yeah. I don’t know if it’s wholly groundbreaking in that you are always eligible to open up a custodian account, right?
And have a savings or an investment account for a child. There are some interesting aspects to it, the tax-deferred nature of the earnings so that you’re not necessarily having to pay it if it’s like a grant or trust issue or something like that. So there’s some interesting nuances to it where it could be valuable.
But again, at the end of the day, there already were some existing options, through having a normal brokerage accountant or a 529 or something that could have been other options as well. So I’m not sure how big of a change it will be, but it does give families another option to save for their kids and for their future.
Tommy Blackburn: I’m with you. I think when you think about all of the ways you could fund things, people have limited resources. So yeah, I kinda wonder here as to how practical it is. Like sure, yes, another way with tax DeFi savings, and maybe we’ll get something cool, like we can convert it to a Roth down the road, but it’s certainly complexity and yeah, we’ve got 529 accounts.
We’ve got UGMAs, UTMAs, Coverdells, we’ve got many ways we can already kind of put away money from minors and the HSA, like just trying to figure out the pre, the order of preference and then how many dollars do we have and where do these accounts fall? And that preference, I’m not exactly sure like how meaningful it is as far as to why they did this.
The only thing that I, I don’t wanna say maybe the only thing I’ve heard, but potentially, there’s a theory that this is the beginning of a backdoor way to make people less reliant on social security and that there’s been kind of this, hey, like let’s set up savings accounts for people and put their FICO money into there, so that it begins to be this, your self-funded social security that perhaps that is the beginning of this move, some type of like sinister backdoor way to go about it. Perhaps that’s it. I don’t know. I’m just sharing, that’s a theory that I have come across, ’cause other than that, John, I don’t really know why this came out.
John Mason: It’s really confusing because it is arguably the worst kind of IRA that you can have, which is an IRA that has after-tax contributions with tax-deferred growth. So you have money that will come out taxable one day and then you have money that’ll come out tax-free and then you have to track your basis. Custodians are still not tracking basis on after-tax IRAs, so I’m not clear on whether or not Schwab, Axos, fidelity, whether or not they’re going to track the basis.
So I’m confused about that. I’m also confused as to, because it looks and feels a lot like an IRA after age 18, why they didn’t just do away with the income requirement and these kids could have just funded an IRA, and not have to have this entirely new Trump account. I think it’s a little bit unclear. Death prior to 18 versus death after 18, it’s a little bit unclear, where you can move the account after 18, whether or not you can convert it to Roth or not. It does seem clear that having a Trump account will not impact your ability to do backdoor Roth conversions. So that’s kind of interesting. But there’s a lot of uncertainty here.
It’s like you have to have low fees. It can only be in broad-based index funds. There’s these thresholds or requirements, and it’s like, well, if Schwab and Axos and Fidelity, they’re just all gonna create these new account types, and how long will that rollout take? Kids born in ‘25, ‘26, ‘27 are going to get a thousand dollars from the government is free money.
I don’t really know when that comes in. I don’t really know how you, I think that comes through as maybe a tax credit, but eventually that has to get deposited and there’s just a lot of uncertainty, unclear how it’s going to work. It’s a lot like military exempt contributions. I will fund one. There’s no chance that I will not fund one order of priority for most people is probably max out your Roth IRA first for you and your spouse.
If you can’t do that, or after you do that, maybe it’s max out 401k or TSP. And then after that, you know you’re looking at other accounts like five 20 nines, et cetera.
Tommy Blackburn: HSAs.
John Mason: So your point, Tommy, this has to be, how many people out there are saving $30,000 in a 401k, 14 to $16,000 in a Roth and still have money left over to put into a Trump account.
This feels like you’re probably north of $400,000 of income before you’re putting money into this account, unless, ’cause there’s an employer provision. Unless your employer decides they wanna put in money for your kid. I don’t know, Stephen, if you know how that impacts the business’s tax return, but it does look like employers can contribute towards that $5,000 limit.
Stephen Kimberlin: Yeah, I don’t think all the details have been worked through yet, but it could be an interesting concept if you are an employer. It’s just an additional benefit that you could potentially provide. You know, is it something that you’re providing that is an edge in terms of trying to hire and recruit talent to your organization?
