Taxes After The One Big Beautiful Bill (podcast)

00:34
Eric Meermann is a senior vice president here at Palisades Hudson, responsible for firmwide professional development, as well as supervising the Stamford, Connecticut office, where he's based. Eric also works directly with clients across the country, offering tax planning and preparation along with many other services. Welcome back to the podcast, Eric. It's always great to have you on.

Eric Meermann
Thanks for having me. Glad to be back.

Amy Laburda
So we touched on the One Big Beautiful Bill Act, or what our colleague Paul Jacobs called “the triple B,” in our premiere episode of the season.

01:02
And you also wrote about it for our firm’s Sentinel newsletter last year. When this episode airs, the law will have been in place for about eight months, give or take, but it still feels like a lot of people are struggling to really get their arms around exactly what this bill entails. Now, a lot of it doesn't have to do with taxes at all, and we're going to leave that a little bit alone. But I read back in December that Senator Tommy Tuberville of Alabama said straight out [that]

01:29
most people don't really understand what's in this law, which is a little wild at this point. So I just wanted to check in with you before we dove in: Why do you think there's been so much confusion around it?

Eric Meermann
Well, I think there's a bunch of reasons, one of which is … I know you're a big news follower. Have you seen the news for the last six months?

Amy Laburda
Fair enough.

Eric Meermann
This was big news for the couple of weeks while it passed, and everyone was debating back and forth the merits and who it’s going to benefit, who it's going to hurt.

01:58
The news cycle moves very quick, and in our bifurcated news media ecosystem that we live in you're either on one side or the other. And you're generally stuck in that bubble. And so if you're on one side, you're hearing, oh, this is just a big give to the rich. And maybe there's some truth to that. If you're on the other side, this is going to skyrocket the economy into the future, and America is going to be better than it ever was. And there could be some truth to that, too. But once those political talking points go away, and

02:27
wars, natural disasters, crazy things being said by all kinds of different politicians, you know, hint hint. The news cycle moves so rapidly that this just got lost. You know, this is like, what, 50, 60 news stories ago. And that's, you know, I think that's a major reason why it sort of dropped off the radar for people.

02:50
The other part is, people don't even start thinking about taxes until February, or really March, and hopefully not April, especially as a tax preparer. I hope people are not waiting until April to start thinking about this. But in our practice, we find that people really don't care or start thinking about taxation until they actually have to do their tax returns. I think a lot of people are going to start thinking about this quite soon. We're taping here in early January.

03:18
So by the time this airs, we'll be getting into a time when people really want to be focused on this type of stuff.

Amy Laburda
Yeah, July 4, when it passed: not traditionally a time I think about my tax returns, and I imagine that's true for a lot of people.

Eric Meermann
Yeah, yeah, totally.

Amy Laburda
So I think listeners who follow the news, if they can stretch back 50 stories ago to when this law was being debated, know that tips and overtime were two of the big, headline wishlist items the administration had campaigned on,

03:47
and that they really wanted to get into this bill. So maybe let's start there. I think many people heard that they made it into the One Big Beautiful Bill Act, but exactly how did they make it in? What are the details of the final version that made it into law?

Eric Meermann
Sure. Yeah. They did make it, in different forms. There was a big political push, as we heard about from the Trump administration, to cut tax on tips and overtime. We'll take them separately.

04:13
For tips, taxpayers for the next four years, ’25 to ’28, you will be able to deduct up to $25,000 of tips from taxable income. So you have to think about: Who gets tips? What is a tip? There was some debate as the bill was getting crafted as to whether… Well I, personally, I'm a financial planner and part of my compensation is a bonus. Could we call that a tip? Could Larry Elkin, my boss, give me a “tip” for all of the good financial planning, wealth management,

04:43
and tax prep I did? Well, that's all been cleared up now. The Treasury Department has issued a list of about 68 professions, and they're what you would expect: people who would traditionally get tips. Waiters, bartenders, cab drivers, those types of occupations. So, if you receive tips, you can deduct, as I said, up to $25,000. And that's $25,000 whether you're married or single. As we go through this podcast,

05:10
I'm going to be talking mostly about the single [filer] numbers. And in most cases, the married number will just be double, for married filing jointly filers. For married filing separately, it's often equal to the single. But for ease of listenership, I think we'll just stick to the single numbers. But I can highlight when something is unusual. This one is a bit unusual, in that it's $25,000 of tips per tax return.

