TRANSCRIPT
Hello everyone. Welcome to another episode of the sense of things. And this week,
a second episode of the sense of things because we had so much stuff to talk about. It was just
a bit of a crazy week. Hang on just a second. This show we’re going to focus on the one big beautiful
bill act for business. Now, last week’s show we covered some of the effects for individuals and
what it means to you. This week we’re going to focus on what it means for business and I’m going
to run this show this week. So stay tuned. We’ll be right back on in just one second.
Hey everybody, welcome to the show. Ron, how you doing bud? Good morning. Good morning.
I’m excited to hear what you have to say about the one big beautiful bill because
I know we could keep analyzing it. What do you got? Yeah. I And honestly, I’m going to have to
keep analyzing and analyzing it because as I even went through this very high level version of it,
I realized, wow, there’s a whole lot of little things that I need to focus
on in here. And there were some things in this that I didn’t even remotely know that
had been in existence before. And I’ve been doing this a long time. Let’s get started.
quite a bit of information that we’re going to cover. Let me jump on here real quick and
okay, you should see that, correct? Yes. All right. Okay. So, I really wanted to focus this
bill everything from mom and pop small business all the way up to big massive businesses. There’s
something in it for everyone in this. But what I wanted to do is really focus a little bit more
on small and mid-size businesses because that’s likely who’s listening to us. If you run a big
business, that’s great and a lot of this will apply to you. But I, like I said, for the vast
majority of businesses out there, we’re all small and mid-size businesses and we have an
understanding of what it means. So, a couple of things. A lot of this bill made permanent
the things that were in the TCJC of 2018. So the original tax cuts and jobs act was fantastic. It’s
really helped our economy over the last eight years. But basically all that was set to sunset
at the end of this year. So with the Congress doing all this stuff, it made all of this stuff
permanent. One of the big ones is 20% qualified business income deduction for pass through. So
SC corps, partnerships, sle proprietorships, your business income deduction is 20% which
is fantastic. And then that is permanent. So it’s a planning thing that you know. U the other piece
of it section 179. So section 179 just basically says if you put things into play in your business,
especially with equipment heavy businesses. So let’s say you run a earth moving business and
you have to buy tractors and back hose and things like that. It basically doubles the
ability to expense those right away out of the gate. So it’s a massive boost to cash flow for
a lot of these businesses. However, and we’ll talk about this on a slide a little bit down the road,
it does phase out at $4 million and it can go away after a period of time. So,
something that we’re going to want to keep an eye on. This, I think, is probably one of the coolest
and most interesting parts of this bill. There’s accelerated asset and R&D deductions. So, here’s
the cool what I consider the coolest part. It’s section 7301 of the bill. 100% bonus depreciation,
immediate write off for new and used equipment placed into service after January 19th, 2025.
There’s no phase down. It’s fully permanent. So, your business can deduct 100% of eligible asset
costs in year one. Here’s the cool part about this. If you’re building a factory, you can 100%
deduct that in the first year. Now, I don’t know if I would do that from a real estate perspective.
I’d probably depreciate the factory out, but all the stuff inside of it, but literally a business
can do that. So, what does that mean? That means a huge opportunity for people that are putting into
place a production. This has to be a production facility. So, it can’t be like an office building.
It has to be some kind of production facility. office buildings that are part of that produ
production facility and R&D that’s part of that facility can be 100% bonus depreciated. The other
thing is domestic R&D costs are now expensed immediately versus advertised. This is going
to be huge for trying to onshore back the a lot of the pharmaceutical stuff and things like that.
A lot of the reason these companies took stuff offshore, one, it was cheaper, but two,
they had this accelerated depreciation on a lot of this stuff or accelerated amortization on a lot of
this stuff on their R&D cost. So, that is amazing. It’s retroactive back to 2022. So, a lot of really
cool stuff. And this can go all the way down to small businesses. If you’re putting into place
software to make your business better, that can be considered R&D expenses and things like that. So,
a lot of work. You’re going to need to work with your tax advisor on a lot of this stuff.
