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Tax News Now Ep. 13 - 2025 Year End Policy Playbook: OBBBA, Tariffs, and IRS Modernization (Part 2)
2 Playsin 13 days
This year-end episode highlights the biggest tax developments of 2025 and what they mean for planning heading into filing season. Mark and his guest walk through the significant individual and business tax changes resulting from the One Big Beautiful Bill Act, tariff policy and other major tax changes.
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Transcript
Year-End Tax Planning Strategies
00:00:09
Speaker
everyone, it's Mark Gallegos. I'm back for part two on the Tax News Now podcast ah for year-end tax review. um In part one, we covered quite a bit of material unpacking it um and what we've done over the year in the podcast, but also talking about the new H.R.I. tax bill and the individual business and international and energy provisions. So a lot to unpack there.
00:00:33
Speaker
In part two here, going to kind of dive into some things that I think are really relevant right now, and that is how do we do planning for our clients? And I think these are areas that are important.
00:00:43
Speaker
And when you think of those new individual provisions, along with what we normally do for tax planning, I think things we need to look at tax a lot differently than we've ever had before.
00:00:54
Speaker
And so couple of things I think that are important. One, We wanna lock in those tax brackets. Remember I mentioned in part one, the tax bracket management. Well, we wanna update withholding and run year end tax projections for our clients.
00:01:07
Speaker
Make sure they're putting in the right amounts, but looking at the brackets going forward so we don't have any April surprises.
Maximizing Deductions and Charitable Contributions
00:01:13
Speaker
And I always say, the more we can do before year end to help our clients understand what or what they're not gonna owe in April, it's gonna be beneficial to let them know now, right? And then this takes all the pain away from the filing season. We already have enough having to get all this stuff done, but trying to make sure we help them.
00:01:31
Speaker
In addition, you know, the optimizing the SALT deduction, now that the cap's back to $40,000, and remember the 4, 5, 6 I mentioned, make sure we utilize that in our process.
00:01:43
Speaker
um And also maximize itemized deductions if we can. You know, like we said before, you know, with even with the $40,000 SALT cap, some people are still going to follow as the standard deduction and not itemizing.
00:01:55
Speaker
So what would be the lever to push them in back into itemizing? And that's usually charitable contributions. So understanding how much can we do?
Qualified Charitable Distributions and New Deductions
00:02:03
Speaker
Maybe it's setting up a donor advised fund. Maybe it's doing um a bunching a number of deductions in one year to get um the deduction.
00:02:13
Speaker
But in addition to that, part of the planning may be using utilizing qualified charitable ah distributions, QCDs, ah people that have RMD requirements, requirement distribution.
00:02:26
Speaker
Make sure we're looking at all these different things to help maximize that tax bracket management. And like we mentioned before, there's a number of new deductions. We have these new deductions for qualified tips and also for qualified overtime.
00:02:41
Speaker
We want to make sure that we're coordinating with payroll and ah HR to capture every eligible dollar and helping our clients, whether they're the business or the individual, make sure everyone gets the right information they need in order to maximize that deduction.
Estate Planning and Tax Credits
00:02:56
Speaker
In addition, families, you know, you can't harp enough that you want to do estate intent and planning. We want to get things in place, things that sometimes families are uncomfortable to talk about. And I think it's important that we do this.
00:03:08
Speaker
But remember, things that we need to look at, the estate lifetime exclusion starting in 26 goes to 15 million per individual. And that's huge. And that will continue.
00:03:19
Speaker
So very important. Also families that aren't thinking about that, maybe they're younger and they're starting off, but they got young kids that, you know, child tax credit is now $2,200 with $1,400 of it to be ah refundable.
00:03:33
Speaker
Very important. So I think just things to keep in mind as we continue to plan along the way are important.
Education and Retirement Plan Updates
00:03:39
Speaker
um And education, um you know, retirement plans, you know, making, we know 529 plans are still a good use.
00:03:49
Speaker
They've been expanded so we can use it for homeschool or credentials you know to be able to get those. ah So what look at what you can and cannot use that 529 and it's used for.
00:03:59
Speaker
in addition, we have the enhanced senior deduction that was created for certain people that are age 65 or older that fall that um income range. per individual up if it's married.
