Big Beautiful Bill - How It Affects You & The Industry w/ Michelle Cook CPA

Hello, my friend. Welcome back to The Modern Hairstylist Podcast. Listen, we're gonna get into your favorite topic today, which is taxes and money and finances. I know you guys love this stuff.

It's the sexiest part of your business, and obviously I'm being sarcastic, but it is a str- a seriously important part of your business. And maybe some of the things that you're gonna hear in today's episode actually will be sexy to you. But the thing about this is it's m- especially taxes and understanding this, it is my, one of my biggest weaknesses as a businessowner, unfortunately, which is why when we have weaknesses as businessowners, we seek out help, which is why I have the lovely Michelle Cook, CPA, as my own CPA, who helps me with all of my accounting and bookkeeping and all the things, and also is really big and involved in empowering you, the beauty professional and the industry, with the information, the tools, resources that they need to be able to understand this stuff, make sense of it, make sure that you're doing everything in a kosher way, and understanding new, crazy changes, 'cause also these laws and the way that we go about them changes all the time. And recently, there's been a pretty big change that we're gonna be covering in today's episode.

But first, I'm going to allow Michelle to introduce herself, 'cause she can probably do it much better than I can. And I'll let her take it away. Michelle, thank you so much for being here. Welcome to the podcast.

Would you mind giving people a little bit of an introduction of who you are and what you do? Of course. Thanks, Hunter. I'm so excited to be here.

This is a huge change in taxes, a ton of money that the beauty profession is going to see coming back to them, which is amazing. My team and I have done a ton of research on this tax law. As you said, we fully focus on serving the beauty profession. We're a team of 11, and we are just here to make sure that the beauty industry is getting all of theirs, what's due to them, and we've got some exciting stuff to talk about.

Yeah, dude. So we are gonna be talking about the Big Beautiful Bill today and how that affects you as a beauty professional. And here's my full honest tea. Like, I am so, like, there's so much BS out there on the internet and so much misinformation, especially about this particular topic, that I barely know anything about this.

I do know a- a- a- that's a lie. I know more than I'm giving myself credit for, but I, I am not 100% clear on all the logistics because I wanted to wait to have this conversation with you, because I know that you're gonna know what the hell you're talking about, particularly because you specialize in our industry, where tips, right, when we are talking about that conversation, are such a big part of this. Now, just, uh, for, f- uh, uh, uh, a little disclaimer at the beginning of this episode, we're not talking about politics here. We're not endorsing a politic or, or this or that or the third.

We are just talking about this logistical information because it absolutely affects you no matter what. Think if y'all wanna know where I stand on all that, y'all probably can guess. But today we're just keeping it logistical from both perspectives, and we just wanna give you the information that you need to know. And I'm super excited to learn about this from you, Michelle.

And I'm also going to be addressing a little bit of controversial or hard hitting topics that you guys have asked me about this, especially when it comes to gratuity and tips and all of that stuff, hopefully at the end of this episode, once I learn a little bit more from Michelle. So, Michelle, please give us an introduction of just generally the Big Beautiful Bill. Like, what is this thing? When, when did it happen?

What is the tea? Absolutely. Okay, so the Big Beautiful Bill has been going back and forth in Congress for, for many, many months. And in fact, we reached out to our clients, like, early spring to say, "Hey, just so you know, some of these things might be happening.

Just keep an eye on it." But the final bill actually was signed into law on July 4th. And what's important about that and why I think this conversation specifically is important is because a lot of things have been said coming up to the bill passing. What's actually true is what was in the final bill, and there were things that got changed even to, like, the last minute.

So there's stuff that even I posted on social media before the bill passed of like, here's what it says, blah, blah, blah. It's no longer accurate, because the final bill that got passed is what's now accurate. That's what's great about this conversation, though, is we do have now the final, final information, and we have a few months to plan, put it into practice in your business, so that you can utilize it to the, your maximum benefit. Stunning.

