Recent Tax Law Changes from “The Big Beautiful Bill”: New $6,000 Tax Break for Seniors — What to Know Now

Video Chapters & Transcript:

Hey, howdy folks. Welcome to yet another edition of Smarter Money Matters. It really does with your wealth Dr. Jeff Camarda joined by our super CFPs Lou and Anna. Thank you so much for watching with an important this will be short but really really important for some of you uh podcast on a recent development from “the big beautiful bill” recent tax legislation that’s particularly valuable to seniors and I bet you haven’t heard about the additional free deduction for seniors we’re going to tell you all about from the Wall Street Journal seniors act now to squeeze the most from a big new tax break and Lou I don’t know about you or Adam, do you know about this? I didn’t know about this before reading the paper. Only actually knew about it this week because the CFP board did a webinar on the one big beautiful bill. So, it’s kind of fresh on the mind, but before that hadn’t heard anything about it. Well, bless their gold little hearts. So, this is the senior tax break um gives them how much? $6,000. A $6,000 deduction in addition to your itemized or standard deductions, right? or it doesn’t matter if you itemize or or use the stand. You still get the $6,000, right? So, if you’re in a 30% bracket, you know, you’ll save another couple thousand dollars almost in taxes. It’s meaningful. So, be aware of it. However, like most of the provisions in tax arithmetic, it is subject to some limitations. In this case, I think it’s mostly adjusted gross income. Is that right, Lou? Oh, they have to be over 65 years old and yeah, gross uh yeah, adjust to be a senior. They have to be 65. Yes. and it’s phased out towards so there’s you know it goes to according to the article um for individuals it uh it’s up to 75,000 in income and 150 for joint filers so the phase out begins so if you so if a couple is make has $150,000 in AGI they get the whole 6,000 right it completely phases out above 175 sorry for singles and 20 to two and 20 $250,000 for a married couple so this between 150 and 250, you get some but not the total benefit. Correct? And depending on how the math works, you’d have to look. The way they usually do this, if you’re splitting the difference, if you’re if you’re $200,000 in AGI, you’ll get $3,000 instead of $6,000. It’s usually proportionate, you know, haircut. Um, so it’s available to all eligible taxpayers regardless of whether they itemize or take a standard deduction. But you’re going to want to do a proformer probably with your tax preparer. I know most of you just don’t have tax strategists unfortunately, but try to get some feeling for and you know and if you’re seeing this in 2025, you know, to maximize the the value of the benefit is applicable this year, I think, isn’t it? Yes. Right. To to squeeze yourself into that AGI box, try to get it over, you know, under $150,000 so you get the the maximum benefit. And what are some ways that you can do this? Well, it’s it’s especially uh I think, you know, for for people that are taking money from their investment accounts like IAS and and taxable accounts have a little bit more flexibility as opposed to people that have, you know, guaranteed pensions because you can kind of control how much you money you take in a year. So, if you’re close to that cusp, you can maybe reduce your monthly payment a little bit to get, you know, if it makes sense to get under underneath the um the the the threshold so you get the full benefit. And then this is really kind of a special case of what we do with Roth Roth estimates and and Rothalizes. Do you have something you want to share before I get into those weeds? I was going to say if somebody’s still working, right, if they’re over 65 and still working, maybe try and tuck extra income um at the end of the year into their retirement plan if they still have space through work. Um that’s a good way pre-tax um contribution to if they had a little bit of room they needed to get under the limit. Sure. You know, and when we talk about Roth conversions, you know, the essence of which is is maximizing the amount of conversion at the cheapest possible tax price. It’s really the same actual exercise. You want to look at what your income is and target $150,000 in this, you know, problem of of adjusted gross income. And what what variables do you have? What things can you change? Can you put can you shovel more money into a taxdeductible 401k plan or something like that? Can you pull less uh retirement money, nonRMD money, less retirement money to reduce your income that way? Can you increase business deductions? Can you accelerate depreciation on real estate if you’re a real estate investor? There’s a lot of factors that go into crafting a tax strategy year by year. And to the extent that you’re able to suppress your adjusted gross income, you increase the value of this tax deduction, right? That’s pretty much that’s pretty much the essence and so much a tax strategy. Um and they’re suggesting portfolio the um maybe not recognizing capital gains tax, right, would be another thing that you could do. Um any other charitable um gifting which I know you were looking up earlier u is also one that u um can really move the needle uh in terms of donor advised accounts or outright charitable distributions um which have a big really big hammer in reducing taxable income. But the one caveat that I really hope that you know you guys, everybody, you know, listening, you know, internalizes is that remember with charitable contributions, you’re always winding up with less wealth in your family. If you give away $100,000 and get a $100,000 deduction and you’re in a 40% tax bracket just for simple numbers, you’re saving $40,000, but the hundred’s still gone. So you net out 60,000. Don’t ever lose sight of that that effect. You have to actually do the math and see what it cost you. There’s some tax advantages, sure, but it’s still a net cost. So, you want to do that only if you’re genuinely charitably inclined and you actually want to help the charity, which is great, don’t get me wrong, but you have to appreciate that it’s a gways I can do good and make money. You don’t make money, you lose money. Any final thoughts of these? So when my wife says it’s a write-off, I shouldn’t believe her. That she when she says it’s a write off and she buys something nice for herself, she doesn’t write you off. Any final comments? Um 6,000 per person. So if you’re a married couple, both above 65, $12,000 deduction. Great point. How do I sign up? Guys, help me suppress my income, please. Wait a second. What am I saying? And on that happy note folks, we wish you all a very profitable week. Thank you so much for watching with Lou and Anna and of course me, Jeff Camarda. All the best. See you next time.