So we’ll see if that’s something, again, the numbers that we’re talking about, and again, a lot of other businesses are offering a lot of other types of, either 401ks or Roth traditional. So, it could be a nice thing to have, you know, is it gonna move the needle all that much?
Probably not, given all the other things that you could potentially offer to an employees. But also considering budgets, right, of employers as well, depending on the time, how the economy is doing. Are employers gonna have the free cash flow to be able to do this for their employees, especially if they have a large employee base?
So, I think to your point, I think some of this is, let’s see how it shakes out. Let’s get some more information on how this makes sense and if you want to incorporate it into a financial or tax plan, it may be something that’s valuable, but again, probably not one of the bigger kind of changes or benefits that we’ll see within the bill.
John Mason: Any thoughts, Tommy?
Tommy Blackburn: Yeah, I don’t know what to make of it. I think as with everything, we gotta get some more guidance. And I don’t remember when this takes effect. Does it take effect in 2026? So I think it’s kind of TBD. Perhaps I’ll join you, John, and do it just to see, just to have some perspective from folks who may be doing it, what that world looks like and what, yeah, just give me a little more perspective.
But on the surface, I just don’t understand if everything we were trying to accomplish in these tax changes and in the world, like how this made it in there, I guess befuddles me. To be honest, it seems like it just kind of came outta nowhere. Not sure what exactly we were solving, but we will pay attention to it and we’ll figure out if there’s a way to provide an advantage to ourselves and our clients and potentially employees and we’ll take advantage of it.
John Mason: I think we’re a little bit, I enjoy following the audience, probably knows like Peter Attia, Rhonda Patrick, some of these like longevity people. And what’s interesting is they’ll be like, “Well, I’m doing a cocktail of rapamycin, metformin, and or DHEA or something,” and they’re like, “I’m just curious what it’s gonna do.”
And it’s like, well, I’m glad that they’re trying the things that they’re researching. So we kind of do the same thing from a financial planning perspective is we had life insurance before we needed it. We’re gonna open a Trump account so we know how it works. So, we’ll let those longevity experts try rapamycin.
We’ll open a Trump account and let you know how it works. Well, guys, we’re 48 minutes in. I think if it’s okay with you, guys, maybe let’s just quick hit some of these other things and give it a wrap. So I think that repeal of clean energy credits, whether that was EV tax credits or home improvements, energy efficient credits there, all of those are gone in 2025. So go ahead, Tommy.
Tommy Blackburn: I think that some of them were like expiring and maybe September some at the end of the year. Maybe it was a difference between whether it was like a vehicle clean credit versus residential energy, all of that to say, the reason I jumped in there was if that’s something you were thinking of doing for time is of the essence to do it because those are expiring. I think there was a lot of, essentially all green things are more or less being expiring in some form or fashion, particularly for businesses. I’m sure they’re highly focused, if it applied to them. For the listeners of this podcast, you’re probably not too worried about those other provisions.
John Mason: I’ll just maybe, real quick, Stephen, just say there’s a chance that they’re not gonna put diesel particulate filters and diesel exhaust fluid and all of these diesel emissions, things that we have to have on our trucks these days. So TBD on whether or not diesel deletes become a big thing in 2026 as well.
Stephen Kimberlin: Yeah, I was just gonna note for the clean vehicle credit, that does end September 30, so we’re about two months away from that. Sun’s setting, so if you’re considering a vehicle that would qualify, the time is running out. Residential energy credits do go through 2025. So there’s some time if there’s a construction project you’re considering or improvement you’re considering, there’s still time to finalize that project in order to secure a credit.
But, after that it does sunset…that’ll probably be the toughest part, is actually getting them done on time.
John Mason: 529s. This is a welcome opportunity for many of us. real quick, hit here. TCJA expanded 529 distributions to allow for K through 12 private school tuition and fees.
That’s been expanded to include things like materials, books, laptops, tutoring exams, dual enrollment courses, educational therapy like occupational therapy and speech. It’s expenses like that after July 4th, and allows for folks to use it towards like CFP credentials. So it really does expand the use case of 529s busted up from 10,000 to 20,000 for those K through 12.