And yes, I think that that's so important to address, because, like, you g- like, I even, like, after the bill passed, I got a TikTok come up on my algorithm that was from, like, a month prior that ha- that was giving information about it that was no longer relevant after the actual sign-it-into-law bill. And so I think that's a really good point. That's like, if you do your own research right now, maybe, you may get, like, old, expired information. Or if you had an understanding of that information, you- it may have changed since then.

So I love that we get to have, like, a very solidified, this is for sure what's going on right now conversation. So thank you for being here to go over this stuff with us and empowering the industry that way. I think that we should dive straight... Oh, and by the way, I just want to clarify for everybody, right?

This is going to be affecting the, our, the way that we're filing our taxes for 2025, like this year, right? Exactly. And to be clear, 'cause some people haven't filed their tax returns yet, it's, if you haven't filed a tax return yet this year, that's a 2024 tax return. But it's this year for which you will file next year.

And- Yes. Thank you, God. But the reason why that's relevant is because you have to take action in the year of the tax year to get all of the benefits. So when we say this year, it's like, what we're talking about, if there's an action you need to take, you better make sure it happens by December 31st or you're not gonna be able to get it.

Yeah, great point. Thank you for sharing that. So I think that we should just dive right in to the main hitting topic and change, which is no tax on the tips. Tell us the details.

Tell us the tea. What is the tea on the tax on the tips? Absolutely. Okay, so if you saw, like, news articles, they're like, "No tax on tips."

So it is up to $25,000 in tips, which I really think for a lot of the beauty industry, that really does cover them. But you might find some high earners that make more than $25,000 in tips, but I would venture to guess it, you know, probably takes care of 85% of the industry by having that, that cap. Most people will be below that. One thing I want to be really clear as we're talking about all of these things is that we are talking about federal taxes.

States have a choice of whether or not they want to adopt the same tax laws as federal, and so we're saying no tax on tips. It's possible that your state will still tax those tips. It might only be the federal taxes that don't, but I will say state taxes are usually significantly less than federal. So when we are talking federal, that is like the big piece of your final tax bill.

So anyways, it's the first $25,000 in tips that you can deduct. And here's the thing, is this applies to W2 employees, so if you're just like an employee at a salon. It applies if you are a business owner and you file Schedule C, and it also applies to S corp owners if you are a proper W2 employee, which you should be if you own an S corporation. And here's the key here, but you do have to make sure that you are running your tips through payroll and that they are proper, getting properly reported.

So I know this is an issue for some people that are S corps, they just run like a straight salary. You're gonna have to change the way that you do that so that you can get those tips running in payroll to get that maximum benefit. And so let me just be, let me just for clarity for everybody, you're a sole prop or you have an LLC. You're not an S corp.

You're not an employee. What does that mean? Yeah, so I want to be careful here because technically some S corp owners do own LLCs. They've just made the election to say, "Tax me differently."

But let's say you have not made that election. Then the stipulation here is that you can deduct up to fun- $25,000 in tips so long as the business has at least that much in profit. So let's say your business had a $50,000 year profit. You're gonna deduct the $25,000.

Now you would only be taxed on the 25K once you've minused out that. But I do need to be clear on one thing. People who file Schedule C are subject to something called self-employment tax, and there is not a deduction for the self-employment tax. It's just the federal taxes, which are different.

So you're still gonna be paying self-employment tax. If you have employees, you're still paying FICA. Um, it's just the federal. Cool.

Lovely. Okay, where do we go from here? Okay. A couple pointers, and I will say, you know, it's a little loosey-goosey at the moment because these laws get passed in the middle of the year.

The law specifically says if you want these deductions, all of these numbers need to be reported on some kind of like official paperwork that's getting submitted to the IRS. So what that looks like is if you're a W2 employee, then your W2 is getting submitted to the IRS. If you are a contractor, then you've got something called the 1099-NEC. If you are just like a booth renter somewhere or you have your own like suite, then there's something called a 1099-K, and that's what's coming from your point of sale processor.

