Recent Federal Tax Changes | Strategies for Individuals and Businesses

These are the 2026 adjusted numbers for anyone that would like to reference them for the future planning as far as what tax bracket they may be in. This is on taxable income. Of course, the standard deduction which was significantly increased as part of the TCGA that Tom was referring to and was extended as far as the OBBBA OB three, which we'll talk about in a little bit for 2026 for any planning as far as if you want to itemize your deductions accelerate charity, accelerate other potential expenses to benefit from itemized deduction if you exceed the annual limit, itemize your deduction. So it's going to be 16,100 for 2026, so a slight increase from 2025 and for marrying filing jointly for 2026, it's going to be 32,200. This was interesting ever since the Tax Custom Jobs Act, which I will refer to as the TCGA basically doubled the standard deduction. The tax foundation is estimating that approximately 86% of tax filers will claim the standard deduction instead of itemizing the deductions. It's pretty remarkable. It used to be significantly less prior to the increase in the standard deduction, some retirement plan contribution limits. This would be a good time now, now that we're at the beginning of the new year to check your contributions.

If you prefer to maximize your annual 4 0 3 B or 401k contribution limits through your employer now it'd be a good time to increase that to the maximum if it doesn't automatically increase. I increase from 22,500 to 24,500 for 2026 or a thousand dollars increase. There's a catchup contribution for taxpayers and employees that are over 50 and there's a special temporary catchup limit for taxpayers that are 60 to 63. They get an additional 32 50, so an $11,250 catch up limit on their pre-tax retirement contributions. The state and gift tax exemption, that was also part of the OB three, which we'll talk about in a little bit, but it was increased from 13.9 to 50 million a person. The annual gift exclusion stayed the same from 19,000 and joint 38,000.

So a little bit of background, some history before we take a deep dive on the OB three. So as Tom was alluding to at the end of 2017, the tax cut and jobs Act was passed effective in 2018. Many of the changes were permanent. Mostly the corporate aspects of it were permanent. However, many of the individual tax changes were set to expire at the end of 2025 or the beginning of 2026. As well as the changes the business changes on the pass throughs such as S corporations and partnerships. Tom will cover that portion. I'm going to cover the individual tax portion, the qualified business deduction, the 20% deduction. Tom will go into that deeper later, but that was essentially set to expire after 2025 that was made permanent. The section 1202 deduction, that's not on screen. Tom will also talk about that. The 50 million G solution that was increased from 10 to $15 million.

The mortgage interest deduction limit, so prior to the TCJA taxpayer was able to deduct up to a million dollars interest on a million dollars in debts. The TCJA temporarily reduced that limit to $750,000, but anyone that held a mortgage prior to TCA was grandfathered in. So the O OB three made that change permanently. So that now is a permanent $750,000 debt cap. However, if someone was in the pre TCGA, if they had a mortgage prior to 2018 and their mortgage is in excess of the seven 50 but less than the million dollars if they refinanced, let's say the finance today and the mortgage that they originated in 2017 was $850,000. That's the balance today. They're still grandfather in and they could still use that $1 million limit. There is also, now that we're talking about interest, there's a part of the OB three auto loans. Up to $10,000 of interest on auto loans could be deducted.

Now that's new as part of OB three, but it starts to phase out at $200,000 of adjusted gross income if you're married and filing jointly personal casualty and theft losses. Also, the TCJA only allowed starting in 2018 only allowed federally declared disasters. No more personal theft losses. What the OB three did is now it allowed also state declared losses as well. If someone unfortunately experiences from hurricanes or floods or earthquakes, they can now up to the 10% floor. So if their income is a hundred thousand dollars, they first have take a 10% haircut. So if they have $20,000 of losses, that first $10,000 will not be deductible. However, there's an exception. Now, if the disaster is considered a qualified disaster, then there is no 10% floor, but it's important to note that to be designated a qualified disaster, it may take some time. For example, hurricane Ian in 2022, it took almost nearly two years to declare a qualified disaster.

So just something to be aware of. The itemized deduction for miscellaneous expenses. Another pre TCGA expense that was suspended. So prior to 2018, taxpayers were allowed to deduct certain miscellaneous expenses subject to a 2% floor such as investment fees, eiser, amper tax prep, unreimbursed employee expenses. Those were suspended and it was set to go back into effect and be allowed those deductions. What the OB three did was it permanently repealed this deduction so it no longer exists. What the OB three did add is for 2026, this is a deduction that sort of flew under the radar a little bit. The deduction for educator expenses, there's already a $300 above the line deduction. It means they don't need to atomize for educator expenses. Now there's an additional deduction for educators if they have out-of-pocket expenses such as for books and other materials for the classroom starting in 2026, they can deduct that as an itemized deduction.