This was something I knew nothing about and I do exit strategy planning for clients all the time
and I didn’t even know this was in existence and now this new one is even better. Uh so expanding
qualified small business benefits. So gross asset limit increased from 50 to 75 million. For most
of us that wasn’t a big deal. Exclusion caps were 10 to 15 million. Here’s the big thing. This is
section 70431. If you are considering selling your business and it’s a it’s stock sale, okay, which
used to be like treated as ordinary income. So it really sucks. The big change and this has been in
effect for a while, but this is a beautiful thing. If you’re doing a exit time or a tax,
there’s a tax-free exit timeline. Now 50% tax-free gain if you’ve held a business or investment for
three years or more. And this is small business type stuff. 75% if you held it for four years,
for five years, it’s 100%. Meaning that is a tax-free exit without capital gains. Now,
here’s the cool part. For the vast majority of us who own really small businesses, it’s even better
because if you make less than $400,000 per year and you sell your business in a stock sale, you
have 100% regardless of the time of holding that business. So this is massive for people that are
that wealth transfer that’s happening especially a lot for the baby boomers that are transitioning
out of businesses. It is the time to spend some time working with an exit planner. This does not
take effect until tax year 2020 or until 2026. So it’s anything that happens after December 25th or
December 31st 2025 and goes into place. So, if you’re planning an exit from your business, you
need to start planning as quickly as possible to do this because this one does sunset away in a few
years. So, hold on. Go back to that for a second. Yes, sir. If you’re a soloreneur or a partnership,
Yep. and you’re a small business, maybe a million dollar, $2 million business with employees. You
either have a h 100% or 50% of stock that you sell, you could write it all off. You don’t write
it off. You just don’t have to pay capital gains tax on it when you sell. What’s your max tax on
that? Max tax is there is no tax on it. The sale of the business. So if you get a million dollars
for the business, what taxes do you pay on it? You don’t. Okay. That’s the confirmation. Yeah,
that’s it. And like I said, if you’re if your earnings from that business are less than 400,000,
it doesn’t matter how long you’ve held it. It’s 100%. Which is just that makes sense. I just want
to make sure that the small business owners fully understand that. Yeah. And this helps this also.
This is what I call the farmers subsidy more than anything because it helps out farmers so
much because so many times they’ve got they might transition a business to their kids and if they
die I mean it falls under estate tax planning and they don’t usually have a lot of cash on hand. So,
especially for smaller farms and some of these with the exclusions up to 10 from 10 to 15 million
at that point, there’s some huge things that are going to help a lot of small family businesses not
get just crushed in a in an asset sale or not an asset sale, but a stock sale, which is usually the
most tax effice way of doing it. Excuse me. This is another thing that was actually an incredible
thing. More favorable interest rate deduction or interest deduction. So, used to be your interest
was only deductible for EBIT. Now it includes deductions for depreciation and amortization
which makes it much better if you need to finance a transition. If you need to finance something for
business growth, this gives you a little bit more window of what you can do to to make that more
efficient from a tax standpoint. This is huge. This is another big piece that I wasn’t really
aware of in this piece that I think I mean for a lot of businesses, especially small businesses,
that’s how things are financed is going to be through the bank or whatever. And having that
extra little bit of depreciation, amortization in there, if you’ve got real estate, if you’ve
got property or equipment, stuff like that, this will be a benefit for a lot of those businesses.
So, here’s another piece. And once again, I think for a lot of companies or I was just listening to
Representative Roana this morning and he was on the news and he was talking about we need to have
federal government come in and step in and provide like $10 a day child care for people like this.
The law actually put into place for businesses the ability to get and if they provide employer
provided child care, okay, let’s say on-site or working in a partnership with somebody for general
businesses, they get 40% of eligible expenses up to 500K. So if they’re actually and for small
businesses, $30 million less in revenue, 50% of expenses. So, if they provide on-site child care
or something similar to that, they get to expense a hell of a lot of that and they can pull this
across multiple businesses. So, through thirdparty providers. So, if they might work with a local
child care company and use those expenses to help offset child care costs for their employees,
they get a big tax benefit at that at this point. So, it’s a benefit to say, “Hey, this is another
benefit we’re providing. You may have to pay a little bit for child care, but we’re going to
subsidize a lot of that for you and we win and the employee wins as well. In addition to Go ahead.
What I was going to say that’ll it’ll definitely help out. I don’t know how it’s going to affect
small business, but obviously the larger companies can afford that. But even small business, yeah,
like my business where I only employ a couple people, yeah, it’s really not going to help me
much. But for let’s say a decent size couple three four $5 million a year business that’s a big thing
for attracting employees and I think it’s going to give employers who are smaller businesses the
ability to provide benefits somewhat similar to what bigger businesses are doing. Paid family
and medical leave credits. There’s huge benefits for that for providing more of that paid leave
time and things like that. So, it’s going to give businesses the ability to add benefits, especially
for not only the mom, but the dad in the case of when kids when they have kids and things like
that. It just more it’s very businessfriendly inside this. Couple things we need to watch
now because once again, Congress always does something where there’s a bunch of sunsets
and basically what I call a dead man switch. So bonus depreciation, RDN or R&D expensing, interest
deductions, QS or QSBS tiered gains are temporary and they sunset between 2029 and 2030. So what I
would tell you is start doing some planning. If you’re going to be making investments in your
business, if you’re going to be building things, if you’re thinking about exiting, it’s the time
to start planning for that before 2029 and 2030 because all this stuff goes away. the child care
paid leave, vehicle tip deductions also in 2028. So all those are things that you just kind of have
to be thinking about. There’s this one period of time. The tax cuts are permanent, but some of this
other stuff isn’t and we need to be aware of that. If you’re a business that is using clean energy
and stuff like that, a lot of those clean energy credits rolled off as a result of this. you’re not
getting the big massive expensing of solar and things like that. I think a lot of companies,
some were legitimately doing it to say, “Hey, I we believe we want to have clean energy as part
of our package here.” I think a lot of them were doing it just to get the credits and everything
else and they could care less one way or another. They just want cheap energy. So, couple things to
look at from an action plan standpoint. Lock in equipment and R&D deductions. maximize that bonus
depreciation. Work with your CPA tax planner to make sure that you understand how that works
and that you’re planning that out over the next several years. Evaluate your financing strategy.