So the law says that those tips have to be broken out on those forms, but then the IRS came back a couple of months, or honestly probably only a couple weeks after the law got passed, and they said, "Hey, just so you know, we're not changing any of our forms for 2025." Like basically they're like, "There's just not enough time between like when you pass this law for us to do that." So I do feel like 2025, there might be a little bit more leniency as far as like having some of that documentation in place for people who file 1099-NEC or 1099-K, because those forms don't already have tips reported. There will not be any leniency though for W2s, because W2s already have a separate box for tips, so it is gonna be expected that they're in the tips.

And you might not realize it 'cause you probably don't look at your payroll tax returns, but on the payroll tax returns it actually does break out regular wages versus tips as well. So you're just gonna wanna make sure that like your end of year tips that have been, being reported on the payroll tax forms are, you know, lining up. And I just say that because we actually saw this on a couple clients where we let people know at the beginning of the year, "Hey this might happen. You might want to start claiming your tips through payroll now just to get ahead of it."

And we had a couple clients that started doing what they thought was claiming tips through their payroll, but then when we went back and looked closer, it's just that some payroll softwares allow you to create a category and you can name it whatever you want, and they named it tips. But I'm just here to tell you-Every payroll processor has an official box for tips, and use that official box to put it in. And if you put it in the right box, it is gonna make it over to the correct boxes on the W-2 and payroll tax forms. But I just, you know, it would break my heart to think that there's people out there thinking, "I got it squared away.

I'm doing everything right," and then they get to the end of the year and actually they didn't, and they don't get their deductions. And I know that, you know, we haven't really gotten there yet, right? Like as far as, like everybody actually, like filing for these deductions and things like that. How difficult do you think that this is gonna be for people who are filing taxes on their own versus having an accountant?

This is one of those things where if everything is set up properly and running correctly, it's not a huge deal. But life isn't, uh, always gonna work out that way. And so that's kind of what we're seeing is, I think it's easy to think that you've done something the right way and not realizing like the nuances or complexities that can be there, and then not even knowing enough to know that you've made a mistake. Um, that's kind of what we're seeing.

What could these savings look like? Do you have some rough numbers for what this could look like for people as far as the tax deduction goes for the tips? Yeah, it's pretty big. So for just the, just the tips deduction, like we will ignore all other potential things, we're looking at a maximum benefit of about $5,500 from just the tips deduction, assuming you have the maximum $25,000.

And that could increase or decrease depending on what tax bracket you're in, but that's kind of like the general most common tax bracket, would create a $5,500 benefit. And that's, that's a dollar-for-dollar benefit, by the way. Sometimes people get confused between a deduction and a credit. A deduction reduces your amount of taxable income, but it's worth like 20 cents on the dollar, but a credit is worth a dollar for a dollar.

And so that's what I'm talking- Okay. I'm talking dollar for dollar, it's a $5,500 benefit. Gotcha. Like somebody will save $5,500 period.

That's huge, obviously. Big deal. Do you, off the top of your head, do you have like ... Have you thought about or like seen, like on average, uh, what percentage of the majority of stylists' income is from tips when, when fully reported properly?

There ... I think this can vary a lot, especially for extension artists. That tends to- Yes. kind of go crazy.

And we, we do personally work with a lot of extension artists, so that can kind of s- skew what I see. Skew your per- yeah. But yeah, I mean, I would say it's probably reasonable to say 15-ish percent of people's income, or- Total revenue. Yeah.

'Cause some people might tip 20%. Yeah. Some people might tip 10%. Some people might not tip at all.

Some people are extra generous. Like it just kind of varies, but I would say somewhere in that like 15% range would be pretty reasonable. Yeah, for the, for my Mastermind students, we, I like look at their, I look at their numbers so closely. Probably say like for them, like, and they're all high performers for, you know, for reference for the people who are listening to this, right?