00:04:12
Speaker
Big, big things there. And I think, remember, we also have this new Trump account. So I think there's more things to come out on that. We just got to look at what that means, right? So I think important pieces to the planning process along the
Capital Spending and Cash Flow Management
00:04:25
Speaker
way.
00:04:25
Speaker
On the business side, I can't emphasize, you know, when you're sitting down with your clients here at year end and they're thinking about what have they put in place as far as their capital spending. You know, have they bought out, maybe they're still thinking about buying some equipment or buying a large vehicle or a truck or something, you know, there's a lot going on at year end and we've always dealt with, but to remind them that, Hey, guess what?
00:04:48
Speaker
hundred percent bonus is back on the table. Huge cashflow opportunities there. 179, still on the table, increase to two and a half million. I think there's some great things there.
00:05:00
Speaker
So that timing for equipment and software purchases and maximizing cashflow on those write-ups, huge, right?
R&D Expenses and Tax Credits
00:05:07
Speaker
But at the same time, we're also trying to maximize, you're flow through entity, the QBI deduction.
00:05:12
Speaker
And I think that matters, right? How do we get to maximize that 20% haircut, I call it? And you know everybody gets it until you're at a certain threshold, and then you kind of phase out. And then if you're a specialized service trader business, like an accountant or a lawyer, you don't get it anymore.
00:05:30
Speaker
And then if you're over that threshold, you got to look at some other factors like W-2 wages and qualified business asset value in order to determine, do I get that? But maximize that value because, you know, just at a basics, it's the lesser of the 20% QBI deduction or 50% W-2 wages.
00:05:48
Speaker
And if you don't have enough wages, you take a less number. So we want to make sure we're looking at that before year end. um And you know we've talked about 174 cap A to be able to expense the domestic R&D costs for 25 going forward and being able to do something with 22, 23, and 24 if we have that, the remaining unamortized costs, whether we go back to amend if we're a small business or go forward with it, either way, model it out.
Handling Business Losses
00:06:16
Speaker
But besides that process of the R&D expenses, are they maximizing the R&D tax credit under Code Section 41? If not, we need to make sure they are, right? Or maybe they kind of didn't really pay attention to it because 174 and the capitalization was just something that kind of clogged the, made things foggy for them. So let's make sure we're taking advantage of that. I think it's very important in today's environment to do so.
00:06:42
Speaker
And, you know, there's just a number of things that we look at from our clients and everything else. But more importantly, I mentioned it before, four sixty one l comes into play, especially if I got a flow through an ID, right?
00:06:54
Speaker
If I'm an S corporate partnership and I have a loss for the year, I always take a look at the funnel, right? I say, first thing I always look at when I have a loss is, do I have basis to take the loss? Okay, I have basis.
00:07:05
Speaker
Second thing is, do I have the at risk to take the loss? Okay, I have at risk. Second, the third thing I mean is, am i passive or am I active? Let's say the client's active. And now the fourth thing, 461L, am I limited by the amount of that loss, right?
00:07:21
Speaker
And it depends on your filing status if you're married or single. And if you're limited, you may not get that full loss, and then it converts into an NOL going forward with those rules applying.
00:07:32
Speaker
So again, very important things that you just don't create losses for the for the fact of creating a loss, not knowing the ramifications of the utilization of that loss.
Impact of Tariffs on Business
00:07:42
Speaker
So very, very important. ah Chris, we're going to jump into something that I think um i think is important that it's tariffs. you know and And one of the things that I think is important about it right is we think that in accounting, you hear tariffs, you're like, well, does that really apply to you and I? mean, what do what do we care about that? We're not implementing them. right It's not an income tax.
00:08:05
Speaker
And i see I get this question all the time, Chris. I don't know about you, but it's like something that's out there. But it is. So I think like probably before this year, not a lot of people really even thought about tariffs. Right. They knew they existed, but didn't really impact their lives or their businesses too much. And like you said, you talk to a lot of the tax departments. Right. And they don't even handle the customs and duties and tariff issues. That's that's someone in supply chain. Right. Somewhere else in the in the business organization.
00:08:37
Speaker
And then. Bam, 2025, April 2025 comes in and now everyone is trying to bone up and be a tariff and customs and duty expert when before they had never thought about
Understanding Tariffs and Geopolitical Use
00:08:51
Speaker
them. So right maybe you could give like a little one on one on what we're talking about, why it's impacting, how it's impacting businesses. I think that'd be really helpful to a lot of the listeners. Yeah.