The itemized deduction phase out another pret CJ phase out that was in effect and this was actually suspended starting in 2018. This was essentially put into effect to limit itemized deductions for certain high income earners. That was suspended starting in 2018. It was set to go back into effect in 26. So the phase out, which was commonly referred to named after Congressman Donald Pease, that was suspended. Now it's permanently repealed. However, it was replaced with a new phase out, which essentially caps deductions. If a tax payer is in the top tax bracket, if they're under 30 tax bracket, 37% tax bracket is capped at 35% benefit. Another big change is the state and gift tax exclusion. Like I mentioned earlier, this is a permanent change. It's $15 million exclusion per person.

It is going to be indexed for inflation and it's also year after year. There was always a question, is it going to be repealed exemption? It was set to be reduced prior to OB three, it was set to be reduced to nearly half. It made it very hard to do any sort of estate and gift planning. Now it provides much needed clarity for taxpayers that want to do a estate and gift planning. So prior to 2018, the top bullet, you see those were the tax bracket. It went all the way from 10% through 37%. I'm sorry, 39.6% was the top tax bracket. In 2018, the tax brackets were changed. The 15% was reduced to 12%. That bracket, the 25% bracket was reduced to 22% and more importantly, for the high income earn, the 39.6% bracket was reduced to 37%. So now those rates, the prior rates that you saw earlier with the top 37% rate are still in effect.

It did not revert back to the old rates where the top bracket was 39.6%. It's important to note that with anyone with investment income that the 3.8 net investment income tax is still in effect. So anyone with an investment income over a certain threshold is still going to be subject to it. The standard deduction, which I spoke about earlier for individuals is going to be 15 7 50. That was the increased deduction from TCJA was made permanent. Absent the OB three, it would've been set to go nearly in half the deduction. There is also for seniors, for anyone 65 years or older, there is an additional $6,000 deduction per person from and it's only temporary. This additional deduction on top of the 15,750 from 2025 through 2028 is this additional deduction for seniors 65 years or older for the standard deduction, the child tax credit, another change from the TCJA that was made permanent, so absent in the action, if O OB three never passed, the child tax credit was set to be reduced to a thousand dollars instead of $2,200.

Additionally, the income phase out for the child tax credit was significantly lower prior to TCJA. So the phase out was increased up to $400,000 I believe, and it starts to phase out slowly over that the maximal refundable portion increases. And lastly, which was also created part of the TCGA, which was extended and made permanent as part of OB three $500 credit for other dependents, this would've been expired and wouldn't have been allowed absent OB three. Now other dependents could be elderly parents that we cared for adult dependents. So these are all dependents that wouldn't qualify for the regular child tax credit. The moving expense deduction, which you probably haven't really heard of unless you were following taxes for the last several years. That was suspended back at the beginning of 2018. So essentially there was allowed an above the line deduction. If the taxpayer was going to move more than 50 miles for their job, there were lots of hoops that you had to jump through to get it. So that was suspended starting in 2018 and it was set to go back into effect in 2026 that has been permanently repealed. There's no longer an expense deduction for moving unless it's related to certain military, military positions, other government jobs, it's very specific, it's very limited.

Another permanent change as part of OB three is the charitable contribution limit. It was set to go back to 50% of a GI. It is kept at 60% and what that means is if someone has a hundred percent of a hundred thousand dollars of adjusted gross income, they could donate up to 60% or $60,000 of that. There is a new haircut, a new floor starting in 2026. Anyone that works with nonprofit charities or organizations are probably very familiar with this. We help draft a letter for one of our nonprofit clients. I work with them to draft a letter to accelerate charitable giving prior to 2026 and this half percent a GI flows a new concept. So if a taxpayer has a hundred thousand dollars of income, so that first $500 of charity, it won't be deductible. The remainder will be additionally. For higher income earners that are in the 37% tax bracket, their charitable deductions are going to be capped at a 35% tax.

So prior to this rule, if they gave $1, they were able to get a tax savings of 37%, 37 cents. Now it's the max is 35% or 35 cents per dollar given they raised also a new starting in 2026. There is also a new above the line, which means you don't need to itemize your deductions. There is an above the line deduction per person of a thousand dollars or 2000 for married filing jointly. So that's a nice little add-on for taxpayers that are not itemizing their deductions. It's important to note though, if you take advantage of this above the line, deduction has to be an actual cash donation directly to a charity. They want to encourage charitable giving and so it doesn't apply if the money is given to a donor advised fund. It has to be given directly to the charity to benefit from this new $1,000 deduction above the line.

