Tax Planning Under the One Big Beautiful Bill Act | What Construction Companies Need to Know

Right? No one's reached out to me individually. One, we will start off with bonus depreciation. I have to the slide. So this is probably everyone's favorite topic. It's definitely something that gets talked about a lot. Bonus depreciation didn't really come about until 2002, but it wasn't until Trump's first term in office that it became a hundred percent. Unfortunately, at that time, he wasn't able to make it permanent. So starting in 22, it started to ratcheted down and was set to expire in 26. Now, in this new provision, you got to back up to a hundred percent and he did make it permanent. And I will say a lot of the provisions in this bill were permanent provisions, which if you're an advisor, is a huge win because it makes tax planning a lot easier. As you look out now starting January 20th, which also happens to coincide when Trump took office, it is a hundred percent bonus depreciation for anything you put in service. Anything before that is going to be 40%. Now, one of the caveats, because they were concerned, everyone was just going to say, well, the asset was placed in service after January 20th. They said, we're going to look at the contract date for 25, and if you have a contract that was signed prior to January 20th, you're still going to be subject to the 40% regardless of when the asset is placed in service. So it's just something to be cautious of.

Now, there's another way to directly write off equipment purchases, and it's been a long in around a lot longer than bonus depreciation, and that was 1 79 depreciation. This came about in the nineties and it was really geared towards small and medium sized businesses and accordingly had some restrictions to it so it could not create a loss. So you were subject to, so the limitation was your taxable income. Before the deduction, there was a maximum deduction, and for 25 it is two and a half million dollars. And then there was a maximum assets placed in service. So once you exceeded that maximum, that deduction was reduced dollar for dollar for dollar over that. So for 2025, that asset place and service limitations 4 million. So once you're at six and a half million dollars worth of assets, place and service, you're no longer inside to the deduction.

And again, that was really the way they were trying to make sure that it was small and medium sized businesses taking advantage of this and not the large publicly traded companies, stuff like that. Now, the question that comes up is, is this even relevant anymore? We have a hundred percent bonus depreciation. Why would we use 1 79 with all these restrictions? And there's really two reasons. A, you have that 20 day period in the beginning 25 here that it may be beneficial, but it's the state issues that come into play. So Pennsylvania, and I don't know if there's any other states like this, but Pennsylvania follows fed for 1 79 but does not follow fed for bonus. So if you have a million dollars of assets placed in service and you have enough income, you can either bonus out or 1 79 for federal purposes and you end up kind of in the same position for the most part.

But for PA purposes, be drastically different. If you won 79, you get that full million deduction reducing your PA income by a million dollars, and if you did bonus, you want to get the million dollar deduction, you get whatever the depreciation would be, which is probably 20%, $200,000. So a very big difference. So there definitely has to be some thought given to it whether we want to do 1 79, especially if you are in a state like Pennsylvania where there's a difference between the two. Alright, so now that we have these two provisions, the question is like, okay, so any equipment that I buy I can write off immediately, and the answer is no. And so there's something called the luxury auto limitation. Now when I tell that to clients, they're usually like, yeah, I'm not buying Porsche. I'm not buying a Lamborghini. Why are you talking about this?

It's because the definition that the IRS uses isn't what I would consider a luxury. They consider it weight. So if you have a vehicle that's under 6,000 pounds, it falls into this limitation and that means depreciation every year is limited, and your first year depreciation, it's about $20,000 and there's a whole schedule of what the depreciation is every year or thereafter. So you can't just write it off completely in the year you purchase it. So basically all vehicles, all cars, sedans aren't going to be over 6,000 pounds. So if you're buying Toyota Camrys for your Salesforce, you're not going to be able to write the full thing off in the year you purchase. Most SUVs don't qualify because they're not heavy enough. So again, you got to be careful. All the light duty trucks don't qualify. So you got the Ford Rangers and Ford Mavericks, they're too light. And then when you get into the full size pickups, some of the base models and some of the years are actually under the 6,000 pounds. So you got to be careful. So when you're talking to the dealer, you got to ask, what's the gross vehicle weight of this car? This vehicle, if it's over 6,000 pounds, you should be fine. If it's under, you're going to have a limitation. So just something to be careful of.