00:09:04
Speaker
Yeah, yall I think it's great. Great opportunity, Chris. And thank you. Yeah, I will. I mean, I i know that. And if you take a step back and think about it, every one of our clients that we work with, think of the business clients, their retail store, or their manufacturer, a distributor, um or, or maybe their construction company, No matter what, they eat are either producing something, getting materials, or doing something that is impacted by tariffs, right? Because not everything that goes into anything is produced in this country.
00:09:38
Speaker
On top of that, if you are an individual and you're the consumer, you are impacted potentially by the tariffs because the cost may be being passed along to you. So i think this is very important. So what is tariffs, right?
00:09:51
Speaker
Tariffs are essentially a tax imposed on goods imported into a country. That's that simple. um They are collected by the border authorities when goods enter the country and usually paid by the buyer or importer.
00:10:04
Speaker
However, in practice, the cost of a terrorist can become a negotiating point point point between buyer and seller, essentially. And we see this geopolitically used to protect domestic industries or penalize trading partners.
Tariffs on Specific Goods and Industries
00:10:19
Speaker
And so where this has arisen this year is under the new administration in April of 2025 of this year, they had what they call Liberation Day, which where they implemented a number of tariffs that range anywhere from 10 to 50% at that time, depending on the country, the product, et cetera.
00:10:37
Speaker
And a lot of the industries that were impacted immediately were technology, manufacturing, consumer goods, automotive, people that really get impacted by this.
00:10:48
Speaker
And so stuff that we have to look at. And essentially, how do tariffs get applied to the goods, right? I mean, so it all makes sense. But like a blanket tariff can be imposed on all goods entering a country. So let's say the US.
00:11:03
Speaker
But the tariffs are more typically applied strategically on specific goods, the sector, or trading partners. And this would include you know raw materials, immediate goods, or finished consumer goods.
00:11:15
Speaker
And all of this kind of gets you know, figured out through something called the Harmonized Commodity Description Encoding System, um and the HS code, we'll call it. And essentially, it's the way they kind of break apart where the tariffs are at on what component of the products, right?
00:11:33
Speaker
And so there's a lot involved in that. um And so countries, they can add additional data HS codes to further subdivide product categories. When it comes to transformed goods, it's where it gets a little bit more complicated.
00:11:47
Speaker
So you're thinking about modern consumer goods, for example, the implications could be more complicated. So many goods are made up of multiple components. As we know, anything you pick up probably is made up of multiple things, your car, for example.
00:12:03
Speaker
And so your car may be manufactured to the US, manufactured in another country. Every bit of those parts come from various locations. And so could have a number of things in the supply chain at different tariff rates.
00:12:17
Speaker
So this is where it gets much more complicated. um And so how do you apply the tariffs to these goods? Well, the rules of origin are used to determine whether a good qualifies as originating from a certain country.
00:12:30
Speaker
So the World Trade Organization, the WTO, has a system rule of origin, which generally applies to WTO members. However, rules of origin are also negotiated on a free trade agreement. And we've seen a number of those out there. Trade agreements between the U.S. and Canada, um the North American Trade Agreement.
00:12:49
Speaker
There's ones all over the world, right? And so these are important to know. um And so recent U.S. tariff policy and trade strategy has come up.
US Tariff Policies and Geopolitical Strategy
00:12:58
Speaker
And this year has been probably something that even if you don't know anything about this, all got to do is put on any news, social media or paper, and you'll see that on a daily basis. Right.
00:13:08
Speaker
So the policy context, the current administration has broadened tariff use as a strategy i call strategy or a geopolitical trade tool impacting importers from China, Canada, Mexico, the European Union, China.
00:13:21
Speaker
and other countries. um These tariffs remain central to US negotiations under the USMCA and is a broad trade strategy. I mean, this is what they're doing is a, you know, hey, remember the current administration has a America first policy, which they want to bring more offshoring to onshore, right? That's the, they've said from day one.
00:13:43
Speaker
So they're using tariffs as a mechanism to encourage that or help that or protect the base as they say. um And so it's a good thing. But the downside is that it affects businesses that are here, you know, our manufacturing. When you got steel, aluminum, or other derivative products that have high tax tariffs is up to 50% coming in, it affects things.
