Podcast Ep. 138: The Big Beautiful Bill Act – Tax & Student Loan Reforms Optometrists Need to Watch

Evon: [00:00:00] Hey everybody. Welcome back to the Optometry Money Podcast where we’re helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner, practitioner, and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrists nationwide.

And thank you so much for listening. Really appreciate your time and attention today, and I am excited to be back. On a special Friday edition of the podcast here. as my wife and I had welcomed our third child into the world and, and spending some time

with our newborn who came a week later than expected, it definitely threw off my content calendar.

So I’m excited to be back with another live episode because we have a lot to, to keep an eye on here. As we see that recently, the House of Representatives just passed something called the Big Beautiful Bill Act by the slimmest of Margins, one Vote. [00:01:00] And yes, that’s the real name, and as silly as it is, it is a pretty big bill. And it’s coming with important changes or really extensions to tax law and very important student loan considerations to keep an eye on.

So in today’s episode, I’m gonna break down the tax and student loan changes that could impact you, pretty heavily as an optometrist and or a practice owner and it’s important to say this is not law.

This is a proposed bill. It still has to make its way through the Senate. And I am expecting, or really hoping for important changes through the Senate. And so we have a long way to go before this becomes law and we know exactly what we’re looking at. But I it, I think it’s helpful to get a feel for what’s on the table.

What, what are the stakes here? What are the expected changes that we need to keep an eye on, and how might that change through the Senate?

Proposed Tax Changes Optometrists Need to Know in the Big Beautiful Bill Act

Evon: And so with that in mind, let’s dive in first looking at the tax considerations here and it’s important to give a little bit of background.

In 2017, president Trump in his [00:02:00] first term signed into law of the Tax Cuts and Jobs Act, which was this big sweeping tax reform bill. It changed a lot about, personal taxes, in regards to the tax rates brought down tax rates. It expanded the standard deduction, but it also removed something called a personal exemption.

It made changes to something called the alternative minimum tax. it just about doubled the estate tax exemption, so it impacted a lot on the personal tax planning side, as well as on the business side. So it created a permanent 21% corporate tax rate as well as for pass through businesses.

So those that are taxed as, S corporations or partnerships or sole proprietorships. It created a 20%, what it called qualified business income deduction, the QBI deduction, and so, it had these big changes from a tax planning standpoint, but in order for that law to be passed a lot of those provisions had to expire at some point.

And so. A lot of those provisions, [00:03:00] especially on the personal side, as well as that QBI deduction we’re expected to expire at the end of this year and things were expected to go back to. Pre 2018 tax law. So higher tax rates, lower standard deduction, but some, but that personal exemption coming back, the state tax exemption reverting back to inflation adjusted, but old numbers.

So all of these individual provisions were going back to old law and the QBI deduction was going away. And so we as practitioners, so financial Advisors, tax professionals that we work with. We’re all waiting to see which tax laws, which rules are we gonna be working with moving forward. And so this law addresses a lot of that.

it’s basically extending a lot of what we currently have with some modifications and improvements or, or adjustments here.

Current Tax Brackets Are Extended

Evon: So, for example, tax brackets are extended permanently. Quote unquote, permanently meaning [00:04:00] until another congress changes it. But, there’s no expiration window. The current tax brackets, 10%, 12%, 22, 24, 32, and so on will continue on.

Higher Standard Deduction Continues With Temporary Increase

Evon: the standard deduction stays high. If you recall, when you look at your tax return, each taxpayer gets the option of choosing one of two deductions. You take a standard deduction amount, which is something that. Every family that are filing or, or tax filer that’s filing like you gets to take or you can pile up a certain list of personal expenses and, and that’s called itemized deductions.

And if that itemized list. Is higher than the standard deduction than, than you can take the higher of the two. So the standard deduction remains high, which is 30,000 for those filing taxes jointly 15,000 for, single tax filers with temporary increases. over these next four years, so between 2025 and [00:05:00] 2028.