So most of my clients, especially over the past X amount of years since went to a hundred percent, whenever I tell them when we're doing tax planning, this year was a very good year. We're going to owe some money in April. Knee-jerk reaction is, well, I'm going to buy some equipment to wipe out income, and I have almost the same exact conversation and it kind of revolves around don't let the tax tail wag the dog. The tax benefit of buying equipment's kind of the cream on top. It's not the reason you should be buying equipment. The reason you should be buying equipment is this piece of equipment's going to add some sort of efficiency to my operations. It's going to allow me to do more work. It's going to me to get work done quicker. That's really the number one question. And if the answer is no there, that's kind of the end of the conversation and nothing in the current tax bill, any previous tax bill really change that. That's my first question. Does it improve efficiency? Does it improve operations? The next is, well, how are we going to finance it and how does our cashflow look?

Just because we had a good year this year doesn't mean our backlog's going to support a good year, two, three years down the road, but if we finance it, we may be paying for this piece of equipment for five years. Are we going to have the cashflow to support that or is it going to be put us in core position? Then the question becomes, where do we store this piece of equipment? Is this going to be something we're going to be constantly using and then we're going to be able to put it on the job site and that's really where the storage is, or is it going to be sitting idle? So I am in Philadelphia, most of my clients are around the Philadelphia area. Land is very expensive, so to buy land around here and rent land to store equipment is inconvenient. I do have some clients who have purchased land in the Lancaster, Harrisburg area to store their equipment, but the issue with that is it's an hour and a half away, so you're losing half a day or a full day worth of work just to get the equipment on your job site.

And then the last thing you want to look at is what are the rental terms? So for some very basic run of the mill construction equipment, the rental terms tend to be pretty decent and it may be better just to rent the equipment than to buy it. You really got to look at that. And now I am well aware that when you get into some very specialized pieces of equipment, the rental rates can get pretty astronomical to the point where it's almost better to buy it, use it for a little bit than turn around and sell it. But I think you do have to look at the rates to make sure that makes sense. Alright, then we are entering another poll. So what is the effective date of bonus depreciation with a hundred percent deduction of cost? And that is with this new tax bill. It's not with the Trump first tax bill. We'll give everyone a minute. Oh, go ahead.

All right. We do have a question and answer box. If you have any questions, by all means write it in and we'll try to answer as we're going through the presentation, we'll move on to the qualified business income deduction. So when Trump first ran for office, he ran on reducing the corporate tax rate from the high thirties to 20%. And one of the criticisms he faced was, well, that's a great benefit for very large companies. What are you doing for the small medium sized business? And his answer to that was this qualified business income deduction and essentially what it is is a 20% reduction of income that you just don't pay tax on if you are a past entity. So that's s corp partnerships or a sole proprietor. So a Schedule C business when it was first put into service, it was set to expire at the end of 25 and was a main topic we brought up with our clients both at tax planning last year and during field work this year of this is expiring and if it doesn't get extended your tax bill for 26, it's going to go up pretty drastically.

This has provided a lot of benefit to a lot of our clients. Luckily in this bill it was made permanent, so we will see it for the foreseeable future. Now there are certain limitations. If your income on a joint return is less than 400 grand, there really is no limitation. The single filer is about half that, so about 200 grand, no limitation. But once you get over that, you face two separate limitations. One is the specified service trader business, which they define a bunch of different industries. Accounting is one of them, law is one of them, or any business where the experience and skill of the employee is the primary product or service and the main product is advice. So a lot of construction companies won't fall into that, but certain consultants within the construction industry will, and that's when we got to start asking questions.

What are we doing? What type of consulting are we doing? There are certain services that are excluded. Certain engineering services and architectural services don't get this rule applied to them. Just a question you got to start asking if you're in that consultant business within the construction industry. The other limitation is the wage limitation. So the deduction is limited to 50% of the W2 wages paid by a business, so that's the maximum deduction you get and that is the limitation that most construction companies are going to be subject to. The other one is either 25% of WT wages plus two and half percent of what they call unadjusted basis of qualified property, which is pretty much two and a half percent of all the purchase price of all equipment bought in the past 10 years. That last one was really designed for real estate companies because they have very low wages, but they have very high asset values, but most of the construction clients are going to fund that 50%. So if you are a client that has a ton of W2 employees, and when I say W2 employees, I mean employees, they pay paycheck to, they get a W2, not 10 99 sub contractors.