00:14:07
Speaker
Automotive. Like think of our passenger vehicles, light trucks, auto parts, all of that matters in this tariff process. um Even computers, right? The chips, everything else, where are they being produced, where are the components, and then where the tariffs on all those components? And that adds up, right?
00:14:25
Speaker
And so there's been a lot starting October 1st of 25. So this is fairly recently. We saw you know the administration put 100% tariff on branded, patented pharmaceutical products um unless it's coming from the US.
00:14:39
Speaker
That's a huge thing, 100% tariff, right? 25% tariff heavy trucks. Also 50% tariff on kitchen cabinets and bathroom vanities, 30% tariff on and upholstered furniture. So all these things come into play and affect our clients.
00:14:57
Speaker
We've seen trade agreements coming together with Japan and Malaysia and Cambodia, Thailand, Vietnam. A lot of the countries you're seeing out there, we've seen things with India. We see things with you know Canada, Mexico, the UK, a lot of discussion.
00:15:12
Speaker
Even the US and China trade deal um you know that was here in November. you know The US wanted lowered fentanyl-related tariffs by 10%. We've seen all kinds of exclusions there. China suspended all its retaliatory tariffs imposed since March.
00:15:26
Speaker
So again, this is the idea is using tariffs as a negotiating tool to get everyone to the table. Whether it's good or not, that's to be determined. But with that being said, it creates a number of things.
00:15:39
Speaker
Now, we do know that... With all these tariffs, they've been imposed under the the president's executive orders, right? And a lot of that is currently being debated right now, um whether you know Section 232 Trade Expansion Act of 1962 or the Section Trade Act does the president have the power um to implement these tariffs or not.
00:16:06
Speaker
And so that has gone up to the Supreme Court. So this past November 5th, they started hearing oral arguments on the tariff and the challenge to um you know the enactment of this stuff.
00:16:18
Speaker
um And so the real central issue is, does this give the president authority to unilaterally impose tariffs or does that exceed his statutory limit? And so we will find out some point in time from the Supreme Court what their decision on this will be and what that may look like.
00:16:36
Speaker
So TBD when it comes to that at this point in time.
Financial Impact of Tariffs
00:16:40
Speaker
But I think part of the whole tariff thing is how does this impact our relationship with various countries? Right.
00:16:47
Speaker
And can we come to an agreement to make a fair trade? And how does that you know stabilize the U.S. economy, but also the world economy in the process? And so there's a lot of moving parts there, as you know.
00:17:00
Speaker
But I think, you know, like we said before, you know, we're seeing manufacturers being impacted um because they have higher material costs. There's delays in getting those materials and very important. Retailers and consumers headed into the holidays, they're going experience pricing and lower margins.
00:17:17
Speaker
Importers and distributors, they must reassess pricing and their vendor relationships to who those vendors are. And even small and mid-sized business, they're getting squeezed, right? And in the global supply chain. So where does all this impact?
00:17:30
Speaker
Well, it comes down to the accounting, the business and financial impact of things. So one, it impacts cost of goods sold because higher tariffs um You know, if for example, if I have a thousand dollar product that's coming in and and we put a hundred dollar tariff on it, what do I got to do with that hundred dollar tariff? I don't get to expense it.
00:17:50
Speaker
I have to add it to that product. So now my product that I bought for a thousand is really eleven hundred dollars. So it increases my cost of goods sold. and reduces my profit margin. So that has some impact that we all got be aware of.
00:18:03
Speaker
Our inventory and accounting, you know, new tariffs may require changes in how inventory costs are calculated. So something to be aware of. And even operational disruption, businesses may need to change suppliers or product locations.
00:18:15
Speaker
Hey, we're importing this product from this country, tariffs have risen so high, it doesn't seem feasible for us. Now we find someone else somewhere else that we can get it from. But that you just don't decide that and everything works nice and easy, right? So again, lot of decision making that's in that process that we have to be aware of and that we have to help in that process.
00:18:37
Speaker
um So remember, tariffs must be capitalized into inventory for tax reporting that impacts intercompany pricing. So think of transfer pricing, very, very important, especially with multinational operations.
Transfer Pricing and Tariff Complications
00:18:50
Speaker
And these are important. So I've mentioned this before to people, but transfer pricing, a lot of times people ignore, you know, hey, I got a U.S. company and I have a controlled foreign corporation in Germany or maybe a U.S. company that's owned by a company in Germany.
