The "Big Beautiful Tax Bill": What Dental Owners Need to Know

Announcer:
Hello, everyone. Welcome to The Millionaire Dentist podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.

Jarrod Bridgeman:
Hello and welcome to The Millionaire Dentist. I am your host, Jarrod Bridgeman. Casey Hiers is out this week. He's, I think, vacationing on some nice beach with his family. So instead of bringing Casey in here, I've got two very special guests today. I've got Steve Levy, he is a JD and a CPA and he is the... You're the director of taxes?

Steve Levy:
Director of accounting.

Jarrod Bridgeman:
Of accounting, okay. So you're not quite at the tax level in terms of like-

Steve Levy:
Not quite.

Jarrod Bridgeman:
You're not in charge of the government taxes?

Steve Levy:
I am not.

Jarrod Bridgeman:
And then we've got Brodie. Brodie, how do you say your last name?

Brodie Hough:
Hough.

Jarrod Bridgeman:
Hough. I've known you for what, two years now?

Brodie Hough:
Mm-hmm.

Jarrod Bridgeman:
Brodie Hough. He's a CPA.

Brodie Hough:
I am.

Jarrod Bridgeman:
And just a CPA.

Brodie Hough:
Just a CPA.

Jarrod Bridgeman:
That's right though you're good at it.

Brodie Hough:
I'm not as good as Steve, yeah.

Jarrod Bridgeman:
Yeah, but you know what, when you're compared to a 10, you're what, an 8.5, 9?

Brodie Hough:
Oh, I was going to go like seven, so I'll take the nine.

Jarrod Bridgeman:
Okay. We'll take it.

Brodie Hough:
I appreciate that.

Jarrod Bridgeman:
Well, I brought both of you guys in here because it's all over the news and kind of talked about for months now, it's being referred to as the Big Beautiful Tax Bill.

Steve Levy:
Well, it's kind of formerly known as, it didn't officially get through as that, so formerly known as artist the Prince, and that kind of thing, it's just The Act.

Jarrod Bridgeman:
The bill formerly known as the Big Beautiful Tax Bill.

Steve Levy:
That's right.

Jarrod Bridgeman:
The Act, okay. Okay. And there's a lot that was encompassing in this whole thing and obviously, there was a long-drawn-out, I would say, battle in both the House and the Senate for this, but it finally got passed through and so I wanted to bring you guys in here to kind of help explain what it is to our listeners and then we can talk about how this may or may not affect dental practice owners.

Steve Levy:
Sure, absolutely.

Jarrod Bridgeman:
Okay, Steve, I'm going to go ahead and start with you. Being the JD and someone who can actually read the bill, I'm assuming you understand it. He's shaking his head yes emphatically, which is nice. What in general does the act cover and when will it be effective?

Steve Levy:
So in general, the act makes the previous act in 2017, the tax cuts in that previous act permanent, which includes keeping the income tax rates reduced, keeping the standard deduction high and keeping the child tax credit high. And the rules generally apply starting in 2026 because without the recent act, those rules would've reverted to the pre-2017 rules, which would've been higher rates, lower standard deduction, that kind of thing.

Jarrod Bridgeman:
Oh, I didn't realize that 2017 was a temporary fix there.

Steve Levy:
It was.

Jarrod Bridgeman:
Okay.

Steve Levy:
And the sunset would've been after 2025, so it would've reverted back to that. Now, that's in general. There are new rules that may only apply for a few years and have different effective starting rates. You have to kind of be careful on that. But a lot of what this recent act does is makes tax cuts permanent.

Jarrod Bridgeman:
And you said it starts basically at the start of the new year?

Steve Levy:
Yeah.

Jarrod Bridgeman:
Are there new rules for the state and local tax side of it in terms of itemized deduction and is there any change or a status in terms of pass-through entity?

Brodie Hough:
Yeah. So ultimately, to start with that, with what everyone refers to as the SALT deduction, that is the state tax side with the itemized deduction, that has been capped at $10,000 for married filed joint status, at least forever for as long as I've known, and they're actually effective in 2025, actually, this is one of the few things in the act that is actually effective in 2025 and not 2026.

Jarrod Bridgeman:
So this will be something to keep in mind for when you filed this year's taxes.

Brodie Hough:
Correct. Yeah, correct. So that's actually being increased to 40K, so that's a huge jump up.