05:41
So if you have two waiters [who] are married, you can only get the one deduction.

Amy Laburda
And you mentioned ’25 through ’28. Is it correct that this is retroactive for last year?

Eric Meermann
Correct. Yeah. For 2025 through 2028. Now again, taxes being such a political football, that can certainly change between now and then, although I don't think it will. Who's to say? But oftentimes, Congress doesn't take up new tax legislation until

06:09
the minute before, or sometimes the minute after, provisions expire. So until late 2028, 2029, we probably won't get much guidance on if this is going to stick around permanently or not.

Amy Laburda
So that's kind of the overview with tips. What about overtime? How's that the same and how's it different?

Eric Meermann
Overtime is similar. It's … For a single person, $12,500 of their overtime income can get excluded.

06:38
Now, there's a limitation on this, which is taxpayers making over $150,000 phase out. A phase-out is where you don't just eliminate as soon as you go over, $1 over $150,000, but rather it phases down percentage-wise, up to a certain number. And all of these phase-outs are different. So, if you're below $150,000, you can do the full $12,500. If you're above that, there's a somewhat complex calculation to figure out,

07:07
you know, how much of it is phased out.

Amy Laburda
Makes sense. So I know that tips are already broken out when you get your paperwork from your employer. How are you going to know how much overtime qualifies for this deduction?

Eric Meermann
Well, that's going to be really interesting to see, because this is, you know … As a tax preparer, my first season going into preparation season post-One Big Beautiful Bill. So I haven't seen what it's going to look like yet. But the idea is it puts a really huge recordkeeping

07:35
requirement on payroll departments and managers, to isolate exactly how much of the time on their employees' time sheets is attributable to a standard salaried, typically 40 hours a week. And anything over that would be overtime. And it's going to break it out on the W-2. But Congress has said that employers can use any quote-unquote reasonable method

08:00
to approximate income for 2025. Since we're halfway … we're already into tax season. You're just going to do the best you can.

Amy Laburda
They were halfway through when this bill passed. So it was like, surprise, it's July. Now you've got to work this out.

Eric Meermann
Another thing we should think about with both the tips and the overtime is that that doesn't apply at the state level or the local level, if you live in New York City. Those state taxes still apply.

Amy Laburda 08:25
As someone who pays New York City taxes, I can tell you they apply really hard sometimes. Other than the income phase-out, are there any other restrictions on the kind of overtime that are available? I know you talked about with tips that only certain professions could get it. Were there any other restrictions in play with overtime?

Eric Meermann
Yes, actually. The deduction only applies to overtime required by the Fair Labor Standards Act. So this is not [applying to] things that are stipulated by, say, union contracts, collective bargaining, state law. This is

08:54
your traditional overtime, where you get paid time and a half.

Amy Laburda
OK. So shifting gears a little bit, I want to talk about another part of this law that was in the news a lot, which is Social Security. I know people in my life have brought it up. I'm sure even more people have brought it up with you, considering what you do for a living. But it seems like there was some sometimes badly worded, sometimes straight-up misinformation floating around about how this law impacts Social Security taxation. So let's set the record straight.

09:23
Does this law affect Social Security?