00:19:05
Speaker
Use Germany as example. Making sure that we have transfer pricing in place so we have arm's length pricing between the two countries. You throw tariffs in there, it makes it more complicated.
00:19:17
Speaker
And what we've seen is that some people think, hey, maybe I can manipulate pricing to kind of help the tariff process, but it gets difficult and it's just something that we need to look at.
00:19:30
Speaker
In addition, clients, they need to know a number of things, right? They need to know, okay, if I'm paying, I bought a thousand dollar um piece of raw material and it and there's a hundred dollar tariff on it.
00:19:42
Speaker
Now my raw material is $1,100, right? So how do I recoup that $100? Well, either i eat it, meaning I pay it and it's on me and my margins reduce, or when I sell that product, I pass it along to the next level, to the consumer, and they pay the $100 tariff so that I'm not out the $100, but then maybe they're gonna pay less, they're gonna buy less of it because it costs more money,
Strategies for Managing Tariffs
00:20:07
Speaker
right?
00:20:07
Speaker
and And maybe there's some in between. So this is where businesses are really having to sharpen that pencil and get down to what do they want to do? Eat the cost, pass it along, some combination thereof, looking at transfer pricing for how that solution model may look at.
00:20:23
Speaker
So how can we help our clients? And I think, Chris, this is so important. You know, what if models are important? Like build models that show, hey, a 10, 25, 50% tariff scenario.
00:20:34
Speaker
And what does that look like from pricing and whether you're going eat the cost, pass it along? What does that look like for cash flow? You know, is the account for working capital needs, are they going to be delayed? Because maybe I have all this inventory that I paid high tariffs on. It's capitalized. It's sitting on my balance sheet.
00:20:52
Speaker
And now i'm not move it's slow moving because of the economy. Boy, and how long is that inventory good for before it becomes obsolescent? So again, things that we all have to be thinking about. And as advisors, this is where we can step in and help our clients. We know them very well. We know how their accounting works. We know their business.
00:21:11
Speaker
Let's help them get to the solution because they need to understand whether they're absorbing the cost, passing them on or seeking credits, no matter what, that's where we really can be that valued advisor and and really help them along the way.
Contract and Inventory Management for Tariffs
00:21:26
Speaker
um So I think, you know, from our business standpoint, looking at inventory and supply chain, you know, we want to help review contracts for tariffs, make sure we're tracking inventory levels properly and considering are there any other alternatives, suppliers or lower tax jurisdictions for our clients along the way?
00:21:45
Speaker
Transfer pricing, we want to make sure that tariff costs are reflected in those models, evaluate whether those costs are arm's length, like I said, and update intercompany agreements to address that tariff sharing, if that's the case.
00:21:58
Speaker
Make sure from an accounting standpoint, we're how does this impact cost a good sold, gross margin, recalculate taxes if different, and make sure we understand that. And just like anything we do in tax, update, document, and be compliant.
00:22:13
Speaker
want to maintain those HS codes, help our clients understand that, and run those strategic planning models, what-if models. help them prepare for this even though they've been going through it anything you can give them will help them analyze it and may keep them safe in this process as things are very volatile and i know we've seen numbers go is terrace 10 100 and then everything in between And you know what? We're at the mercy. We don't control that.
00:22:41
Speaker
All we can control are the things that we can, and that's helping our clients move forward in this thing. So one, how do we mitigate tariffs? What can we do? One, we can help our clients identify where their exposure is, you know?
00:22:55
Speaker
and look at what they're doing make sure their their supply chain all that who they're selling to who they're getting stuff from make sure we and identify where that is at to assess cash flow through scenario planning like i said i can have all this inventory but now it's moving slow i can't resell it as fast maybe i'm not able to resell all of it and i paid for all that inventory so cash went out i'm not getting the cash in fast enough So do they have the networking capital to really help them through this process?
00:23:23
Speaker
And what does that look like? And that can impact a lot of things. Look at diversified markets and supply chains. Maybe they've been just focused on one country and a few suppliers there. Maybe they diversified other countries.
00:23:36
Speaker
So they when things go up or down in want some volatile areas, there they can stay stable here. Things to look at if the opportunity rises. and And obviously continue to strengthen that customer supplier relationship because that will help in this process and keep that open chain of communication so that they can all work on both sides of the aisle to figure out where this comes from.