Jarrod Bridgeman:
What was it before?

Brodie Hough:
10.

Jarrod Bridgeman:
Yeah, that's a big difference. Okay.

Brodie Hough:
Yeah, it's a huge jump up and this is very useful. So the SALT deduction pretty much includes all state withholding from your W-2s, property taxes, any vehicle, state taxes paid.

Jarrod Bridgeman:
So the federal sets the rules for what the state can do in that sense?

Brodie Hough:
So that's what you can deduct on your federal tax return if you itemize. So this is where if you're itemizing, you can take this what used to be $10,000 state deduction for taxes paid.

Jarrod Bridgeman:
And this would highly apply towards our practice owner. So you break it down and do itemize.

Brodie Hough:
Absolutely.

Jarrod Bridgeman:
Not just take the standard.

Brodie Hough:
Correct. Absolutely. So this is huge, this is probably one of the bigger aspects of the whole act entirely other than just extending a lot of stuff like Steve referred to earlier. But yeah, the 40K is a huge increase. There is a phase out, so if you do earn over 500K on your modified adjusted gross income, it'll start to phase out with 30% of every dollar over 500K. So pretty much in simple terms, if you hit 600K, it's completely phased out and you go back to the $10,000 deduction.

Jarrod Bridgeman:
Okay. But for those people that are not earning quite as much, they'll have a better deduction.

Brodie Hough:
Correct. If you do end up getting to the itemized deduction portion. But, yes. And this will actually probably allow more taxpayers to get to the itemize section because you won't be capped at $10,000 as well. So that goes into that calculation too. So that's awesome.
And then the other part of your question with the pass-through entity tax, that is also still being allowed, which was kind of almost a state way of working around this limited deduction because 10,000K, obviously a lot of people go way over that with their state withholding and everything-

Jarrod Bridgeman:
Right. Especially in our business.

Brodie Hough:
Correct. So that's actually being allowed. So it's almost like not double dipping, not technically double dipping, but it's a little kind of close to that where you're going to get benefits on both kind of the business side of things, being able to take advantage of this pass-through entity tax, and then also on the individual side of thing with this increased

Jarrod Bridgeman:
Sounds like a mullet. Party in the front and business in the back.

Brodie Hough:
Exactly.

Jarrod Bridgeman:
Benefits on both ends.

Brodie Hough:
I couldn't think of a better-

Jarrod Bridgeman:
That's right.

Brodie Hough:
That was perfect.

Jarrod Bridgeman:
They're coming back. I've see kids running around with mullets.

Brodie Hough:
They are.

Jarrod Bridgeman:
It's the weirdest thing. It's the weirdest thing. It's not my jam. Are there any new rules for let's say writing off property right away?

Steve Levy:
Yeah, so there are two sides of this. One is Section 179, which is generally you can write 100% off of what you buy currently, but then there's the other side, which is bonus depreciation. Sometimes your tax situation doesn't quite allow you to take full advantage of Section 179, so sometimes you have to look to bonus depreciation to write off as much property you're buying right away. So before the act, there was going to be a phase down of bonus depreciation with really 2025 being the first year of that phase down. So it would've been 40% in 2025, 20% in 2026 and 0% in 2027 for bonus depreciation. So what the act did was put bonus depreciation at 100% permanently. So that is no worries in that phase down anymore. Like I said, Section 179 and bonus are kind of two sides of the coin.

Jarrod Bridgeman:
The bonus depreciation is in terms of the assumed value of the equipment you bought, how it goes down the cost, whatever.

Steve Levy:
Yeah. Right.

Jarrod Bridgeman:
Okay. Kind of like when you buy a car, the second you drive it off the lot it's worth less.

Steve Levy:
Very much so. And so it's good you get to write things off aggressively in the first year, save a lot in that first year that you're investing. So you kind get some tax dollars back from that first year.

Jarrod Bridgeman:
Okay, okay. Heard a lot of people who like to go out and help maybe those less fortunate in terms of maybe charitable contributions and things like that. Has there been anything changed in terms of that realm?