Eric Meermann
It certainly does affect Social Security indirectly. But let's just be clear. There is still tax on Social Security. You know, we've often heard in the political sphere that, you know, we're exempting Social Security. No tax on Social Security. No tax on Social Security. No, that's not true. There is still tax on Social Security income. But what this new deduction for older adults does is, it gives $6,000 per person over 65

09:52
added to their deductions. So for a married couple, it would be twice that. This is on top of the standard deduction that most taxpayers take. And it also stacks with the additional standard deduction that's already in the tax code for those over 65. So that's $2,000 for a single person. It's sort of a stacking … You get the standard deduction, then you get $2,000 for being over 65 under the old law, and then you get this additional $6,000. So in practice,

10:22
for people on a very fixed income [who] receive most of their income from Social Security, the way that calculation works is super complicated. But this will actually wipe out tax indirectly for people that are living solely off of Social Security. It's true that it could make people in that situation pay no tax, but theoretically, the tax is still applicable to Social Security income.

Amy Laburda 10:49
Sure. So other than your age, are there any requirements for this new deduction, any phase-outs as we discussed with tips and overtime?

Eric Meermann
Yes, this deduction phases out at a 6% rate for individuals over $75,000.

Amy Laburda
And also not a phase-out exactly, but I understand that seniors who are married but filing separately aren't eligible for this at all. Is that correct?

Eric Meermann
Correct, yes.

Amy Laburda
OK. And does it also have a built-in sunset date, like the other provisions we've discussed?

Eric Meermann 11:17
It will sunset after 2028, just like the tips and the overtime.

Amy Laburda
Yeah. As we mentioned, unless Congress decides to do something about it, as they did with this one. As we'll talk about. And actually, as I'm about to dive into now, a lot of the things in this bill were responding to a law that was passed in 2017, the Tax Cuts and Jobs Act. So while we're here, looking backwards to 2017, I remember that at the time, our company in the newsletter discussed a lot about

11:46
the SALT cap, or the state and local taxes. So how does the One Big Beautiful Bill Act change that rule? And can you just sort of touch on how it's going to affect people going forward?

Eric Meermann
Sure. Yeah. This is a big one for people that live, like myself, in New York or California: high income tax states, where you pay a lot of state and local tax. So, SALT is “state and local tax.” And people get confused about, well what's the SALT? It's not just the

12:12
property tax. A lot of people think property tax that they pay, which, you know, where I live in Westchester County [New York] could well be over the former $10,000-a-year cap. It's also … the sum of that plus your other state taxes paid, most notably income tax. So under the pre-TCJA, you would have a situation where very wealthy people would be taking a state income tax deduction for hundreds of thousands of dollars, although that would get cured by the AMT, which we might get into a little later.

Amy Laburda 12:41
OK. So what's changing going forward?

Eric Meermann
So yeah, the big change is that it's going from $10,000 to $40,000. So, that's a pretty big change for someone, a high-income person or someone that lives in a very high property tax area, or both. You may be paying, between state and property tax, $100,000. You used to only get to deduct $10[,000] of it. Now, you get to deduct $40[,000]. So, for instance, it's a $30,000 difference. Say you were in

13:10
the 32% tax bracket. That would be a $9,600 difference in tax paid.

Amy Laburda
Are there any new restrictions on this change, or is it across the board?

Eric Meermann
Yes, there are. There's … As with so many other things, there's a phase-out here as well. And for modified adjusted gross income, once you get over $500,000, it starts to phase out up to $600,000.

Amy Laburda
So we have a phase-out. Do we also have an expiration date for this one?

Eric Meermann 13:39
Yes, this one's the same as the others.

Amy Laburda
OK. I promise the answer will eventually be different, which is why I keep asking it. But I just wanted to be clear.

Eric Meermann
Yeah, no, it's very important that people realize that some of the cool stuff, like … I like the SALT cap, living in Westchester County. I'm, like, super excited about this one.

Amy Laburda
Sure.

Eric Meermann
It's not forever. You know, and prepping for this podcast I reminded myself of that and I was like, oh, bummer.