00:23:58
Speaker
And also, i think it's important to protect the profit margins and improve productivity the best we can. Again, things that can be helped modeled out from a cost accounting, but also a tax standpoint to really help our clients. so Chris, huge things there, I think, that we don't want to miss. But I think, you know, at the end of the day, the these are very, very important pieces to the pie, you know.
00:24:20
Speaker
Right. And whether you're the advisor or if you're internally in a ah tax department, right, these aren't decisions or even modeling and and scenario planning that you can do on isolation, right, involves your procurement teams, your logistics teams, your sales teams. If you're you're going to pass it on to the consumer, well, that's going to impact you know the sales side. If you're looking for a new supplier, that's procurement, that's logistics, right? ah Understanding where you can get from. So these aren't just How do do I take bonus depreciation or 179 or not? These are major business decisions, regardless of the size of your business, that are going to require input and discussion amongst all the different business areas that are going to require an advisor who can kind of talk to not just the tax folks, right? ta
00:25:11
Speaker
Or the accounting folks, talk to the the business and help them understand the the various impacts. So. quite Quite a bit of change or or expertise that's going to be needed to, and guidance that's going to be needed by, by your clients.
00:25:29
Speaker
Absolutely.
Role of Tax Professionals in Changing Landscapes
00:25:30
Speaker
And I think these are things that, again, sometimes we think, how how does Terrace impact us? Well, it does because we're working with clients daily and this all impacts them. So therefore it impacts us. Right.
00:25:42
Speaker
Yeah. Now, Pivoting over to emerging guidance and legislative priorities, things that I think that um are on the horizon or currently and we need to be aware of and just kind of great reminders
Legislative Priorities and Fiscal Policies
00:25:54
Speaker
here.
00:25:54
Speaker
um You know, fiscal year 26 budget and tax policy outlook, um you know, we had a government shutdown. It was a long government shutdown. It's finally come to an end.
00:26:06
Speaker
um But with that being said, there's a lot of things there that come to an impact. You know, during this government shutdown, the IRS was at a very limited amount of resources.
00:26:18
Speaker
And that means that, hey, if you were sending correspondence in, you know Those letters were not being assigned or addressed immediately. And it's going to take some time for them to get through the um the amount that's come in. And I think that this slows down the process.
00:26:35
Speaker
A couple of things that I hear people say is, well, what happens? you know Are we going to get enough guidance on this stuff? We know they've been putting out some guidance, even during Treasury put out guidance during the shutdown, and we're continuing to see stuff come out.
00:26:46
Speaker
but it does slow the process down. And we want to make sure that we're staying on top of it in helping our clients. On top of that, you know we have all a bunch of new forms out there. I mentioned Schedule 1-A earlier. There's going lot of updates to the forms and the instructions. you know That's starting to come out in draft format, but we need all that to come out and get finalized. right And then the domino of that is Once those forms are finalized, then the states, they finalize their forms because we got to determine based on the new tax bill, are they decoupling from it? Are they staying with it? Same as federal.
00:27:20
Speaker
Are they having any other adjustments and then finalizing their forms? And then from there, you know, we have, uh, and software vendors that you know take all of this forms from the federal and state and program the software so that you and I can prepare tax returns and review them. Well, all this has this domino effect. And so when you say, hey, is tax season going to start on time?
00:27:42
Speaker
you know They say it is, but I mean, it could be a delay or it may open. But you know you and I know that sometimes youre you're holding a number of returns because we can't e-file them because we're still waiting on certain forms in there to be finalized.
00:27:55
Speaker
And so that throws a wrench into the taxis. And what I would tell everyone is that, yes, that is frustrating and that can create problems, but you can't control that, right? You can only control what you can control. So make sure you're updating not only your staff, but your clients and just keeping you know abreast of the situation.
00:28:15
Speaker
And understand that no matter what's happening, eventually it's going to open. But we want to be prepared, not only you know with our process and procedures, mentally prepared, physically prepared to be able to jump into 26 and get off the ground running strong and do our best to serve our clients and give them the best service possible.