Another major change, I'm going to spend a minute or two to talk about. This was a state and local deduction cap. So prior to 2018 taxpayers there was no cap on the amount of state and local taxes, the real estate taxes, their state income tax, how much are they able to deduct? There was office in a MT, but we're not going to talk about that for now. The TCGA in 2018 instituted what's called the salt cap, the state and local tax cap of $10,000 and it was not double for merit filing general, it was 10 no matter what and that created limited significantly deductions for especially tax payers In high tax states like mine in New Jersey, we have high income taxes, we have high real estate taxes and plus if you're paying mortgage interest, it really added up and you were generally able to itemize deductions if you had that combination.

So what the salt cap increase did for the OB three is it increased the cap deduction from 10,000 all the way up to 40,000 for filing jointly and 20,000 for merit filing. Single, I'm sorry, 20,000 for single filers. This is only a temporary increase. It's only from 2025 through 2029. In 2030 it reverts back to the old $10,000. I wouldn't be surprised if near the end of 2029 they try to extend this, but a significant increase in the cap deduction, it's going to allow taxpayers or jointly to deduct an additional $30,000 of either real estate taxes or state income tax. It's probably going to lead to a lot of tax filers in high income states to itemize deductions. Hey

Tom Cardinale: Ben, just to answer a question from the crowd on that last bullet, keep in mind that that $40,000 limit does apply to single filers also. So it's married filing joint and single. The $20,000 is for married filing separately.

Ben Aspir: Correct.

Tom Cardinale: So that's something you usually don't see when it comes to limitations is single is usually a fraction or half of the married filing joint, but in this case they will single filers do get the 40,000,

Ben Aspir: Right, and so it's a bit confusing. Under the old law it was 10,000 for either single or joint. Now it's 40 or 20 depending on how you're filing this pass through entity tax plan that can be done. State elections, Tom will talk about that in a little bit. And moving on, electric vehicle credits. So the electric vehicle credit actually ended at the end of the third quarter of 2025. So why am I talking about if it's gone? A couple of reasons. There are still stated incentives that are available. I know New York and New Jersey still have in 2026 some incentives for purchasing or leasing electric vehicles. Additionally, if you purchased an electric vehicle in 2025 and you benefited from the $7,500 credit or the $4,000 credit and you were allowed to take an advance on the electrical vehicle credit, essentially you transferred your EV credit to the dealer for transferring the $7,500 to the dealer. The dealer gave you a $7,500 credit off the price of the car. What you need to do now is you need to reconcile that and you need to file form 89 36 if you took benefit of that because if your income was an excess of the limits of $300,000 of your filing jointly, and it's an income cliff, so if someone has $301,000 of income of a GI, you'll lose the benefit of that 7,500. So what essentially that form does is to make sure that you're below the income, the income limits for the 7,500 credit.

Another change. So this also is gone after 2025, but however, now that we're entering filing season and preparing your 2025 tax returns, if you did any home improvements to your house, there is still a credit for 2025, a 30% credit on home improvements such as windows, doors, insulation. It's not limited to the primary residence. It could be on a vacation home. There's a $12,000 annual limit if you're taking in the past, there's no lifetime limit. And what's great about this credit is there's no income phase out. It's at any income level you can claim this credit. And what's a little bit of quirk though of your claim for 2025? There has to be, there's an id. So if you purchased a window energy efficient window to claim the credit, you have to put that ID that's hopefully on the label that you're purchasing on the window and claim it on the form. We're going to move on to our second polling question. The top federal individual tax rate in 2026 is 37% true or false?

Tom Cardinale: We've been getting some questions on this salt deduction in a MT exposure. Yes, inherently when you raise the state and local tax deduction caps, you are going to elevate the A MT exposure, but it's a case by case basis. As you know, we can't tell you all your taxpayers are going to hit it. Some may hit it part of the OB three as they did raise the exemption limits for income so that could curb the exposure to A MT, but generally speaking you will have to take a look at a MT from an individual exposure perspective.