Like, my data set is smaller and it's also a little bit different. Like, they're all high performing hairstylists in one way or another. Probably say it's around like 17% to like 18%. Just curious.

And then my next thing that I guess I just wanna get right into while we're here, right? 'Cause this is like, like I don't know. Feel like this is a good spot to put it in. I am talking a lot about pricing on the podcast.

I'm doing a lot of pricing conversations just in my education recently, and one of the things that somebody has shared with me when doing my research for what people are struggling with kind of right now, is people are like, "Well, I went gratuity free and now there's this credit, and maybe I could have saved more money, but now I'm gratuity free and I'm not getting tips." So do you have any thoughts or opinions on that, Michelle? Oh, do I have opinions. Uh, so, okay, I would say in general with a tax law like this, being gratuity free does not make sense from a purely tax perspective.

We have several clients that run gratuity free salons, so we've been having these conversations. This deduction is temporary, right? This, uh, it's only good for four years, from 2025 to 2028. Um, if you earn $25,000 a year and we're looking at a $5,500 benefit, you know, you multiply that by four years, you're looking at just over $20,000 that's on the table.

And so to me that's like, ooh, that's a significant dollar figure that we're talking about. But I also think that people need to kind of like make the decision for themselves as to what's gonna work for their business. If they're really deep entrenched and they've sold their clients on being gratuity free, my understanding is talking to people that try to back away from gratuity free, it's not so simple as, "And now we're back to the way things were," because you've trained your clients now to not tip you. So yeah, there's, there's a little bit of something to, to consider there, f- from, as a tax advisor, and, and especially if you are in like a high performing salon and like you're saying, you know, if you're in, probably gonna get 15 to 18% of your services in tips and you know, you have 150, $200,000 in service totals for the year, you stand to get that like maximum benefit.

Um, now it kind of makes sense to maybe revisit your pricing, have that discussion with your customers, maybe lower your prices by about 15 to 17% or something, and then say, "And now you can do gratuities." And honestly, everyone knows in America the ti- the tip issue, so I think it would actually, if you just explained it in terms of like"Hey, I talked to my CPA and they, you know, with this new tax law it would, you know, benefit for, you know, X, Y, and Z." I think it would probably be fairly well received in that context, but there certainly is a possibility because for something to be considered a gratuity, it has to be the choice of the customer as to how much they give, so there is of course a risk that maybe they don't tip as much because they kind of got trained out of tipping potentially. So anyways, all that to say from a tax perspective, I do think it's worth coming back from gratuity free and, and implementing a more standard pricing model, but of course you're gonna have to figure out for your business what makes sense for you, what makes sense for your clients, what's in line with your values and, and how you wanna run your business.

Really, so well said, and I appreciate, like, all of that, that you said, and I'm kind of on the same page. I would, I'm personally, like, I went gratuity free within my own salon suite business and when people would ask me about it and stuff like that as a consultant, from like a educa- educator perspective, I always said, like, it just like an individual, like, preference and, like, you get to dec- and like, I think that there's plenty of things to consider, like, whether it might be the right thing for you or not, but I never had, like, a strong, like, "Yes, you to- everybody should be gratuity free," or, "You shouldn't be gratuity free." I actually have a whole podcast episode about it if you guys wanna check it out. I don't know what it's called, but I think it's called...

I think it has gratuity free in the, in the episode. You can find. I don't know. Do research.

Anyways, I love that you said, like, this is from a tax perspective, right? And, like, really considering the savings, but then also thinking about, like, your brand values, and I think, like, especially, like, if you've gone really hardcore with, like, the branding of your salon, your website, like, making this, like, a massive big benefit, right, then that, you've dug yourself a very deep hole as far as brand messaging and core values go and your clients' behavior with you. Um, and I think that you've, you know, I think just for future reference, like, for anybody who's listening to this and they've thought about going gratuity free before, like, if you maybe are gonna do this in the future then, like, don't make it such a huge part of your brand or something that could possibly change one day. Don't make it, like, this massive thing that is so hard to get out of.