Amy Laburda
Yeah, yeah. So while we're here talking about sunset dates,

14:04
we wrote in the newsletter article last summer that a lot of provisions from the Tax Cuts and Jobs Act of 2017 were set to end at the end of 2025, of last year. So can you give listeners a quick rundown of some of the things that the One Big Beautiful Bill saved from going away?

Eric Meermann
Yeah, sure. You know, the Tax Cuts and Jobs Act from 2017, that was a huge bill as well. So we're not going to be able to go through all of the provisions. There was a lot.

14:34
But some of the main ones are the income tax rates and the brackets. They're lower rates and lower brackets. So the old top rate was 39.6%. The new top rate is 37%. And the other, lower ones, they're all lower as well. As well as … the brackets are wider and more inflated. So that benefits pretty much everybody. Bigger brackets and lower rates help lower everyone's taxes. Also, the much larger standard deduction

15:02
is roughly double what it used to be pre-2017. That's sticking around. These are now permanent changes. So … As permanent as tax changes could be: the rates, the brackets, the standard deduction, the way all that works. That's sticking the same on a go-forward basis.

Amy Laburda
So with “permanent,” basically what we mean is Congress has to proactively change them, instead of Congress has to proactively save them from disappearing.

Eric Meermann 15:30
Yeah. Yeah, that's right. I mean, I've been working here, what, 20, almost 26 years, and the number of “permanent” tax changes … I can't even count how many “permanent” tax changes have changed in the course of my career. One of the other things that's staying pretty much the same is alternative minimum tax, or AMT, which I had referenced earlier. The AMT is like a parallel tax system that's running when you do a tax return. You have all the regular rules and regulations of taxes,

15:59
and then there's almost like a parallel tax being computed next to it. And that is the alternative minimum tax. And what that does is, for people that used to take huge deductions for things like investment management expenses or unrestricted state and local tax, they would generally be very wealthy people. And so the alternative minimum tax was an attempt to add back in all of those deductions that very wealthy people take, so that

16:28
they don't completely escape taxation. What the Tax Cuts and Jobs Act did, and the One Big Beautiful Bill has reinforced and made permanent, is a much larger exemption for AMT that makes the percentage of people, even the wealthy, that hit it much, much, much lower. And I've noticed this in our practice. AMT, and teaching all our staff about it, and trainings about AMT, [were] a huge part of what we do here for our clients.

16:58
After the Tax Cuts and Jobs Act, it was rare to see our average client hit the AMT.

Amy Laburda
So we've got income tax brackets, we've got AMT rules. Anything else that is now preserved or made permanent that was originally in the TCJA?

Eric Meermann
Yeah, another interesting one was the mortgage interest deduction. So that went down from what was a larger number of $1 million. It's now $750,000 of mortgage debt principal that you can

17:26
take the mortgage interest deduction on.

Amy Laburda
And I know we spent a lot of time talking about qualified business income or QBI back when the other law first passed back in 2017. I'm going to put a pin slightly in that, that we might circle back to it later in more detail. But my understanding is that [provision] is now also permanent. Is that true?

Eric Meermann
Yeah, that's right. The qualified business income deduction. What that is is people that run self-employed businesses or operate in a pass-through entity,

17:56
they can basically take a deduction for income that flows through from, say, partnerships or self-employed income on their Schedule C, which is usually, like, a sole proprietor or a single-member LLC [limited liability company]. You get a deduction for 20% of that net income. That's a very broad simplification of what it is. And that sticks around.

Amy Laburda 18:20
OK. And while we're here, we’ve got to visit our friend, the estate and gift tax, which I know is a big part of our practice here at Palisades Hudson. What's the lay of the land, post One Big Beautiful Bill Act, there?