Ben Aspir: Yeah, it's a great point. Yeah. OB three, so TCGA in 2018 increased the A MT exemption and O OB three made it permanent so a lot less people get caught in it, but like Tom said, you should evaluate your personal tax situation to make sure you're not caught in the A MT. We have our polling results. The correct answer is true. 87.8% of people got it right. The top rate was 37% for 2026 and continues to be so moving on to some retirement provisions. So back in 2019 the secure 1.0 was passed and three years later the secure 2.0. Essentially it was to encourage employees to get into retirement plans to increase participations, to set people up for retirement so that's financially secure when they retire. There were many provisions that are set to either take into effect in 2026 or just remind people of the provisions automatic enrollment.

So starting in 2025, employees must be automatically enrolled, enrolled in retirement plans with a minimum contribution rate of 3% up to a maximum of 10%. The employee can opt out, but just the employers must be aware as long as they're, if they have less than 10 employees, this doesn't apply to. But if they have more than 10 employees, this applies to the mandatory enrollment, the 2024. This started in 2024, employers can now have matching contributions extended to those paying student loans. So essentially this is an interesting provision that allows if an employee is paying off student loan interest, the employer can adopt and say, Hey, for every dollar you pay on your student loan for the interest, we'll match that and put that into your 401k starting in 2025 part-time. Employees can now join the retirement plans like 4 0 1 Ks and 4 0 3 Bs. Prior to that the prevailing requirement was a thousand hours.

Now it's two or more consecutive years. They have more than 500 hours part-time employees can participate. This is an interesting one for anyone that has 5 29 plans, you can now after 15 years, if it's open after 15 years, you can roll over for the designated beneficiary up to a lifetime limit of $35,000 to a Roth IRA from the 5 29. The annual limits obviously would apply some additional retirement visions of 2026. This started in 2024. It allowed penalty free withdrawals. So generally if you take out early withdrawals from your 401k four three B, there's a 10% penalty for taking it out early. They want to encourage people to keep their money in their plan, but there's a carve out now that allows for certain emergency expenses and there's a lot of latitude as far as what's defined as emergency expense. But if there's an unforeseeable financial need, it doesn't have to be for medical needs and it's a self-certification by any employee, it's not very strict. The rules, they could take up to a thousand dollars out and it's taxable but it's not subject to the 10% penalty. It may be repaid within three years if you don't want to pay the tax on it. If it is not repaid, you can only do it once this thousand dollars withdrawal. If it is repaid, you could do it again over and over as long as it's repaid.

The second bullet, mandatory Roth catchups for high earners. So for anyone with wages of over $150,000 and it's over 50 and wants to do a catch up contribution, this was a rule that kept on getting delayed, was supposed to go into effect the last two years. Now it's fully in effect on January 1st. If you're over $150,000 of FICA wages on a W2, you can only make a Roth contribution. You can't make any pre-tax contributions on catch ups. This does not apply to self-employed individuals only W2 wages and like I mentioned earlier at the beginning of the slides, there's a higher catchup contribution limit as a result of the secure act. Before I wrap it up and turn it over to Tom, required minimum distributions that increased the age increased for RMDs, recognizing that Americans the average age, people living longer, they decided to increase when RMDs kick in and so as you can see now, now they kick in at 73 years old if you're born between 51 and 59. And reminder that RMDs are not required for most Roth accounts and employee sponsored plans. I will turn it over to Tom to cover the business tax update for today.

Tom Cardinale: Great, thank you Ben. And we have lots of questions coming in. We have probably about 15, 1600 people on this, so we're trying to get to as many questions as we can during the polling questions. So please be patient. So onto the business tax as we started the presentation, the OB three is really what drove the action for personal and business taxes this year. One of the first changes that pass through entity and business owners were really starting to sweat is the sunset of the 1 99 A deduction or what was set to sunset under the tax Cuts and Jobs act, A very popular 20% deduction on your qualified business income that passes through taken at the individual level. This was made permanent by the OB three. It was set to expire last year. Investment income still does not apply. This is only unqualified business income.

There was a new brand new $400 minimum deduction. I know big bucks, right? If you have at least $1,000 of qualified business income. So they just put in basically a de minimus floor there. The A GI thresholds were increased for the deduction but only for the deduction that have no wage limit tests or qualified business property tests at the company level. So if you are making these amounts or below those first numbers, 1 97 or 3 94, there's no limitation to or wage limitation to the QBI. So you just get 20% of basically the qualified income. If you are above those amounts, then you apply the QBI deduction using the normal wage and qualified business property tests, which I put down below is the higher of 50% of W2 wages or the sum of 25% of W2 wages and two and a half percent of the cost basis of qualified property.