But I do believe as a consultant, from a consultant perspective, I absolutely do believe that there are ways that you can dig yourself out of that hole that won't be detrimental to you, and I agree with you. Being transparent and honest about this I think is a great way to go about it, and I do think that the nuance of when was your last price increase, are you gonna decide to decrease your price a little bit while encouraging tips, right, or are you just going to announce and say, like, "Hey guys, so this is going into place. Up until this point we've been gratuity free. We have not raised our prices in a year, but in, in, uh, be, in light of this happening, um, we will now be, we will now be accepting gratuity."

Gratuity is always appreciated, never expected, right? And then just giving people that open invitation to tip you again, because up until this point you may have been strict about not tipping you or something like that I think would be a great way to go about it. But you get to decide the nuances of, like, are you gonna decrease your prices with that or not? I think it just kind of depends on, like you said, your own core values and your brand and the way that you've advertised yourself un- up until this point, so.

So yeah, thank you for your opinion on that. I think you make a great point about you have to look at this from a full package perspective where it's like, I mean, if you haven't raised your prices in a year or two, like, well, what I just said, you know, five minutes ago of like you might decrease about, you know, 17%. Well, that doesn't make any sense 'cause you're probably due for a price increase, so. Exactly.

Yeah, definitely just remember this is general information. Make sure to- Of course. apply the principles to your personal situation. I think, I think, I think the listeners of my podcast, like, literally e- every single episode, every single thing I talk about, I'm like, "Well, but your business is unique, so let's take those nuances into consideration."

Jodi Brown, I record every episode with Jodi Brown, and me and her were literally just recording this morning and she was like, "Hunter, like, you don't have to nuance and caveat every single thing." Like, this is, like, general information. I think people get that they, like, need to take their own circumstances in consideration, but sometimes people don't, right? And so that's why I like to, like, give the extra detailed information.

And like both of us are saying, like, your specific circumstance matters when it comes to all these conversations just in general. Okay, so that's the, the one thing with this big, beautiful bill. There's another thing, and I don't even know what it is, so pop off on the next, the other thing. Yeah.

Okay, so we were just talking about the tip deduction, but the other really big thing is the tip credit. Here's why this is a big deal. The tips deduction is temporary. It's for four years, 2025 to 2028.

The tip credit is permanent. So this is a benefit that salon owners will get from here on out. This is a credit that has been fought hard for by PBA and other lobbyists for a really long time because there's been a disparity in the tax law. In the early '90s, restaurants got this FICA tip credit that for any payroll taxes that they paid, the restaurant owners paid on their employees' tips, they got a dollar-for-dollar credit on that.

And so it's always been a real struggle as salon owners because salon owners are like, "Okay, let me get this straight. A client is paying my employee a tip. I have no, no control over how much they pay. They pay through a credit card, I'm paying the cr- credit-card processing fees for that tip.

The tip comes through and now I have to pay payroll taxes on it because it is considered wages on the employee, so now the owner's gotta pay this, like, 8%." payroll tax, so now we have money that's ne- was never the salon's, and they're paying taxes on it and credit card processing fees. And so you're looking at, like, this, like, 11% expense of all tips just going to the salon owners with no real benefit to the salon owners. And, you know, historically, the only recourse that salon owners have had is to price their services appropriately to be able to absorb this extra cost that's associated with it.

And I guess that's still true if you're talking about the credit card processing fee piece of it. But what I will say is this is really big because now salon owners get a dollar-for-dollar tax credit for that 8% tax that they're paying. If you have employees, I just, I know some salon owners that are, like, barely breaking even right now, and this is gonna mean the absolute world to their business to have this. And then this, like, makes me think, you know, when it comes to, like, being gratuity-free, I think for a salon owner with employees, the decision becomes much heavier.