If you have a lot of W2 employees, you really don't have to worry about this limit. You should have more than enough wages to cover the deduction. Where we have run into issues is when we have a client that is subcontracts everything out. So maybe they have a receptionist and that's it, that's their entire payroll, but they may be very profitable, they subcontract everything out, they don't have enough wages, and that's where we need to start looking at what can we do. The number one thing we look at is, well, how much wages do we need and can we issue a bonus to the owner? So he takes that money out as wages instead of a distribution. That only really works if you're S corp. If you are a partnership or a sole proprietor is very limited things you can do. We can talk about it, but the number one conversation we're going to have is do we want to convert to S does this deduction make sense to warrant that conversion?

Alright, and we will move on to interest expense limitation. So in Trump's first tax bill, he had to figure out ways to pay for it. One of it was limiting the interest expense for businesses and initially from 2017 to 22 it was you couldn't deduct interest in excess of 30% of your adjusted taxable income, which they defined as taxable income plus interest plus depreciation plus amortization and plus another minor adjustments here or there. Then in 22, which is also the year that interest rates kind of spiked, you lost the add back for depreciation amortization. And this led to a lot of our clients who weren't subject before. Now being subject to this limitation, there are certain elections you can make. One of them is the real property trade of business election where if you are producing real estate, certain contractors, certain real estate businesses can make the election and they have certain limitations on bonus depreciation, they have to use a different depreciation mechanism. It's called a DS instead of makers.

And that was a permanent election that we made for a lot of clients in 22, 23. Now in the recent legislation they added depreciation amortization back in. Alright, so we shouldn't have it impact as many clients as we had. So we did get a question that says if the company elects back from S to C, can it still be effective? And I'm assuming this is for the QBI deduction. And so C ips don't get the QBI I deduction. So if you're going from S to C, you lose the QBI I deduction because you had a lower tax rate, that 21% tax rate if you're electing from C to S, the new S rules would come into play and you get the QBI deduction and you could manipulate wages. If I answer your question, if I didn't answer your question, by all means ask it again in a different format.

Alright, so interest expense, limitation. There are other ways out of the interest expense limitation. The best way is the average gross receipts. So if your average gross receipts for the past three years was under 31 million, you no longer have to apply the interest limitations there is, as in most things in taxes will asterisk there. That said, unless you're a tax shelter, the definition of a tax shelter is you have a passive investor, which is some investor that gave you money but doesn't really do anything, right? That was their sole purpose was to give you money. They don't participate in management, they don't do anything else. That's a passive investor. If a loss is in any given year are allocated 35% or more to passive investors, you are considered a tax shelter and therefore subject to it even if your revenue is under $31 million. What is interesting there is if you always have income, then it never applies.

It's a year of lawsuit considered a tax shelter. Alright, so some other changes that came into play. They're kind of worth mentioning the 5 29 plans, so they've expanded to include more vocational and trade schools. I don't think this single provision is going to have much impact on the employment issues we have in the trades right now, but I think it really is a sign that societal opinions kind of changing where we're kind of going from. There was this mindset of in order to get a good job, you have to go to college and these trade jobs are like secondary jobs not as good, right? You're not going to be as successful. And I'll say what I've seen in the market in the past couple of years that has been the complete opposite and I think this is the first time where society's kind of saying like, Hey, maybe trades are the way we should be going, and I'm hoping we see a lot more legislation like this to kind of push a lot more people to the trades instead of potentially majoring in something that isn't a marketable skill. Some of the other things is when Trump was running, he ran on no tax for tips and no tax on overtime. Now that's not quite what ended up in the bill. What ended up in the bill is you can exclude $12,500 of overtime pay and it phases out once your income exceeds one 50 for an individual or 300 for a joint filer. Now it is the premium that is not taxable. So if you're making $10 an hour and your overtime rate's 15, it's that $5, it's not taxable, the $10 is still taxable.

Now there's going to have to be some additional disclosures on the W2. I don't know how else as a tax preparer you figure out how much was overtime and how much wasn't. And I haven't seen any type of advice or commentary on what that's going to look like, what that 25 W2 is going to look like. In order to pay for this. Trump did have to eliminate some credits. There were almost entirely energy credits or green credits. Two notable ones, there was a lot that were eliminated, but two notable ones are the 45 L credits. So this was a credit that if you were a home builder or a residential contractor, you got a credit if you were able to build a home or a unit with a residential building that met certain energy efficient requirements prior to 23, the energy efficient requirements were something that was put out in 2006.