So the big change here is that it's alive and was made permanent. Very welcome Change bonus depreciation is back. This has been all over the map ever since nine 11. When bonus was introduced, it was made a hundred percent, it was made 50%, it was made 30%. Now we're back to a hundred percent and it permanently extends the a hundred percent bonus this time. Usually it was written in law to be just last for a couple years, but this one has made permanent. The date is a little quirky. I believe that's when it passed the house or the Senate. So that's why it's that date. January 19th, if it's placed in service after January 19th, qualified property, you are allowed the 100% bonus property placed in service before January 20th would be still limited to the old rules. Remember the TCJA rules would be 40%. It was on a 20% per year cascading until fully repealed schedule.

So keep that in mind. So your depreciation schedules this year may have some a hundred percent bonus and some at 40. And the continuing rule is that bonus still applies to new or used property. It's not just, it used to be the real old rule now used to be a brand new or original use was the tax term, but now it applies to you. So think of that if you are part of a company that's acquiring business assets in a company purchase, you can apply bonus to those assets. If you have proper proceeds allocation, purchase price allocation to it, you can apply bonus to it.

Bonus depreciation was expanded for a new category. Qualified production property bonus in the past has usually been focused on tangible business property, your equipment, manufacturing equipment, office furniture, computers, land internal improvements. But now it could apply to commercial property, meaning the building itself, but it has to be qualified production property though, as you can see, the three criteria needs to be an integral part of a qualified production activity place in the us and the original use begins with the taxpayer and as you can see, there's certain date parameters you must follow for that building to qualify. The construction must begin after January 19th, but that was last year and it must commence before January one of 29. So there is still time to plan and the property must be placed in service before January 1st, 2031. The qualified production activities themselves, pretty much anything involved in manufacturing production of tangible personal property, farming and chemical production.

1 79 expensing, which is basically works arm in arm or hand in hand with bonus as a way to expense immediately expense qualified business property. So the 1 79 deduction has been expanded to two and a half million and that's per year allowable, but the phase out of purchases starts at $4 million in annual qualified acquisitions. It's retroactive to January one, so this is not following the January 19th date for bonus. This starts at January one place in service. Qualifying property is defined as tangible personal property off the shelf computer software and qualified real property that's purchased in the active trader business. I'll throw in a little state tidbit here because with 100% bonus depreciation back in action, some may think oh once, I mean nine is just a fifth wheel, you don't need it. You're getting a hundred percent write off for under the bonus provisions. But just note that about 90% of states follow the section 1 79 rules. They conform to section 1 79 either in full or partially, but only about a third of states follow bonus. Bonus depreciation was decoupled from a lot of states because of budget concerns. Many states have a balanced budget amendment and they just couldn't afford the bonus, but they could afford the 1 79 because it had limitations. So keep that in mind for state purposes as you're planning for your tax return and maximizing your deductions.

Okay, we're up to our next polling. Question number three. What was the formal name? The technical name of the one Big beautiful Bill Act? What was it called? No one writes laws better than me act and act to provide for reconciliation pursuant to title two of House concurrent resolution 14. That's a mouthful. A fantastic and just incredible act on the bus act of 2025. Oops, I supposed it next.

Bella Brickle: So for the viewers that are watching right now, you might've just seen the results window pop up in front of the polling question window. Please just click and drag that out of the way and you'll still see you have about 20 seconds left to respond to the question.

Tom Cardinale: I just hit it back be would that allow people

Bella Brickle: To answer it? No, it still pushes out that results window, so that's why the viewers will need to move the results window to still see the question. Okay. Alright, so that 60 seconds is probably up for the questions so we can now move to the results again.

Tom Cardinale: Okay, let's see. Oh wow. I threw you all a curve ball and it worked. 70% of you got it wrong. It is not the on Thebus Act of 2025. The correct answer is B, an act to provide for reconciliation pursuant to title two of House concurrent resolution 14. Because this bill went through committee upon committee. This is just a technical title. They used to iron out differences between house changes and senate changes and at that time they did not put a name on it or kind of a political name so to speak. So well done to the 20% of you that got that right.

Hey, moving on to further OB three changes to business taxes 1 63 J. This was a very welcome change, especially if you're in manufacturing or distribution businesses that are highly leveraged and have a significant interest deduction. The revive of the use of EBITDA as the calculation component to determine your annual interest limitation is back. It went to EBIT for a couple years, so it removed your depreciation and amortization, which to many companies, some of the largest deductions, especially if you have goodwill. And so that has been reinstated. So the 30% limit is still intact. So you take 30% of your EBITDA or let's call it your tax basis ebitda, 30% of that would be your annual interest expense limitation and any unused amount you would just carry forward indefinitely. That indefinite rule is still intact. They did disallow the use of interest capitalization under 2 66, 2 63 a and 2 63 little A as a way to deduct interest expense for tax years beginning after 26.