00:28:34
Speaker
So there's a lot of legislation that potentially could come, but we just need to continue to look at it and go, where does this impact everyone? um There's a number of variables. you know We have congressional pushbacks. you know Because of the budget request as a proposal, many cuts and lines may be adjusted during the appropriations time. So things that we need to look at. Also revenue offsets. under so you know We can look at tax increases or base broadening provisions that can be floated along the way here to help support spending or even reductions in spending in certain areas.
00:29:06
Speaker
Obviously, how does any of tax policy that's coming forward interact with trade or tariff policy? You know, we'll we'll probably start to see an intersection there where how all that comes together.
00:29:18
Speaker
And so there's a number of things, you know, not just, hey, here's our tax rules and what we focus on, but even funding of the government and funding of certain things have expirations that, yeah hey, yeah, we were funded through a certain date. And now we come back to a battle of figuring out how do we continue to fund things? And that's where shutdowns happen. That's how delays happen. So you know I think staying up to speed on that is very, very important.
Proposed Legislation and "America First" Policies
00:29:42
Speaker
Another thing i would put on a watch list, one is called the um International Relocation of Employment Act or the HIRE Act. And this was this was introduced in september early September by Senator Bernie Moreno from Ohio.
00:29:58
Speaker
And essentially it would create a 25% outsourcing penalty or payment on U.S. taxpayers who are using offshoring to help them with work. And this could be, you know, we see this in all kinds of industries, including the accounting industry. So this is not the law, but I want to bring it up because, you know, 25% outsourcing could deter people from wanting to do outsourcing or cut into that margin, right?
00:30:24
Speaker
And so remember, with that America First policy, you're seeing more and more of these types of introductions of bills that potentially could change that have impact on even all of us.
00:30:34
Speaker
So depending on what you're doing, this is something that's important. We know the messaging out of Washington is signaling it it wants to discourage offshoring and wants to kind of like bring it all back to the U.S. and hire U.S. workers for that. So again, just something to be aware of. You can mention not only to you guys, but to your staff and your clients.
Crypto Tax Regulations and Digital Assets
00:30:56
Speaker
Other things on the watch list, I would say, are crypto, tax clarity on the horizon. you know i mean, digital assets, the whole cryptocurrency, um there's a lot of confusion in that area. And we're continuing that the administration wants to have a roadmap and how do we handle things like income classification for this income timing your your mining your staking and all the reporting obligations so a lot there um the bitcoin act 25 was introduced it's a foreign pollution fee act a number of acts that continue to be put in that kind of help bring this together um there's still a lot of gaps that weren't fully addressed in the hr1 bill um that we'll see more and more of i firmly believe in the next year
00:31:40
Speaker
um In addition, a lot of AI policies. So leading the future, we're seeing more and more AI regulation and at the federal level, the state level. And again, it's innovation friendly, but we want to see how that impacts us and our clients. So things just to kind of keep aware of as we're moving along the way.
Transition to Electronic Payments
00:31:59
Speaker
A big one I think that's out there was this executive order that happened in March of 25 here by the president, electronic payment mandate. And it it would basically say that Treasury is to phase out paper checks, including checks from the IRS, by September 30th. And so we crossed September 30th. And then right before that, around September 23rd, the IRS put out some guidance and said, hey, refund checks for individuals at the end of September 30th.
00:32:27
Speaker
It's going to status quo through the end of the year here. But starting in 26, this electronic payment mandate is in play. And so if you're supposed to your client is going to get a refund, whether they're a business or an individual, they're going to get it electronically. And so they're going to have to go adopt to a electronic system where they give their information.
00:32:46
Speaker
um Paper checks are not going to be sent out. And so we know that there are taxpayers that you know maybe have hardships or have other reasons that they cannot, and there will be exceptions, and I'm sure this will be a slow rollout. But I think the important piece of this is to make sure we're updating our clients on this executive order from March that is basically kicking in.
00:33:08
Speaker
Now, some of the this is for payments coming from the government. So if your tech your client owes tax $10,000 to the IRS, they can still write a check for the time being.
00:33:20
Speaker
What I would say is that since we have this order and the elect electronic payment mandate, I think the goal is for them to eventually evolve this or create another mandate to have everybody pay electronically, even outward payments. So what I would tell you is that, you know, the more you can encourage your clients to use electronic payment methods um um is going to be the key. And I'm sure many of you are using your software or other things in order for them to do that.
00:33:47
Speaker
But I would just say, let's continue to help get the messaging out there and move our clients towards this because the time will come where we're going to have to get there. And I think that's really relevant and important.