So it was very easy to qualify on that metric and the certification was relatively easy. So there was a number of clients that were in that field that were really served a benefit. And then in 23 Biden really expanded the credit. It went from $2,000 a unit to $5,000 a unit, but the issue is that he updated the MG efficiency code that was applicable and some other things. So not as many clients were using it in the past couple of years, but it was still one of those credits that when it worked, it really worked. You got a lot of bang for your buck. So now that that's going away and it'll go away June 30th, 2026. The other one that a lot of clients qualify for was the alternative fuel vehicle refueling credit. So that was if you put a electric charging station in your parking lot for your employees, something like that.

There was a very small credit that you got. Not a lot of clients did because of the credit. It was kind of one of those things where we saw it on the fixed asset schedule and then we got the credit when for the return. The other notable thing in the big beautiful bill was this concept of qualified production property deduction. So right now politically they're trying to incentivize manufacturing occurring in the US and moving it from overseas to onshore. One of the provisions was allowing you to deduct the full construction costs of a manufacturing facility or building, which is very unique. You usually don't get the rate off all real estate a hundred percent. Now there are a ton of asterisks after that statement and when it first came out it was a very hot topic and then when everyone got in the details, the excitement kind of waned a little bit, but it's still a huge opportunity for manufacturers. I don't think it's probably going to help anyone out on this phone call, but it may drive a lot of demand going forward. So we may see a nice pickup in revenue for some of the manufacturing that's going to start happening in the us hopefully. Alright, I will now pass it off to Julie who'll go through some of the other provisions within the code or within the new bill.

Julie Dillon:Thanks Ralph. First thing I'm going to talk about is the research credits for construction contractors.

Okay, sounds good. So the BBB changed the rules to again allow for immediate expensing of research and experimental expenditures under the new 1 74 A and that eliminated that burdensome five-year amortization rule that was put in place in 2022. I know I had a lot of clients, not a lot of contractors, but a few tech clients that it really was a huge massive add back for one year and then it took you the whole five to work your way through it. So it was a very expensive thing for them. I know we've got more contractors now that are starting to look at it now that this has been lifted and we no longer have the add back for the capitalization of those costs. So why does this really matter for contractors? So the r and e expenditures people use r and e and r and D in conjunction and they've been coupled together under the tax credit for this code.

So some companies have reduced innovation expenses, like I said, due to this 1 74 a add back. So they've been missing out on all these credits that could happen for things that they're using for development in new construction methods, building systems, materials and tech within the construction industry. So what's at stake really if you bypass this credit and don't look at it? So the federal credit alone can reduce taxes by about six to 10% for any qualified expenses. Many states also offer an r and d credit on top of that. So if you're in a state that offers a state r and d credit in addition to the federal, it could really be some good bang for your buck.

I think the best thing to do is to look at what kind of activities qualified to make sure that you've got something that makes sense. And so some of the things that qualify for the activity are designing and testing of new building materials like concrete and steel mixes, developing energy efficient systems like lead certified building strategies, implementing innovative site logistics or construction sequencing techniques, making your process more efficient, customizing fabrication processes, modular building systems, engineering unique structural supports or foundation systems, and then even sometimes new waterproofing, HVAC or fireproofing solutions. So there are a lot of things out there that qualify that generally you wouldn't think would qualify. So there might be some benefit here to a lot of our contractors that have never looked at this before, especially since we don't have the capitalization, the add back like we had since 2022. The one thing to keep in mind is that whenever you have foreign expenditures, you still do have to capitalize and you capitalize an add back and it's a 15 year process to amortize and get that deduction.

So not as beneficial for foreign activities. Most contractors that we work on are here within the us but we do have a handful that do government jobs over in foreign countries like with embassies and things like that. So keep in mind that the r and d is probably not going to be as beneficial for them just because they have the foreign activities over there. Went through the laundry list of some of the activities. Again, if you're doing something to make it more efficient to use a different process, those are things we want to talk about and see if it's something that would qualify. If you have something that you think might qualify or that you just have some questions about your processes and what you do, we can put you in touch with our great team. We've got a team that spends a hundred percent of their time working on r and d credits for all kinds of industries. So let us know if you've got something that you want to talk about and we can work on that with them.