This was a popular planning tool to find a way to expense certain interests that you could allocate to inventory costs or you're basically deducting interest as a cost of goods sold amount, which would take it out of the confines of the 1 63 J rule. So it was a bit of a loophole, but it was a legitimate loophole and it was taken advantage of. So as a way to raise some revenues for this bill because there was a huge cost to this overall OB three, they repealed the use of that starting next year. You can still use it for 25. The small business exception. Remember that 1 63 J on top of several other provisions like 2 63 a do not apply if you are considered a small business taxpayer. And that initially started at only $5 million of average prior year receipts. That $5 million rule was in for decades and the Tax Cuts and Jobs Act in 2018 properly gave it a market adjustment to 25 million. And ever since that 25 million started, they've been adding one or 2 million a year as a healthy inflation adjustment. So if you have 31 million of receipts from 2022 to 24 or less, this 1 63 J does not apply to you.

Okay, moving on to r and d, this was a major change. Another welcome change is for tax years beginning after 24. So starting in 25, the new section 1 74 A as part of OB three rolls back the capitalization requirement for domestic and I bolded that domestic research and development expenditures after 22 and you could select one of the following. I don't know of anyone that wants to amortize it over five years or 10 years. I think when you have those options that comes into play when you expect, say the tax rates to go up, which they are not, they're going to be in place for at least the next few years. Fully deducting is now allowable for your r and d. So what happens in your 25 return is whatever the unamortized tax balance is of that r and d that you may have in your depreciation schedules, your capitalized r and d or UNAMORTIZED or balance, you get to fully flush that out as one large deduction in 25. You also have the option to amend, but be very careful on that because it's only in very limited circumstances would it make sense to amend because it could reduce your RD credit. Remember, your foreign RD costs unfortunately still must be capitalized over the 15 years. So if you are a company or use an outsourced provider outside of the us, say software developers and whatnot, you still misuse the 15 years then continuing on. Yes, the 15 years still applies to outside the us.

I already brought up the first bullet here for retroactive changes. If you wanted to amend, you could also apply for an election for the RD expensing retroactively to 22. But like I said, be careful if you could amend, yeah, you may have that acceleration, but remember you're going to be getting a much lower RD credit by doing this because then you got the two 80 C or the add back requirement to all of those costs. So you'd be adding to the add back in determining your r and d credit. And on top of that, remember that r and d deductions is a timing difference. So while you'd be taking it all the way back and maybe getting a benefit, then it's going to hurt you going forward. You've already taken it back. So just be very careful with that. You must file this election if you want to do the retroactive election file and file the amended returns you have till July 6th of this year. I think July 4th lands on a weekend. So I think that's why they moved to the sixth. It was supposed to be July 4th.

All taxpayers, as I mentioned before, are eligible to deduct the remaining unadvertised balance of the RNA and your 25 return. So that's a full tax write off. Moving on to qualified business stock, this is for all my C corp friends out there, especially newer tech or pre-revenue tech entities out there that may have formed a new C corp. This is a very beneficial tax rule that allows you to exclude a significant amount of your gains on the sale of stock if it's considered qualified small business, stock qualified small business stock in general. Not going to go into a separate sidebar on all the rules there, but basically it applies only to C corps. It is only on the original issuance of stock.

One of the changes of OB three is the value of assets you have in that new C-corp cannot exceed $75 million. It used to be 50 million. That was the gross asset test. So what many companies may do is they may form a new C corp and drop down some cash to help fund the C corp. They also may drop intangibles ip if that's going to be the case, you want to make sure you have a fresh independent valuation on that IP and make sure it's going to be under that new 75 million limit. It's not just just cash intangible assets. It's all assets can include intangibles.

So one of the other changes, or what we call it, one of the prior changes of qualified small business stock is you needed to hold the stock five years and that was a cliff provision. If you sold your stock four years and 11 months after holding it, you can't get this exclusion, they gain exclusion. So what the OB three did is make it checkpoint base so it rewards some taxpayers to at least getting some benefit if they've held it at least a few years. So part of the new waterfall is a 50% gain exclusion if held at least three years, 75% have held at least four and then the full a hundred percent. If you have hold it the full five years, what's the gain exclusion? Well, it used to be 10 million or the higher of 10 million or 10 times the amount of your stock basis of qualified business stock or the adjusted basis.