Brodie Hough:
Yes, actually there has been. So this is going to be pertaining to those people who sadly weren't able to take advantage of the itemized deduction in prior years just because they didn't have enough of the state taxes, the mortgage interest and charitable contributions, those are kind of the main three items. That's not all inclusive and what goes in the itemized deduction, but that's the main three items. And the thresholds were getting fairly high to where a lot of people weren't able to take advantage of the itemized deduction.
With that, if you're still not able to take advantage of the itemized deduction, effective in 2026 charitable contributions that you do still make, you can take up to a $2,000 deduction still. So that's outside of the, you also get the standard deduction and then you can kind of almost just add another 2,000 and it's up to 2,000. So even if you only do 250 or 500.

Jarrod Bridgeman:
Any other notes on the charitable contributions in terms of, so the itemized extra side of it up to 2,000 is new, was there any change to the regular I guess amount?

Brodie Hough:
No, there wasn't. There is a limit, but it's a pretty high limit. It takes a lot. Not saying that's a bad thing, but it is a fairly high limit. It depends on what your income is and thresholds and all that, but ultimately it's very rarely hit at the limit and that hasn't changed limit on the itemized side of things.

Jarrod Bridgeman:
Steve, are there any new rules, let's say those non-corporate vendors there? Any changes or new rules for the 1099s?

Steve Levy:
Yeah, this gets into kind of a nerdy accounting stuff. We help out with 1099s for folks, and it used to be that the threshold to issue a 1099 to someone was just over $600 and if it's like 601, you're getting a 1099. Now it's boosted up to 2,000 and that'll start in 2026. So those that are under 2,000, which there are a decent amount that are under 2,000 for the year and it has to be the total for the year, so now it's boosted up to 2,000 so you don't have to worry about 1099s for those under it.
You still should track it to make sure that if they're going to get close and it's still... One thing I always try to profess is if you think you're going to pay them a decent amount as soon as you hire them, just give them a W-9 to fill out, which you fill out the name, address and tax ID number and type of entity or if they're an individual, just give them to them and then you get it back. Then you don't have to ask around and that helps us, helps the company to kind of have it ready.

Jarrod Bridgeman:
So what are the benefits with this change with the 1099s?

Steve Levy:
I would say you don't have to worry about it. It won't be as many 1099s to issue certainly it'll cut down on that red tape. Also because there'll be less that are over the 2,000, you don't have to track down as many folks probably for it.

Jarrod Bridgeman:
I would say from the vendor side of things, that's a pretty big positive.

Steve Levy:
It is certainly those that are receiving the payments to report the income, but they won't get an official tax form that we'll be matching up.

Jarrod Bridgeman:
One of the big things that a lot of people were talking about in kind of excited about was there's been taxes on, let's say you're a server or a bartender and there was a tax on tips and there's also been taxes on let's say the corporate world over time, and I myself did not keep up on what those rules are because I know there are kind in flux there for a minute. Can you kind of go through what has changed with that?

Brodie Hough:
No. Yeah, so this is actually a very, like you said, talked about item that was in this throughout the whole going through the House of Representatives and Senate and everything that this was one of the main things of it was the tax on tips and over time and everything. So to kind of bring some clarity to that overall, ultimately on the tips portion, if you're filing jointly, this is effective I guess to say on the front end too in 2025. So this is one of the few pieces that was effective in this current tax year. Overall it is a $25,000 deduction on tips, but there is a couple limitations to that overall that you need to keep in mind.
So the phase-out period, which is pretty high, I don't see this happening a lot, but it is something to keep in mind that the phase-out is for every $1,000 you go over in an AGI on 300K from married, filed jointly or for your single file or $150,000 in total, you'll get phased out by $100. So I think that is the nice thing, the phase-out is pretty lenient and on the higher end, that it shouldn't be a huge ordeal to deal with. But again, that pertains to your individual tax situation as well.
The one thing to keep in mind is this tips are also limited to what type of industry or business you're a part of. In relative terms, obviously food and beverage is kind of the big one that everyone thinks of. That's the common one. So there's nothing issues with that. The other main one that was mentioned in the act was the beauty service business. So that's your barbers, your hair salon, nail care, anything along those lines, et cetera, within that realm was also included in that. So that is kind of the one limitation to it is that you need to be in that typical tipping service.

Jarrod Bridgeman:
Steve, can we touch upon overtime?