Like, it becomes, like, the implications and- of the decision become a lot more important. And then even, you know, let's say you are just independent right now, and like, if you do want to have employees in the future, you know, just making this decision, you know, becomes com- becomes important when taking... And especially 'cause this is permanent, you know? I think the fact that this is permanent is something that we really need to take in consideration too here.

Mm-hmm. So go ahead. I was just gonna say, you know, and it's funny 'cause I hear some people in the industry who are just employees at employee-based salons, and they'll say, "Well, this is for the salon owners. It's not really for me."

And I'm like, "Oh, honey," "this is for you too," because even if it's not directly going into your pocket, I think people don't realize sometimes how precarious the financials of a salon can be and how that absolutely im- affects you as an employee. If that salon has to close, y- you're now finding another job, and there's gonna be a- a blip in income somewhere. That's not good for you. But I even have salon owners that are coming to me saying, "I can offer benefits to my employees now.

Oh my gosh, like, I can do so much with this. I can make such a better culture and an environment with these extra funds. Like, I'm so excited." Yeah, I- I- I think that's a great point, and I, you know, I cannot say it enough how much people don't recognize, specially employees, like, they don't recognize how difficult it is to be profitable a- as- as a salon owner, 100%.

So this is good news for the salon owners, and I love that you said for the employees of, you know, employee-based salons. Okay, so do you have some, like, rough numbers for what this credit could do? Yeah. Okay, so let's consider first the most simple version of this, which is you own an S corporation, and you don't have any employees other than yourself.

If you have $25,000 a year in tips, then that's gonna equate to about $1,900 a year in tax savings. So if you, like, stack that with the $5,500 that we said before, you're looking at, like, a $7,400 a year tax savings as an S corporation between your payroll tax tips and your tip deduction. So it's like you can kind of, like, double stack these two benefits together. And I think that, you know, for the salons, 'cause the- tons of salons now, they probably are like, "We don't want anything to do with how your clients tip you.

That's your deal," right? So that creates inconvenient options for the s- the client to tip, right? Like, now the client can't just, you know, add it on to the same transaction for the service, right? I think that that...

You know, the more convenient it is to give you money, the more people will probably pay you money, you know, so- Exactly. very interesting. Cool. Thank you for the breakdown.

And you look at it from a risk perspective, the risk for salon owners has always been, what happens when employees are accepting cash tips and I don't know about it? Because- Right. what can happen, and I've talked to people who have had this issue, where an auditor will come in and find out that that's been happening, and then the salon owners still owe all of those payroll taxes now plus interest- Man. and penalties and all of this stuff.

So it's, now, I think salon owners have an incentive that they didn't have in the past to make sure that their employees are reporting things correctly to them so that the salon owners don't have a risk later and that they know that, like, the taxes that they're gonna pay through payroll are actually gonna come back to them with this credit. Gotcha. Not to be a conspiracy theorist, but I s- saw something interesting on social media when this was all going down about how, of course, our industry underreports these things, and I think that just is what it is, right? And about how, like, all of these changes may, especially with this...

I feel like with this s- so I feel like now that there's incentive, kind of, to report more, or there's more financial safety in reporting more, I guess, now, the perceived average income, in the IRS's eyes, of our industry may be a lot higher, and so we may have this, like, temporary credit, and maybe, like, in four years from now, the IRS is like, "Oh, like, there's a ton of money that, like, we're missing from this industry." So now, like, I don't know, they now have this information, and now maybe, like, if we aren't showing those same averages after we don't have these credits, maybe there will be more audits or something like that, right? So that was, like, an interesting little conspiracy theory that I saw online, but-I feel like with the salon part of this, right, I feel like, I mean, that's gonna be one hun- Don't you- Do you think that's gonna be 100% true that, like, we, that we will be showing, as an industry, like, a lot mor- Uh, not maybe, not a crazy amount more, but a lot more as far as average income just because these salons are most likely gonna be reporting a lot more income because of these taxes and, like, the credit that they're gonna get from that? I think there's a real possibility that we'll start to see the scope of what unclaimed tips have been in prior years.