So now it's the greater of 15 million or 10 times the aggregate adjusted basis of qualified. So if you're, let's say you sold it after three years, you would apply the 15 million or 10 times basis and then you would take 50% of that result for the three years and same for 75% at four years, and then you would get it full at five years. The non-qualifying business list is still unchanged. Keep in mind this does not apply to every type of business. In fact, the list of unqualified businesses is pretty long. Professional services, financial services, banking, consulting, real estate, restaurants, hospitality, farming, those are all non-qualified businesses. What these businesses are meant to reward or kind of say the bread and butter retail businesses, manufacturing distribution, that's the core of what this mostly provides. Yeah, there's lots of ones that are kind of gray area. Am I a professional business or am I really delivering a product, especially in the software world that you'd have to research or talk with your tax advisors. But in the end, this is still a very welcome change.

The charitable contributions deduction for corporations has changed. It's basically a new limitation or a new floor that you have to exceed before getting an excess deduction. The 10% limitation on your income still applies. So if you have a million dollars of income on your C corp, then you're limited to 10% to donate and deduct. So that would be a hundred thousand, but there's a new brand new 1% floor. And if you think of that floor, think of it as if you all remember the, well, I guess it still exists, the medical deduction that you have in your personal return, you would have say a 7.5% floor and then you could only deduct the excess above that. So this is a 1% floor. So as an example, if you have overall taxable of a million and say $40,000 of contributions, 1% of income floor is 10,000.

So that first 10,000 gets thrown out as a floor and the remaining 30,000 is deductible and the 10,000 is lost. Now that 10,000 portion is only lost because this contribution was under the 10%. If you are over the 10%, you actually get to keep that unused amount or the floor amount and it just gets carried over. So I changed the example a little bit at the bottom. If you have that same million dollars of tax, of blink income and let's say 130,000 of contributions, so that's 13% this company is contributing of their income, the 1% income floor is still 10, the 120,000 would be deductible and the 10% floor is carried forward. So that's, think about that. If you're nearing that 10% rule, then it could be some meaningful tax dollars if you hit that.

There was also changes to the international tax side. I will be candid, I am not an international tax expert. I know enough to be dangerous and to help my clients get their international reporting. So these are just very high level changes because some of it does get a little bit technical. If you remember the global intangible income, intangible taxable income or guilty that was introduced with the Tax Cuts and Jobs Act. This was a deemed inclusion of your foreign income of A CFC that you would treat as almost like a deemed dividend or taxable income inclusion to your US owner. They made some changes to that and this applies starting in 26. So 25 is still unchanged. The second bullet is just cosmetic. They're changing the tested income to net CFC tested income or neck tie. You may have heard everyone's got their own pronouncement of that.

On guilty itself, you used to be allowed a 50% deduction of that adjusted tested income that's been reduced to 40%. So they did cut that a little bit. So what that does is it makes the effective corporate rate on your gilt 12.6% used to be 10.5%, which is the 21% corporate rate cut in half because you're getting a 50%, the prior deduction of 50%, now it's 21.5% or 21% times 60%, the other unused portion of two 50 deductions. So now you're paying 12.6%. The 10% qualified business asset component is eliminated. So that just makes our jobs a little easier from the gilt computation. So it's essentially tested income and you and then apply the 40% deduction and that's your guilty. The foreign tax credit application, this is actually a little helpful that offsets the impact, the adverse impact of the two 50 deduction being lowered. You're going from 80% to 90% of credit usage show up to 90% of the tax. So that could help. So after all these changes, you may wind up getting extremely close to what it would've been under the preexisting guilty rules.

On the flip side of Gil E is the fee deduction, the foreign derived intangible income. This is a deduction that rewards businesses in the US that have export income or exporting services or products to foreign countries as a way to reward them from, say instead of setting up a shop in a foreign country and doing all their operations in sales from there, just to export it from the US just to keep an increased presence here, increased payroll, which is more taxes. So this is a way to reward them. They just lowered the fee deduction rate just a little bit was 37.5%, now it's going to a third. So not a significant change, but it will impact taxpayers starting in 26. Similar to Gil lti, there's a QBI computation component to the FDI deduction that's been removed. Also eligible income. This was a change from OB three eligible income or DEI now excludes the following.