Eric Meermann
Yeah. So estate and gift tax has been a huge part of our practice over time. But it's actually becoming less and less important, because the exemption is so huge. Right now, it's $15 million per person. So for a married couple, $30 million. You have to have

18:48
significant wealth to be super concerned about that. Portability, which is the portability of that exemption. So for example, if your spouse dies, you can port the missing … whatever they haven't used of their exemption. So say they have $5 million left, you can port that over to your $15 million, and now you have $20 [million]. That sticks around. So that makes you able to shelter a lot more wealth from the estate tax.

19:15
I'd actually encourage everyone to listen to Dave Walters, my colleague's, episode of “Something Personal,” where he really digs into estate planning.

Amy Laburda
Yeah, I'll link that in the show notes if you're curious about how that tax works and sort of the nuts and bolts a little bit. I think it's actually a really interesting episode, if I do say so myself. While we're here, sort of speed running through a lot of these provisions, I thought: Let's take a stopover for some of the things that affect parents and families specifically. It seems like there were quite a few in this law.

19:44
What's different, to start us off, about the Child Tax Credit now?

Eric Meermann
So it's pretty similar. It goes up to $2,200 per child from $2,000, and that's indexed for inflation. So as inflation goes up, $2,200, when it hits the next hundred, will go up. The other part of that is the extra $200 of it is a nonrefundable credit, versus a refundable credit.

Amy Laburda
OK. And I know the 2017 law made some changes to 529 savings plans, which are

20:12
used to save for educational expenses. Have there been any further changes to that [that] people should know about?

Eric Meermann
Yeah. A new development with the 529s is that you can, under the TCJA or Tax Cuts and Jobs Act back in 2017, you could include up to $10,000 for elementary and secondary school tuition, high school. College 529 plans were always about that, college, but now that you can include so much more, like, elementary school, and they've also broadened, again, the

20:40
type of educational supplies. There's a whole list you can look at online. And the limit has been expanded to $20,000 per year for the elementary and secondary schools.

Amy Laburda
So it sounds like it's just building in a lot more flexibility, kind of across the board, for those.

Eric Meermann
Right. There's even training for workforce, on-the-job training, continuing ed, that you could use a 529 for that too.

Amy Laburda
Nice. All right. Well, speaking of prior episodes of our podcast, as we were a moment ago:

21:06
Earlier this season, I was talking with our colleague Ben Sullivan in an episode about nonprofits, and he mentioned some of the many changes to tax treatment for charitable giving that the One Big Beautiful Bill Act put in place. So for people who either haven't heard that episode, which I will also link in case you're interested, or people who could just use a refresher, what are the changes coming to charitable donations on the tax front?

Eric Meermann
Yeah, the big one there is the above … what we call [an] above-the-line deduction available

21:35
even if you don't itemize your deductions, for contributions up to $1,000 — again, that's for a single [taxpayer], double for married filing joint. They have to be cash. They can't be tangible items, or furniture, shirts, or shares of stock or anything like that. They have to be cash gifts. And they must go directly to an eligible nonprofit. For example, contributions to private foundations, donor-advised funds, that's not... It has to be cashed to a charity, to put it simply.

22:04
But it's an above-the-line deduction, which …. for people that don't itemize, they take the standard deduction. Especially if they were elderly, we were talking about the senior deduction before, you could stack another $1,000 on that in cash [gifts to] charity.

Amy Laburda
Yeah and it sounds like since the standard deduction has gotten so much larger than it used to be, you’re going to have a lot fewer people itemizing than you used to.

Eric Meermann
Yeah. That’s absolutely right.

Amy Laburda
So while we’re

22:28
quickly running through a lot of the deductions, another one that was publicized a fair amount was a new deduction for auto loan interest. What's that involve, and how do people qualify for that one?