Yeah. I don't think any of us really knows. We kind of have our guesses as to, like, how much has maybe been under-reported or under the table. But yeah, it will be interesting for sure.

And I will say the IRS, their systems in terms of, like, how they're determining how to audit is every single industry has, like, a special code, and that goes on everyone's tax return of what industry you're serving. So once you have that industry code, the IRS basically has the data of, "Everyone with this code tends to have these things." So something that can flag audits is when you have certain things that are outside the scope of what's, like, the norm. So I mean, I think you bring up an interesting point that the IRS will have additional data they haven't had in years past, because now there's an incentive to report that.

You know, historically, maybe if someone wasn't reporting their tips, but- but they wanna get a loan for a car or they wanna buy a home, these are- are reasons why they're incentivized to show higher income on their taxes. And then especially with it not having any tax implications, right? 'Cause they're not have to pay taxes for those funds. They just have to show 'em as income.

Yeah, I think we'll- we'll probably see higher- higher amounts of income under the beauty industry's code than we have historically. Fascinating. Is there anything else in big, beautiful bill that affects us? Yes.

So I would say that the- the next biggest thing that is gonna affect the beauty industry is something called bonus depreciation. Now I will say some of the things that are in this bill were things that maybe already existed but they were making permanent. I think for anyone who started their business after 2018 might not have a, like, a full level of appreciation for some of these provisions. But what used to be the case is that you would buy equipment or large purchases of assets, and if it was over $2,500, then you had to take those expenses over multiple years.

So let's say you bought, like, a $3,000 laptop. You wouldn't get a $3,000 deduction year one. You'd get a, you know, we'll just call it seven- I- It wasn't always exactly, like, the same amount every year, so I don't wanna get into the specifics. But we'll just call it $750 deduction this year, and then going down from there.

So now, though, they're saying, "We're implementing 100% bonus depreciation, and it's a permanent change." So this is a really big deal. Basically, if you're making these really big purchases, you can deduct everything upfront, all in the first year. And if you're doing any kind of, like, remodel on a salon, which is, you know, usually multi five figures, even sometimes up into the six figures, instead of taking that deduction over lots of years, you can now get it all upfront.

And let me tell you, it is not fun as a tax professional when someone's done, like, a six-figure remodel and you have to explain to them why they owe taxes, because, "Ah, I know you spent $300,000 on this remodel. But you actually only get, like, a $20,000 deduction this year," and then it goes over into the future. That's- that's not a fun conversation to have to explain. So I'm thrilled.

I can imagine. Okay, anything else? So in 2018, they started a new deduction called the qualified business income deduction, which was a 20% deduction on business profit for S corps, partnerships, and then just, like, Schedule C fires- filers, like sole props and LLCs. That was set to expire this year.

This year was gonna be the last year that we got that deduction. So as a tax professional, I was over here going, "Oh my gosh. We're gonna have to, like, really increase our estimated tax payments that we're recommending to clients starting in 2026, because a 20% deduction's huge." But they made it permanent, so we now forever and always, until they wanna rewrite the laws, we have this 21st- 20% business deduction on all business profit for pass-through entities.

Sick. This is a lot of good news. Y- It r- It really is overall. I would say, specifically for the beauty industry, this one was a- a massive win.

Yeah. Yeah, very much so. Some other more quick-hitting but fun things is we have 1099s. The thresholds for issuing those are getting a little bit more lenient.

So it used to be that there was a $600 threshold. They're moving it up to $2,000, and it's gonna be inflation adjusted. That's crazy. Well, the $600 limit was set in '80s, so I mean, it's pretty fricking ridiculous- Yeah.

that, uh, you know, here we are in 2025. I mean, you can sneeze and pay someone $600 at this point. Right. Yeah, for real.