So, you might look at debt financing and if we can get some cuts in the and the interest rates
down a little bit, it’s going to be even better. Capitalize on the QSBs as well. Use that child
care, start to look into the childare and paid leave credits. I think this is going to be big.
I think it’s also going to be extraordinarily helpful for small businesses that provide this
type of child care to be able to look at how we can provide this maybe to several companies in
our area as a package and then just plan for the upcoming sunsets. Understand when those are going
away and then build your business plan. The good thing is it gives you a good four to fiveyear plan
to look at all these investments that you might make during this time period and hopefully we can
force Congress to push that a little bit farther. But we know for at least we know the rules
for the next five years. It’s a great overview related to small business, even bigger business,
too. Yeah. I just think there’s so many pieces of this and I’m hoping small businesses do talk
to a professional because they need to get deep in the weeds on a lot of this stuff to figure out how
they could take advantage of it because some of it is retroactive for this year. Yeah. Most of it
starts next year. I tell you the big one too. If you’re a business that does any kind of R&D work,
I mean it retroactively goes back to 2022 which is massive. So that ability to go back and look at
what you’ve done there and then fast forward back and say, “Hey, I can for those previous years,
I can go ahead and capture all that stuff.” This is huge. Like I said, this is this yes,
there are some negatives to this plan, but from a business standpoint, this is probably the most
positive legislation that I’ve seen or the most businessfriendly leg legislation I’ve seen come
out of Congress in 30 years. I mean, honestly, it’s designed to help. The Secure Act one and
two were pretty good. Yeah, one was Trump, one was Biden. There was a lot of positive things in
there, but certainly this is much much wider and deeper as far as it could help out. And that 100%
equipment depreciation that was actually available with Bush I think in 03 or 04. I remember that
very well. And that obviously came back. You can’t have that every year. But certainly in order to do
some stimulation and buy American, I think it works out pretty good. But I think especially
works extremely well for businesses that are constantly investing in equipment. So let’s say
that earth moving business. You’re not going to buy all of your stuff in one year and depreciate
it out in one year. But if you’re constantly having to upgrade equipment and everything else,
it’s just a fantastic way to really be able to control your taxes and you control those
per those purchases when you need to to make sure you take that you get a benefit out of it.
And what it means is more stable cash flow for these businesses so that they can keep people
employed. Essentially, you’re pulling demand forward. Yeah. So, we’ll see it’s good for the
short term. Will it be good for the long term? because they’re pulling all the demand forward
then orders will slow down at some point in the future because we got the equipment we need. Yeah,
I don’t really necessarily think that is. I think over the next four years it’s pulling
demand forward a little bit but it allows you now the ability to go as a business owner let’s say if
I invest in heavy equipment or machinery or things like that it allows me to plan my purchases to say
okay if I do this in this year okay now I now I can offset my tax a little bit because I don’t
want to do this all in one year because then I have all these deductions and I can’t necessarily
take all those deductions in one year so it gets carried forward or whatever. So I
think it gives you a choice and a planning aspect as a business owner to say, “Okay,
here’s the big purchases I need to make. Maybe I’ll make these this year, these the next year,
these the next year. Some of these I might carry forward as depreciation over a period
of time. Some of them I might take that immediate depreciation.” And so it gives you as a business
owner a lot of choices versus your only choice is you buy it and then then you depreciate it
out over five or seven years or 10 years. I get it. So I like I said it’s just it gives a plan.
It what it does require though is it requires a really good tax planner to work with to determine
when you do that and to be able to analyze when you do that and that’s the important
thing. Agreed. Agreed. Awesome. Thanks folks for being on. I hope this helps. I hope you
understand a little bit better as a business person what’s out there and what you need to
know. If you want a little bit more details on this, I’m going to write an article on LinkedIn
uh which I’ve done on the other one on my newsletter which is called Exit Richire Free.
go on to LinkedIn, look me up, and I’ll have a long form article on this stuff with a little bit
more details on it on there. So, thanks a lot, and we’ll see you guys back here the very next time.