Eric Meermann
Yeah, so that's for 2025. You can take a deduction for up to $10,000 of car loan interest. But there's a few catches. The vehicle must be assembled in the United States. So, you know, the old concept of “buy American” revived here, but really hard to figure out because…

22:57
You know, Japanese carmaker Toyota. They have plants in the U.S. So the dealer will obviously love to promote this as they're selling their new car. They're going to figure out a lot of this process for you, the same way that electric vehicle sellers and dealers were promoting the old electric vehicle credit, which expired in September of last year. Car dealers are going to figure out which products are assembled and qualify for that. And they’ll

23:26
probably have their financing arm be happy to give you a loan, on which you can deduct the interest on. And again, here, there's a phase-out. So once you're over $100,000 for a single person, you're going to reach the phase-out, which, you know, again, is a mathematical percentage computation.

Amy Laburda
Yeah I think we say on this podcast all the time, there's no one-size-fits-all answer for anything. But I feel like today we're really … we're really diving into there is no one-size-fits-all for

23:54
any of this stuff, depending on your circumstances.

Eric Meermann
Yeah, each one's different. And I'll add: This one is another one that expires. This is one of the 2028 group.

Amy Laburda
Gotcha. So, Eric, we've kind of done a speed run through a lot of the most commonly applicable stuff. And I appreciate you for coming with me on that walk. And I hope it was helpful for our listeners. But let's kind of zoom out for a little bit. You're a tax professional. As we're talking, as you said, it's early January. This is going to air during sort of the thick

24:23
of spring tax season. Are you expecting any particular experience as you deal with a tax season with all these new rules in play? Or are there any particular changes that you're expecting to have to navigate that are going to be a little more challenging than others?

Eric Meermann
Yeah, I think it's going to be a really interesting tax season. One of the big things that people probably haven't thought about is, especially, well, specifically for working people, you have a job, you get a W-2, you receive your

24:52
weekly or biweekly paycheck and it has withholding on it, right? And that withholding is remitted to the government on your behalf. And then, what you're doing with your tax return is adding up all the items of income deduction, computing a tax, and then comparing it to what you've paid in. So for a lot of working people, all they've paid in is just whatever their withholding was. A lot of this we've talked about is new deductions, new tax cuts, lower tax rates, bigger brackets. And so what that does is create

25:21
a lower tax. But no one changed their withholding. So what a lot of people are expecting is that people are going to be pleasantly surprised in April when they get their refund, that it's going be a lot bigger than you thought. For example, that person we were talking about before that was subject to the old SALT cap of $10,000. You know, in that example, that refund is going to be almost $10,000. If you had your withholding set to be like, oh, I owe a couple hundred bucks, all of a sudden you're getting a $10,000 refund.

25:51
And what's interesting about that is it's an interest-free loan for the government when you get a big refund. I always tell clients that you certainly don't want to underpay your tax. Never do that. But you don't want to overpay by a whole heck of a lot, because you're giving a loan to the government, you know, starting with your first paycheck in January, and you're not getting that refund until April of the following year. So, you know, you're not getting paid any interest on that. You can take that and invest it in a money market fund that yields 3%.

Amy Laburda 26:20
Yeah, I think it's emotionally really fun to get that big check and be like, ah, time to do something fun. But actually what you're saying is it was your money in the first place. It's not like you're getting new money. It's money that you've lent the government without interest for however many months.

Eric Meermann
Right. Like you see a lot of commercials on TV around tax season. Oh, you'll get your refund this much quicker with our software or our service provider, or we will give you an interest free loan against your refund.

26:51
That's preying on people's psychological idea that it's like a bonus, but it's not a bonus. It's something that they've created themselves by paying in too much withholding tax against their pay every year. So what I would encourage people to do … Now some people like that. It's a personal choice. It's a forced savings for them. If their paycheck was what it was, some people live paycheck to paycheck. So it's going to be, if it's a hundred dollars more or a hundred dollars less, they're going to spend all of it no matter what. And so this is a way for them to be forced to then

27:20
get a big bonus that they might not otherwise get. But if you're not in that situation, where if you're a net saver of your money and you're more concerned about maximizing your wealth, what you might want to do is readjust your withholding on Form W-4, which you provide to your employer, and reduce the amount that you're taking out every paycheck, so that you're not creating this big, big refund in April.