00:33:58
Speaker
Schedule one dash a new
Introduction of Schedule 1-A and New Deductions
00:34:00
Speaker
draft schedule. Take a look at it. It's out there. But this has those four campaign promises, the you know enhanced senior deduction, the no tax on tips, no tax on overtime, and no tax on car loan interest.
00:34:12
Speaker
um Very important that you understand the rules we talked about earlier, but where that flows on the form, what's required of it. And we're still waiting on draft instructions for it. But take a look at all that and see how that flows and impacts your clients.
00:34:25
Speaker
um I think this is... Because we haven't dealt with this before, I think it's just we want to get up to speed as fast as possible as the information becomes relevant and give us that ability to to do
Secure 2.0 Regulations and Compliance
00:34:37
Speaker
things.
00:34:37
Speaker
And then in September, i think it was September 19th, the IRS came out with regulations on no tax on tips. um And again, this applies to cash tips only. But again, talking about, hey, who qualifies, you know, the specialized service trader business, SSTBs, who is excluded?
00:34:55
Speaker
gives examples of the type of areas that are included, you know, caps that thing at $25,000 deduction. um and i think I think this is very, very important.
00:35:06
Speaker
Also, um as of right now today, when we're recording this, I think IRS notice two thousand and twenty five sixty nine has come out to give a little bit more guidance on the no tax on tips and no tax on overtime.
00:35:18
Speaker
So something to look at and really see, hey, give us some examples of what we need to do because we know the general rules, but you know every one of us has clients and fact patterns that you know come into play that I think are important along the way there.
00:35:33
Speaker
In addition, secure 2.0, remember that, on final regs on catch-up contributions. ah The window for grace period is closing. So plan and participants need to gear up now for 2026 compliance in this area. And so Roth catch-ups are mandatory for earners over $145,000. That will be indexed for inflation.
00:35:52
Speaker
um So it's very important. And the relief window was 2024 to 2025. And and so starting in twenty six they will have to use good faith interpretation to really kind of get up to speed. So again, this applies to 401ks, 403b and similar plans, but make sure that we're looking at all these rules that come secure 2.0 that are kicking in.
00:36:15
Speaker
And what are those rules and how do we communicate that to our clients in the process? um And so, you know, Chris, I think that's a lot of information that we've covered, but, you know, some really, really good stuff there that I think really is important for everyone to know along the way as well.
Tax Professionals as Strategic Advisors
00:36:33
Speaker
Yeah, I think that's some some some great insight and some a lot of things to think about. It's it's been ah a huge year and there's going to be a lot of planning that people try to do or try ah as best they can, given the guidance that they have. Because like you said, it's it's not like it's been around forever and you just got to go through the checklist. It's all a lot of it's new and lot of it is just the bare bones at this point. But but we'll get there.
00:37:03
Speaker
So yeah, I think Chris, i mean I mean, as we kind of wrap up the 2025 tax review, i mean, a lot has happened this year um and we just kind of just touched it at a high level, right? But just with all that being said, i think it's important to know this stuff as we finish off the rest of 2025, really start to plan for our clients in in and really give us success for 2026.
00:37:28
Speaker
um And honestly, a perfect bookend to a year that pushed the profession, IRS and the economy in new directions. So I think it's very, very important. So um remember, i think we we're entering a moment where tax professionals aren't just compliance experts like historically they have been. we're moving more into a strategic guide through this. With the all these rule changes, the incentives have changed, the opportunity has expanded. This is opportunity time now, right?
00:37:58
Speaker
With the world moving fast, with tariffs, tax changes, business models, global economy, clients aren't looking for us just to prepare their tax returns. They're looking for someone to give them that path forward to explain complexity, to provide clarity and illuminate that path forward.
00:38:15
Speaker
So my message is kind of simple through this is the tax world isn't slowing down and neither are we right so we're breaking it down and we're keep translating this into this complexity into simplicity so that we can do our best to continue to move forward with everybody.
00:38:31
Speaker
And so Chris thanks for having me back it was fun being on this side of the chair be able to do all the all the fun talking but uh um To everyone listening, I would say stay curious, stay prepared, and stay excited.
00:38:44
Speaker
The next chapter of tax is just beginning and we get to write it together. So see you in 2026.