Steve Levy:
The rules for overtime are broader than the rules on tips where really any industry that you have overtime applying would apply here, but it's a very similar deduction. You get up to $25,000 if you're a joint filer of a deduction. And the same phase out if you're over 300,000 in modified AGI for joint filers, that's when it starts getting phased down. Another kind of caveat for both is you don't have to itemize kind of like how the charitable contribution discussion that Brodie had, you don't have to itemize, which that standard deduction is still super high, so a lot of people would lose out. This is not an itemized deduction. This is completely separate and is super broad. There's a lot of reporting that's going to be done related to it. This is effective in 2025. So right now it's going into effect and people will be able to take advantage of that additional deduction in 2025.

Jarrod Bridgeman:
One last question for you guys. People love cars. People love buying cars. I did hear some rumblings of a new rule in terms of deducting a car loan interest. What's the story on that?

Steve Levy:
So for car loans, this is a brand new rule starting in 2025 and through 2028, and if you basically incurred debt on a purchase starting in 2025, then you get to deduct your car loan interest. Now there's a limit of course you can deduct up to 10,000 of your car loan interest per year and there are income limitations. It's up to 200,000 for joint filers. So there's that limit. It's a little lower than the overtime and tax for tips, but it certainly could apply for those. It's I think probably a way to spur on some car purchases. It's out there and it's also not an itemized deduction, so it's in addition to whatever standard deduction or itemized deduction you're going to take. So it's a benefit out there if you're going to buy a new car, take this deductions-

Jarrod Bridgeman:
And this is just through 2028?

Steve Levy:
That's right. So it's a limited period for that. That's when you can actually take that deduction. A lot of these rules, you got to watch when they phase out and watch limitations because there's only a few that are permanent. Some they have that limited window for a reason.

Jarrod Bridgeman:
Brodie, there was a lot in this. The act, let's say someone is trying to learn more about it, besides starting with this episode of this podcast, if they don't have their own CPA, if they don't have their own tax professional, where do you think they should start?

Brodie Hough:
No, I think there's been tons of commentary on this now at this point. So I mean obviously come here first. But other than that, Google is just always a good place to start, honestly, it's not a terrible spot and I would just watch where you're going from Google, obviously. I'm taking the typical professor approach here.

Jarrod Bridgeman:
And be careful because now when you go on Google, the first thing that pops up is usually some AI creative thing which may not be accurate.

Brodie Hough:
Correct. And that is something you definitely need... I had to watch myself even referencing that AI a little quick, little prompt it gives you because it can be wrong, it is very possible. AI isn't perfect yet.

Jarrod Bridgeman:
Right. And so Steve, I think you'd agree that this is such a large encompassing type of situation and bill that it probably wouldn't hurt to at least talk to a professional of some sort.

Steve Levy:
I would say so. It is brand new. This is the first big boy that's come about really since 2017 and there are things we didn't even touch on, touched on the ones that probably apply the most.

Jarrod Bridgeman:
Guys, thank you so much for coming in today. Was there any last notes that you guys wanted to get out there to let our listeners know besides just this is complicated and so talk to somebody.

Steve Levy:
Yeah, that's really it.

Brodie Hough:
Yeah.

Steve Levy:
It's a big boy and there's a lot of things-

Jarrod Bridgeman:
It's a bigum. It's a bigum.

Steve Levy:
It's a bigum. And there was some good, there are some interesting, it's a mixed bag, but in the long run taxes may be lower for folks.

Jarrod Bridgeman:
Guys, thank you so much for stopping by. Listeners, if you're interested in hearing more about Four Quadrants of what we do and how we can help people just like you. We are going to be in three different cities in Indiana this week. On Thursday evening we're going to be in Fort Wayne, we're going to be in Bloomington and we're going to be in Dyer, Indiana, which is up in the region, which is close to Chicago, Gary, Merrillville, Hobart. So please, please, if you haven't registered already, please register for those. We're also going to be in Kansas, end of the month, we're going to be in Wichita, which we still have a few seats for that one. And then we are going to be in Leawood, Kansas, which is a suburb of Kansas City and we're already sold out of that one. So if you didn't get your ticket for that one, well, you're SOL, so go to Wichita.
Also, we just launched last week, we're going to be in Nashville and Knoxville, Tennessee and so we've got seats wide open for that one as it just started online last week. So guys, thanks again for stopping by and I can't wait to bring you in again.

Steve Levy:
Thanks Jarrod.

Brodie Hough:
Thank you. Appreciate it.

Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener for tuning in. The Millionaire Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice go on over to FourQuadrantsAdvisory.com and see why year after year they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.