The next thing I want to talk about is the salt deduction changes. The salt cap came into place in 2017 with tax cuts and Jobs act. The cap was put to $10,000, which was really detrimental to a lot of taxpayers, especially those in higher tax states that was increased up to $40,000 at the individual level effective for 2025 tax year and forward. So how does that really impact our taxpayers? So taxpayers who itemized the higher cap could absolutely make it more beneficial. I know I had had some clients that in higher tax states were paying two $300,000 worth of state tax and being able to deduct those on their schedule when the cap came into place, they lost hundreds of thousands of dollars worth of deduction. So we're not going to get hundreds of thousands back, but you'll at least get 30,000 back if you fit the requirements. Higher income earners have a phase out threshold. So there's high tax states the benefit's going to be minimal instead of maximum, like I said, hundreds of thousands of dollars, which we've lost back in 2017. So there is some benefit still out there, but if you're over $500,000 in modified adjusted gross income, then you start to lose that benefit.

The ways to adjust this and manage it a little bit, maybe talk about the way you manage your income for your company if you've got a flow through the steep production in the deduction for those between the 500 and 600 means that taxpayers in that range have to be strategic about income timing and maximizing their benefits. So that may play in with the years in which you put large pieces of equipment in place and take the deduction for bonus and 1 79 on those and it might be delaying a contract into the next year depending on how you account for your contracts. So there are some things you can do, but again, your maximum is only going to be the $40,000. So you're not getting huge dollars back, but at least you're getting some. And then one other thing to keep in mind is A MT MT State and local tax expenses are not deductible for a MT.

So those become an add-back. So the larger that state and local tax deduction is, the more it can affect your A MT and push you into the A MT calculation, which would increase your tax. So just talk with your personal advisor and talk about how close you are to the A MT with this and see if it's going to be beneficial. The other thing for state and local taxes, that's probably the most important for a lot of our contractors since a lot are housed within S corp is the pass through entity tax. So the PTE tax was put into place to work around these state and local tax deduction limitations that were put in place at the $10,000, especially for those higher tax states. So it's really beneficial for taxpayers who are exceeding their personal salt deduction limit, which is, and your salt deduction limit is not only your state taxes you're paying on payroll, but it's also real estate taxes and your personal property taxes.

So it's really easy to get past that $10,000 every year and now you've got another 30,000, so you have the opportunity to take that up to 40, but it's still not a huge dollar, especially for those in states like California and New York where your rates are much, much higher. So PTE is, like I said, a workaround for those high tax states. It's only available to pass through entities and their owners. So that's only partnerships in S corps. It's not available to sole proprietors under a Schedule C and they have to elect to pay the state tax at the entity level, which is what the benefit is. So if you just think about the process, your business is going to go ahead and pay that tax on your behalf. So you're going to get that deduction as it comes through on your K one and then when it flows down to you, then your income level is lower.

You've already gotten that benefit of that deduction that you wouldn't have gotten on your personal tax return. So there definitely is a way to work around it. Not all states allow you to elect into PTE. So the real benefit here is the differential between your federal tax rate and your state tax rate generally. So let's say you've got a 35% federal tax rate and a 5% state tax rate, then you're going to look at about 30% benefit on that. Also, keep in mind that every state handles their PTEA little differently. Some of them give you a deduction on your K one, some give you a credit to apply to your state taxes and most of them have an add back for the actual tax that was paid at the entity level on your personal tax return. So it definitely adds some complexity, but there's big benefits there. Most of my clients, if not all of them who are pass through entities, take advantage of the PTE as long as the state is involved in that.

What states do we have that have actually enacted pass through entity tax? So we've got 36 states as of the end of July this year that have enacted PTE, so it covers a good part of the country. We also have two more that have active proposed PTE tax bills, one being Pennsylvania, the other being dc, and we've got one more that has a proposal out for 2026 for Maine. So nine states have no owner level personal income tax, so those ones are kind of taken off the board. But keep in mind that if you're in these blue states, then there's the opportunity to take advantage of the pass through entity tax if you own a pass serenity entity. So what do we really need to worry about going forward on for the past through entity tax level? It's been put in place and kept in place with the new tax law, but there are some states that already have sunset dates.

So if you're in the Colorado, Iowa, mass Michigan, Minnesota or Oregon, those ones already have sunset dates set to expire at the end of 2025. Some of those states can come back and keep those going forward and tack it on and some may let them expire. So you really want to, as you're doing tax planning at year end, keep in mind these states that we may not have the benefit going forward that you've had in the past. And then some other PTE is set to expire without any further legislative action. That's Illinois, Utah and Virginia.