Amy Laburda 27:46
And I imagine that that surprise big refund this particular year may end up happening to freelancers too, if they were basing their estimates on a tax return they prepared before this law passed last summer.

Eric Meermann
Yeah, that's right. If they were paying in quarterly estimated payments, where … You know, we were talking about wage earners. They typically don't have to worry about how much they're paying in, because your employer is doing it for you. But self-employed individuals have to write a check or, I'm dating myself, pay online through

28:15
ACH debit, their taxes every quarter. And those people may have been basing their tax projections — or their preparers would have been basing their tax projections — off of some version of the prior year and not taken into account all the changes from the “triple B.”

Amy Laburda
Yeah. So is it similarly sort of … I hesitate to use the word “chaotic,” because I know you and our coworkers are very regimented.

28:43
But is there always a little extra pressure the tax season after one of these big, omnibus bills passes? Or does this one have any particularly, you know, specific features that make it more interesting or more stressful for you?

Eric Meermann
Yeah, certainly. The big stress is going to be: Does our tax software appropriately account for all of these changes?

29:05
We do our best to try to know all this stuff off the top of our heads, but I'll be honest, I'm looking up some of this stuff as we're talking about it, because your tax preparer doesn't know every single number off the top of their head, because they change every year. They’re inflation-adjusted, some are phased out, some sunset. It's hard to remember everything. And the truth of the tax industry is we're relying on that tax software pretty significantly to be able to compute a lot of the

29:32
finer points of these phase-outs, deductions, and how they interact with one another, itemized deductions, or limitations on deductions.

Amy Laburda
Yeah. So I know we've talked a lot about the specifics of different people's situations, landing them in different places with phase-outs and a lot of the particulars of these changes. But other than looking at withholding, is there any sort of broad-based advice you'd have for people as they navigate

30:01
not only this year's tax return, but their tax planning for the next few years ahead?

Eric Meermann
Yeah. I think it's important to stay in contact with your tax preparer throughout the year. A lot of times people, you know, they get their tax return done, it's done, that's it, I don't think about it again. But as circumstances change, you want to keep your accountant or wealth manager, personal financial planner, you want to keep that dialogue going so that we can find planning opportunities that come up

30:30
as life circumstances change.

Amy Laburda
So when someone is preparing to work with their tax preparer, especially in a year like this one where there was just a big law change, are there any particular things that they should do to help set tax professionals like you up for success and to really have the time to dive into this new information?

Eric Meermann
Yeah, absolutely. Tax data collection for tax preparers has become more and more difficult year by year. In the old days, people would get everything in the mail, right? And we used to joke, you know,

30:59
you get everything in a shoebox. And they would just put the pile of envelopes in the shoebox and they'd mail it to us, and we'd open up all the envelopes and find the W-2s and the 1099s and the K-1s, and we'd have someone sort them and photocopy them. That sounds super old-school, but there was a great part of that in that: In that shoebox was 99 % of everything you would need to do a tax return. And it wasn't on the client so much to organize and

31:27
collate that data. Now, some clients were very, very detail-oriented people. Think your engineers. Those types of people will fill out our organizer in complete detail. They'll almost do the whole thing for you. Fantastic. We love that. And then you have the shoebox people. In this day and age, everything comes via an email saying your 1099 from your mortgage interest is available. Your 1098 from your mortgage interest deduction is available.

31:56
Your K-1, you might not even think about it, because you don't get it until September. So we've tried to put together organizers, checklists, repeated follow-ups. The best thing anyone can do is take an active participation in their tax preparation by knowing and organizing their financial life of what they have, what they did. Did you buy a car? In previous years, that didn't matter.

32:22
But now, with the new auto deduction, if you're not subject to the limitation, we're going to need that interest deduction. And I would like to find that out with all the data at the same time. Not as I go to file the tax return, “Oh yeah, I heard about this auto thing. I bought a car. So I paid $5,000 in interest last year.” That would be super helpful.