And so I'm- I'm really happy about that. It's a quite a burden to have to, like, follow up with vendors and try and get W-9s, and then they don't sign 'em. And then your CPA's like, "Please give me the W-9." And you're like, "They're not answering me."

Yeah, for like a one-off project that was like $600, like- Yeah. Yeah. Yeah. Totally.

It's a pain. So really happy about that, and then-The 1099- K, they were lowering the thresholds on that one. They're actually pulling it back up to the old threshold, which was $20,000 a year and 200 transactions. What I will say that's gonna be interesting here is there could be beauty professionals who don't get a report from their point-of-sale system about the tips breakout if they're not qualifying for that threshold, so if you're kind of like a new business or just starting, I'm kind of curious to see what the IRS says about that.

If you- Gotcha. don't get a 1099-K, can you still deduct those tips? Right. Gotcha.

Mm-hmm. And then do you think that this car loan interest deduction is relevant to us? So what's interesting about this one is this car loan interest deduction is actually not for businesses. It's just for individuals, so it can apply to anyone.

Oh. But you can deduct up to the first $10,000 in interest expense. Has to be a new and personal-use vehicle. So if you buy it through your business, you don't get this deduction, so that's interesting.

Interesting. You have to be the first owner, and it has to have been purchased starting in 2025, so if you got a loan from a car you bought before 2025, that's not gonna count. But it has to be assembled in the US and weigh less than 14,000 pounds, which the vast majority of personal ownership vehicles would fit in that category of weight, so we're good there. Interesting.

Cool. Thank you so much for this breakdown, Michelle. Absolutely. W- any final notes for the listener here today?

Yeah, I mean, we hit the really big ones. I can just give you like a couple more quick-hitting items. So the child tax credit is moving from $2,000 per kid to $2,200, and they've indexed it for inflation, so that amount's just gonna go up every year. Um, if you adopt a child, $5,000 of that tax credit is now refundable.

Charitable contributions are one that you used to only be able to take that deduction if you itemized, which 70-plus percent of Americans don't. So it was like only a select few people that could actually get a deduction for their charitable contributions. Well, they've changed it now that the first thousand, you don't have to itemize to be able to get that deduction, which I think is lovely and a good thing to help incentivize people to contribute to causes that they care about. I'm saying this because I know beauty professionals really love electric vehicles.

Uh-huh. If you are planning on buying an electric vehicle, you have until September 30th, and after that, the clean vehicle credit is gone. So that was $7,500, so that, they actually ended that one early. Gotcha.

Yeah. Anyways, there's some other interesting things. I will say the one really negative thing is that there were some COVID-era credits on health insurance premiums. Those were not extended, and so we are expecting to see healthcare insurance premiums increase.

So that's a, a bummer. I think overall for the beauty industry, we're probably still net positive with all of the benefits, but I could actually see some people, just that one thing not being extended, being enough to have the other benefits probably not outweigh, 'cause health insurance is so expensive. Expensive as- and our industry particularly, I feel like ha- it s- really struggles with, with that part of things. Okay, cool.

Thank you so much, Michelle. We are so grateful to have somebody who specializes in our industry, who understands this stuff, and can share the wealth of knowledge with the world and with your firm, helping people directly with their accounts and making sure the business is all clean and beautiful and perfect. I've had such a great experience working with you guys, and I highly recommend that you guys follow Michelle, that you inquire with working with the firm if you are in that space where you're ready to do so. And Michelle, we just really immensely appreciate you very much.

So thank you for being on the podcast. Thank you for doing what you do. We appreciate you. Happy to be here.

If you wanna follow me on Instagram, I'm @smallbusinesscpa. Our website is cartercookcpas.com. Beautiful.

Go give Michelle a follow. Check out the website. And thank you so much for tuning in to The Modern Hairstylist podcast. Peace out, girl scout.

Bye-bye.

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