So as you're working up your income, which many times could just be a pro rata amount if you have 10% of your sales going to foreign countries, a lot of taxpayers would just take 10% of their business income overall and just say, Hey, that's our foreign derived income, our DEI, but you have to be sure you're now excluding the following, these following items, your interest expense, your r and d costs, and that's global costs. US and foreign, and this is a big one, gains from sales of depreciable property and intangibles. So if you have IP goodwill gains, you do not include that in your DEI calculation. So some changes on the fitting the beat or the business erosion and anti-abuse tax. This probably applies to very few if any people on the phone, you still have to have that Global gross receipts test. I believe it's $750 million and it also applies only if you have significant intercompany transactions.

So the new tax rate has been reduced for from 10 and a half percent, or I'm sorry, the beat rate reduced from 10 point a half from its slated 12.5%. The business tax credits usage against the beat was made permanent. That was another one of those ones people probably didn't know about was previously enacted to sunset is credits to use against the beat. So that's been made permanent. You can use them. Inventory sourcing allows some income from us, produced inventory sold to abroad to be treated as foreign source, which can generate relief from foreign tax credit limitation. This next one's brand new probably won't apply to you, but just be mindful. A new 1% excise tax or a transfer tax on certain outbound transfers from the US to foreign parties. This applies to cash money orders and cashiers check, but not digital asset transfers. So you think digital assets, you think Bitcoin, you think Ethereum does not apply to them?

There is non-filing penalty relief through Q3 of this year because this is a new change and everyone's scrambling to say, oh, and it's not everyone, it's by remittance transfer providers. So say you're Western Union groups like that, they're the only ones that need to collect this tax if they're doing a transfer view and then they remit it and file a tax return to the IRS, but there is a penalty relief. I don't even know if the forms are ready yet. So they just want people to be fully compliant. All right, we're approaching near the end and we have our final polling question. What are you most excited about for the Super Bowl game? The commercials winning your box pool. Hopefully winning it. You mean halftime show nothing or miss the game.

Bella Brickle: And this will be open for 60 seconds, so please make sure to select your answer and hit the submit button.

Ben Aspir: Tom, we got a good question on section 1202, does the increase from QSBS from 10 million to 15 million exclusion applied to investments that are already made prior to 2025? The answer is no. It's only applies to stock issued after the enactment of O three, which is July 5th and beyond.

Tom Cardinale: Yep, good question. Everyone always talks about grandfather provisions, but a lot of these O ob three provisions are really a date certain and going forward, I guess the r and d changes are an exception for some retroactive application

Ben Aspir: And then no Seahawks. For businesses that exceeded $50 million in gross assets for section 12 with two purposes, could they now issue QSBS with the increased gross assets? That the answer is yes as long as the business did not exceed the new 75 million threshold.

Tom Cardinale: Alright, see our results pretty split. All right, everyone's looking forward to the game commercials. Wow, 25% to commercials. That's why they're getting, what's the new rate now is 10 million, 15 million every 32nd slot, I don't know, pretty crazy. But just a couple small other federal changes. The 10 99 K, which is used for certain third party merchant providers, the increased filing threshold, the $600 was around for years. It was a minimum threshold to file per recipient. That's been changed to $20,000 and more than 200 annual transactions. So a very welcome change to certain merchant providers. This could be like your eBays of the world, 10 99 NEC. Miscellaneous, this applies to many companies. The income threshold for business payments also was increased. No, you didn't get the $20,000, but it was meaningfully increased to 2000 from that 600. So if you have some immaterial payments under the 2000, you no longer need to issue 10 90 nines for those.

And various clean energy credits terminated early 2, 20 25 was the final year for individuals and businesses. Ben covered a couple of those. Elon Musk certainly was not happy with that one, but as we talked about, the cost of this OB three was trillions of dollars over a long term. So this was a bit of a revenue razor offset to help pay for it. And just some basic inflation adjustments to be aware of. I talked about the small business exception before for things like the 1 63 J, 2 63 A is now 31 million business IRS mileage rate is now 70 cents medical. If you're in the medical or moving, this is only for military personnel, you get 21 cents. And if you're traveling for charitable purposes to qualify charity, of course you actually get 14 cents. The qualified transportation fringe benefits exclusion was increased to 3 25 per month, 3,900 annual. And if you have flexible spending accounts, which is basically a pre-tax benefit that you withhold from your wages, your pre-tax wages that you could use for qualified, say health or dental benefits, that's for $3,300 is now the new limit. And with that, we are almost perfectly on time. I want to thank everyone for joining today. It's always one of our most attended seminars in our firm for each year, and we greatly appreciate everyone joining. If you had any CPE issues or not answering any question, please post it and we'll see if we could get you fixed up. But thank you very much everyone, and I'll leave it to you, Ella, to trail us off.

^{Transcribed by Rev.com AI}