I think it’s a giant win, especially if you’re in a state like Virginia, where you get a tax deduction or you’re in a state like New York or California, where you’re getting an even higher state tax benefit. This is something that even, I don’t know if it goes to public school or not, but there’s certainly a cost to attend public school too, in a lot of instances.
So I’m curious whether or not all of this is only private, but dual enrollment would be typically through a public school, so it seems like there could be some crossover there.
Tommy Blackburn: Yeah, I think this is all highly positive.
John Mason: Big wins. Thumbs up. estate taxes, that phase out or the, I’m sorry, the lifetime exemption, 15 million per person. I think this has been made permanent, if I’m not mistaken. Again, we’re talking about death taxes. That doesn’t apply to anybody who’s listening to this podcast. So, maybe it impacts 0.1% of the population.
Tommy Blackburn: Right. Yeah. I think is, Steve, what are the limits? Do you know what they are going forward?
Stephen Kimberlin: Yeah. $15 million is sort of the reset, if you will, then it’ll be adjusted for inflation annually. So, similar concept to what we had been dealing with. The win, I’ll call, for most people, is it was supposed to sunset back to a starting point of 5 million.
So now it’s up to 15. So again, may not affect a lot of taxpayers, but for those who are in that range of maybe 5 million, which is not unheard of, you know, with escalating home values and the market doing well, that’s not like it’s a low number, but it definitely gives you some more breathing room, right? If it’s not up to 15 million plus any inflation adjustments moving forward.
Tommy Blackburn: Especially if it’s per person. So if we’re married, we’re looking at 30 million, so should give most of us a sigh of relief that probably not gonna be dealing with.
John Mason: It continues to reinforce that estate planning for 99.9% of the population is income tax planning and efficiency, and not avoiding the quote, end quote, death tax.
So estate tax or estate planning is still very important just for different reasons than what most people think. Child tax credit, guys, is permanent, increased to 2,200. Still phases out at 400,000, but for the first time ever, has an inflation adjustment to it, which is kind of cool.
Tommy Blackburn: And I would just say, John, this is again, one of those like stealth tax, putting the entire picture together, right?
Like you could be that professional working family with kids, and all of a sudden, as you start crossing certain thresholds, you start losing things, and you could be in a, and you probably don’t have a choice if you’re working because that’s just the nature of income is coming in. You could be going through some nasty zones there as you begin losing credits and things begin phasing out,
John Mason: Pop quiz. What is Dave Ramsey? And I don’t know that this is actually true, but what is Dave Ramsey’s least favorite part of this tax bill? And I’ll give you a hint. There’s a steering wheel involved.
Tommy Blackburn: Oh yeah. Probably goes against his principles,
Stephen Kimberlin: The deduction for the, assume the vehicle interest.
John Mason: Absolutely. Yeah. So, Dave Ramsey wants you to buy an old beater for a thousand dollars and, but now you can deduct up to $10,000 of interest for a vehicle that’s purchased. There are some thresholds there, but also there’s a phase out again, so I would agree largely with Dave Ramsey that you, if you’re buying a car, financing a car, maybe you’re buying too much car, but also like there are reasons and compelling interest rates and maintaining your liquidity that you can make a reasonable choice to have an auto loan.
So yes, I think this is a win for people. Hopefully, they’re responsible and folks, you’ll never be able to justify a new vehicle based on an increased mileage per gallon. And you can’t justify a new vehicle by having a little bit of an interest deduction on your tax return. You’re better off keeping the old car that still runs unless you need a new one, maybe there’s a benefit here.
Tommy Blackburn: Yeah. Important here too is this is for a new vehicle manufactured and assembled in the United States. So make sure you ask that question. And as you said, John, this is on the interest, so it’s not the loan, it’s the amount of interest you pay. I guess I say all of this ’cause it was just like how impactful this will be.
‘Cause we got a one, have a new vehicle that was manufactured or assembled here and then it’s just on the interest if we meet the income, which if we’re over 250,000 of income, we don’t get this deduction. I believe that’s the phase out. Yeah, the end of the phase-out range. So seems somewhat limited, but I guess if it helps, it helps.