So what has to happen for these states to continue on and keep PTE in place? We have to wait for a lot of states to provide guidance and analysis for what BBB means to them. But some of the questions you can ask yourself that might give us some idea of what 2025 tax season in 2026 will look like. Is the state's code written in a way that would automatically incorporate the BBB provision? Assuming it is, does that state have the rolling conformity, which means it automatically happens in conforms or does it have a static date, a fixed date so that the legislature's going to have to manually go in and take some action to update the conformity date for income tax purposes? 20 states and DC have rolling conformity, which means they'll automatically align with the new version of the tax code 17 have a static fixed state conformity and 10 of those are conformed to a version that existed for December, 2024 and January, 2025. So all of these states aren't automatically conforming. We'll have to have some sort of legislative action in order to implement the BBB going forward.

The next thing I wanted to talk about was the expanded options for residential contracts. BBB broadened that exemption from the percentage of completion method to include multi-unit residential contracts. It includes things such as condos, longtime care facilities, apartment complexes. In the past it used to only be home builders and they were very limited on what those homes could look like. They were limited on the number of units you could have there. And so a lot of contractors that were doing multi-unit kind of housing didn't qualify, didn't qualify for completed contract and were forced into percentage completion. So BBV expanded the ability to use it for residential construction contracts instead of just home construction tracks. So the benefit of using completed contract percentage completion is the ability to defer your taxable income. You're not escaping it, but you're deferring it until later date. A dollar in your pocket now is always worth more now than it is down the road later.

So you want to keep as much cash in your pocket for cashflow purposes for as long as you possibly can. So now when we can move from a percentage completion to a completed contract, we're pushing that revenue recognition to the end of your contract versus throughout the time period in which your contract's occurring, this option's available to a contractor's big and small, previously only small contractors that didn't exceed that gross receipts test, which is the third year average and it's now 31 million qualified. So what does that really look like? Here's just a really quick example on the benefit that you can receive from that. So if you've got a contract that's $540,000 contract, estimated cost at four 50 incurred cost a year one or 180,000, you've got a 40% completion rate in year one, and then obviously we finish up in year two. So if you were under the percentage completion, the old methodology for multi-units and condos and things like that, you would recognize $36,000 worth of taxable income in year one, then the remainder in year two. But if you can use a completed contract, you've now escaped taxable income in year one, completely pushed all of that to year two.

So sometimes there's delays in contracts and your contracts don't move along percentage wise as you would've anticipated. Maybe there's delays due to weather, maybe material delays, things like that. So now if you can move to the completed contract, you know that you're pushing it clear to the end and that you don't have bumps in the road between your year one and year two recognition maybe than you originally anticipated. So I think this is going to be a really good benefit to a lot of contractors out there who do big projects for multi-housing units. And then one of the last things I want to talk about is estate and gift tax exemption increases. While you might not be thinking about it right now, eventually everybody retires and starts planning for their estate and their future. So in 2026, the estate and gift tax exemption was made permanent and increases to $15 million per person and then its index for inflation.

So it'll continue to go up a little bit every year. 2025 was 13.99 and if it would've been allowed to sunset, it would've been moved down to about $7 million. So it would've been cut in half, which would've been staggering for a lot of people who are retiring, I mean who are passing in those years because the top marginal estate gift taxed remains at 40%. So that's a big chunk. The step up basis, the date of passing still remains int tax, which is a big benefit. So that means that passing something on in your will is much more advantageous than gifting it to somebody prior to your passing if it's an appreciable piece of property. So real estate stock, those are the top two things that I see. So if you're going to gift cash, gift cash whenever cash is cash, but if you've got a large investment portfolio that you plan on passing down to the next generation, a business and beach houses, real estate, all those things that have appreciated value, and you are going to pass those down to the next generation, start working with an estate tax attorney and your personal tax advisor and start talking about the differences between passing those in a will versus gifting them now because there's a huge tax benefit and a step up in basis on those, especially if there's something that's been held for a long period of time.