Amy Laburda
Yeah, I mean, I can say as a person whose situation is nowhere near as complex as many of our clients’ are,

32:50
but I often use the previous year to be like, OK, I need to remember this form, this form, this form. And when there's a big change like this, as you say, things that didn't matter may suddenly matter. Things that used to matter may not, if you used to itemize and now you're taking the standard deduction. So I imagine that the change can sort of hit both sides, both the professional and the preparing before you get to your professional. So having a greater timeline seems like it'd be helpful on both ends to me.

Eric Meermann 33:17
Yeah. And doing all this stuff earlier, as I mentioned before, starting in February into early March would be great, not, you know, April 10th. This year is going to be a hard one. It's going to be a hard one for every citizen that pays taxes to compile all their data and understand it. And it's going to be harder for preparers, because there's all these new rules that need to be incorporated into their returns.

Amy Laburda 33:42
Do you expect you're going to see more people extending their tax returns this year in order to have more time to sort of navigate all of this?

Eric Meermann
Maybe. That's a good question. Usually, it's a known thing that we extend for. I mentioned Schedule K-1, you know, it's a technical thing. But if you're an investor in a partnership, not a mutual fund or a stock or something, but you have a private partnership, those issue what's called a Schedule K-1 that reports the items of income and deduction to you. Those are due

34:11
by September 15 for their extended deadline. And a lot of those types of private equity or hedge fund investments get extended. And you don't get them until late August, early September. So those are, like, known issues and we know, OK, we're not getting this Schedule K-1 from such and such private equity fund until August. So we're going to have to make an estimate. This year, it could be interesting to see, because there's more information to compile

34:39
at the client level and more for us to synthesize at the preparer level, if we end up taking some of that and saying, you know what, we have a good estimate of what you owe — because an extension, as a reminder, it's an extension of time to file the tax return. It is not an extension of time to pay the tax. So you have to come up with a really good estimate of what you owe and probably be a little conservative. Pay a little bit too much. Not way too much, you know about the interest-free loan thing. But pay a little bit over in case you forgot some income.

35:08
But yeah, I think maybe you're right. We could end up seeing some more extensions just due to the collection, but we'd still have to have a really good idea of what that liability is by April 15, no matter what.

Amy Laburda
OK. So regular listeners know that I always like to end an episode by handing it back to my guest. So we've covered a lot of ground here today. The law itself is hundreds of pages, so there's a million things we didn't even touch on.

35:33
But was there anything that you wanted to talk about that we haven't talked about today, or just any sort of closing thoughts about tax preparation this year that you'd like to leave our listeners with?

Eric Meermann
Yeah, I think we did a good, comprehensive review. And I think our listeners will hear that this is all really complicated, and there's a lot to think about, there's a lot to do. So, you know, some people can handle it on their own, especially a situation… Some things are simpler. If you just have a W-2 job, you have the standard deduction, that's pretty easy. You don't need a lot of sophisticated help

36:03
with that. But if you have a complicated situation, like you have private equity, hedge funds, you have maybe international investments, things with foreign tax paid, rental properties, you have stuff like that, there is a lot that needs to be known. And so I would recommend consulting a tax adviser like Palisades Hudson.

Amy Laburda
Thanks, Eric. I really appreciate you sitting down with me today and sort of untangling this hefty piece of legislation together, at least from a tax perspective.

36:32
I hope our listeners found it illuminating, and it's always great to talk to you.

Eric Meermann
Yeah, great to be here. Thanks, Amy.

Amy Laburda 36:40
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta; Austin; the Portland, Oregon metropolitan area; and the New York City metro area. “Something Personal” is hosted by me:

36:58
Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor and mixer. If you enjoyed this podcast, please take a moment to rate and review us wherever you're listening. It's a simple way to help new listeners find the show, and we really do appreciate it. Thank you.