John Mason: And there’s, I see, ’cause I enjoy looking at cars, like there are some 0% for 60-month auto loans come back, and if auto sales continue to drop, you’re gonna see more and manufacturer incentives, which include 1.9 for 60, 0% for 60. So, if you have slowing auto sales and manufacturer incentives, this may not be that sexy or all it was cracked up to be, anyhow.
The last thing for me, I think, that I wanted to hit on guys and then we’ll wrap it, is federal employees who work overtime. We do have federal employee clients who are wage grade, who make a considerable amount of money in overtime pay, and other folks who make money in overtime pay as well.
There is now a below, below the line deduction for that, and I think it’s capped at $25,000 of deduction. Again, there’s a phase out at 300K and then Stephen, maybe you could share with the audience, is it the entire amount that you got paid during the overtime, or is it just the amount of overtime pay that’s eligible for the deduction?
Stephen Kimberlin: It’s just gonna be the overtime pay and there actually should be a designation on the taxpayer’s W2 that will note approximately how much is actually eligible for this deduction. So of what portion of their W2 earnings is the eligible overtime portion? What’s also interesting on this one, just to go back to an earlier comment, you’re actually not allowed to use the deduction if you’re married, filing separately.
So kind of going back to part of the earlier conversation where, depending on your filing status, you may or may not be eligible for this deduction, either in addition to any phase-outs, other considerations.
John Mason: That’s awesome. Yeah, it’s kind of amazing to go through all of this and I guess just giving the audience, like, if your standard pay is $20 an hour and your overtime rate is $30, it’s that $10 difference.
It could be subtracted off your income tax return, not the full $30. So, I didn’t know about the married filing separately. That’s good to know, Stephen, and wow. Audience, I hope you enjoyed this. We’ve unpacked a lot.
Tommy Blackburn: We have, and I don’t know if we mentioned another income phase-out there, so I just bring that up ’cause it’s like we’ve got phase-outs on phase-outs on phase-outs. We have, that’s the complexity part we’re kind of preaching here of just, there’s a lot to keep track of and model and just be thoughtful of how certain decisions could impact things here. So, certainly didn’t get simpler, but sometimes complexity presents opportunities, so we’ll take it at that.
There’s also, John, this credit for qualified elementary and secondary education scholarships that doesn’t come in until 2027, I believe. And I’m just kind of curious as to how that’s gonna work, what that means, what the planning opportunities are. but for organizations that qualify. I think it was up to $1,700 per taxpayer.
It’s a dollar-for-dollar credit. So Stephen earlier walked us through deduction versus credit. So this directly would knock $1,700 off your tax liability if you gave to one of these organizations. So it could be a huge opportunity or just something to really be aware of. If it fits the situation, we’ve got time to figure it out.
Just sharing it to make people aware, although they’re probably not gonna remember this podcast two years from now, but something that we wanna, we just want to keep an eye on.
John Mason: That’s awesome. And I guess is my final takeaway on this, guys, is the various torpedoes and phase outs. I mean, I think we’ve got three or four different phase-out thresholds, right?
I mean, I think we’ve got stuff that starts phasing out at 150, 200, 250, 300, 500. I mean, it’s–
Tommy Blackburn: 400.
John Mason: Yeah, I mean, 400. I mean, it’s almost every 50, you’ve got some sort of phase out going in here, so yeah, I’m looking forward to it. Woo hoo. One Big Beautiful Bill, baby.
Tommy Blackburn: Yes. One big mess. but we will take advantage of what we can take advantage of and give the best advice we can and for the situation.
John Mason: Stephen, thanks for joining us.
Stephen Kimberlin: Yeah, absolutely. Thanks for having me on. Appreciate the time today, and hopefully, your audience got a lot out of it,
John Mason: Tommy. Thank you, sir.
Tommy Blackburn: Awesome, guys. Always enjoy it. Audience, thank you as always for being a part of this. We look forward to any questions, comments, thoughts, future episode ideas, always welcome, and we certainly, as always, hope this was helpful.
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