So it can change a lot of what we do with our clients now that we have a much larger estate and gift tax exemption. Previously, we filed many non-taxable estate tax returns for what we call portability. That means that if one spouse passes away, then whatever was left in their estate can be passed on to their spouse. So just as an example, so let's say we have a $10 million estate right now, the exemption is at $15 million, that person passes away in 2026, that leftover 5 million then goes on to their spouse. So if their spouse passes away in the future and the limit is 15 million, they get their 15 plus the five that's left over. So when you've got non-taxable estates, if they're under that 15 million limit, which means you literally don't have to file anything, but if you've got a spouse, a surviving spouse, it really is a good idea to file for portability so that that spouse can take advantage of those leftovers.

But you may have a lot of clients now who are pushing back saying, that's a big number. We're never going to get there jointly to the 30 million in essence for married couple. So we're not going to go ahead and file that 7 0 6 in the year of passing because we're just not going to have an estate that big. If you had a state limitation went down to 7 million, you're going to have a lot more filers that have estate taxes and a lot less that actually have leftovers for portability for their spouses. Keep in mind that any new administration can mean new tax law and provisions can be changed. So this is what we have right now, and when you tax plan, you have to live under what you've got right now. We can't guess what's going to happen in the future, but as of one other thing to keep in mind, on top of the estate taxes are inheritance taxes and those are state driven.

So there are still some states that have estate taxes, Connecticut, dc, Hawaii, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Then there are also states that have an inheritance tax on top of that, Iowa, Kentucky, Nebraska, Jersey and pa. And then there are some states that have both inheritance and estates, and that would be just Maryland at this point. So there are definitely things to keep in mind as you start estate planning where you're going to have a residence at. Let's say you're a snowbird and you live in Maryland right now and you've got a place in Florida, well, it really probably makes sense for you to become a resident of Florida. So make sure that you're dotting all your I'S and crossing all your T's to become a Florida resident. You're not going to escape all of the tax because if you've got Maryland property, you're probably still going to be subject to inheritance tax and estate tax on those. But it's definitely something to help think about as you go forward, what you're going to do with your estate, and start thinking about some planning around these new provisions for the larger estate.

So now we have our, I think this is our fourth and last polling question.

Julie Dillon:Give everyone start to roll in.
And time is up for a polling question. Majority got all of the above, which is right answer. It looks like we're having some issues with polling questions, so you might want to reach out to at least the one person in the chat who's having some issues.

I actually have one more slide to talk about. It doesn't look like it made in the presentation. So with all these discussion points that Ralph and I brought up for OBBB, what do we do now? So now I think you need to probably spend some time evaluating your accounting methods. There's always an opportunity to look at one of the many methods of accounting for long-term contracts. So percentage completion versus completed contract are the two that are probably the most prevalent. And also start looking at your client base. If you have a lot of the multi-unit housing projects going on, you'll want to examine the opportunity to be able to move to completed contract on those versus percentage completion.

Model the interest expense limitation, consider restructuring your debt or your operations to preserve that deductibility. Update your budgeting and tax liability planning. Consider the permanent a hundred percent bonus depreciation and the expanded section 1 79 expensing. Review your structure and PTET opportunities if you're not a flow through, if you're a C corp right now, are there multiple reasons to make the decision to move to an S corp and take advantage of that PTET on top of other benefits for the S corp. Assess your eligibility for r and d. So if you've got some of those activities out there, designing testing, if you've got engineers on your staff, then you probably should start looking at are there r and d out there that is an opportunity for you that you're not taking advantage of? And then revisit your succession and ownership transition plans. How soon are you planning to retire? What's your exit look like? Start thinking about the estate and gift tax, the fact that it's made, the exemption is now made permanent and it's going to grow every year. Do you need to start thinking about if your company as you exit, is that going to be bigger than the 15 million or index for inflation? What that'll be for that year?

I think that's it for us today. We did have a couple of questions in the chat. I think we answered most of them, but if you've got one, please feel free to go ahead and put it in the chat. And if we don't get to it today, then we'll get to it after the presentation and get back with you. Let's see what we have in here. One is the salt tax cap. Does it have an expiration date? No, that's made permanent, but hold on. Let's see. Yeah, it's made permanent, but keep in mind that that can always change with new administration. See if there's anything else in here. Okay, I think that's it unless you have any other words of wisdom, Ralph?

Ralph Este:If anyone has any questions about the presentation, by all means you can send us an email. Thanks

Julie Dillon:So much everybody, appreciate your time today. Always a pleasure. And feel free to reach out to Ralph and I. If you have any questions in the future, our contact info is in the presentation. Have a great day.

^{Transcribed by Rev.com AI.}