And the bumps are $1,000 If you are single, 1500 if you’re filing head of household or $2,000 if you are, married filing joint, with adjustments for inflation and. You might be wondering why only for these next four years? Well, I, I wonder if part of it’s because for budgetary reasons, they have to balance the numbers in order to get a, a bill like this passed.

But also if we think about it, what’s happening in 2028? Well, it’s the next presidential election. So, without a doubt, I think there’s some political gamesmanship happening here. But, we see a slight increase there over the next four years.

And if you’re 65 and older, there’s also an an additional bonus increase to that, which phases out over certain income levels. So standard deduction continues on with a slight bump over the next four years.

Current Child Tax Credit Amount Continues, With Temporary Increase

Evon: The child tax credit, which is a tax credit per qualifying child.

Under age 17, continues to remain at its current level with a slight increase [00:06:00] over the next four years. So this is something that was expected to be reduced down to $1,000 per qualifying child after this year. It’s currently $2,000 and the current bill will continue that same dollar amount, but will give you a $500 increase over these next four years.

So. 2025 through 2028, we see that under this bill it would be $2,500 per qualifying child and 2029 and beyond. It’s going to decrease back to its $2,000 level with increases for inflation. And it also keeps the phase out thresholds for the credit.

So that’s $400,000 of adjusted gross income, AGI if you’re filing joints, $200,000 if you’re filing single, and you start to phase out of the credit from there.

QBI Deduction is Extended and Increases

Evon: The QBI deduction. going back to the business side, the QBI deduction is extended, so that’s gonna continue to live on. and it’s slightly [00:07:00] expanded under this bill.

So currently it’s a 20% deduction. It’s going to be expanded to 23%. And I’ll throw a link in the show notes to a more detailed, podcast episode I did specifically on this deduction and it also slightly simplifies and, and enhances The way that the phase outs are calculated for Optometry practices. And, the way that the, the way that this deduction works is that Optometry practices and healthcare practices as a whole, including financial planning firms, we are considered specified service trades or businesses.

And because of that, once our taxable income, before the deduction gets to certain levels, we start to phase out of the deduction. We lose little by little. And then once we hit the higher end of those thresholds, we lose it altogether. And currently, for example, in 2025, that phase out threshold starts, at [00:08:00] 394,600 of taxable income before the deduction.

And it phases out over the next a hundred thousand dollars of taxable income. And all other tax filers it’s 197,300. And so there’s this sort of complicated calculation to see what your deduction should be through this phase out range before you phase out altogether. Well, this proposed bill, provides a slightly simplified way to calculate those phase outs, and I think in a way that’s gonna allow more of the deduction as your taxable income gets higher.

So we’ll see what that looks like as it goes through the Senate. But QBI lives on, which is what I was. Hoping for, and I think a lot of us were expecting but

it’s great to see that written in the bill there.

State And Local Taxes Deduction Cap Increased

Evon: Another provisions related to the state and local tax deduction. In those itemized deductions that I mentioned earlier, one of those deductions Is state and local taxes. You can use state and local taxes as one of those deductions.

However, that [00:09:00] 2017 Law Tax Cuts and Jobs Act capped the amount of state and local taxes you could deduct at $10,000, which especially impacts those of us that live in high state tax states like California, New York, and so on. which lead, which led to a lot more tax filers, taking that standard deduction, not really benefiting from the state taxes they were paying.

This proposed bill increases that cap from $10,000 to $30,000. But there is a phase out for higher earners, meaning that eventually you start to phase down to the regular, original $10,000 cap. Something to keep an eye on there.

Pass-Through Entity Tax (PTET) Credit Likely Goes Away

Evon: another part of this bill is likely going to eliminate the use of a pass through entity tax, tax credit.

And what this is, is that as a result of the state and local tax cap that you can deduct, states start to implement their own workarounds. And if you own a partnership or an S corporation.[00:10:00]

And the business itself paid the state taxes on behalf of the owners and the owners elected into it based on whatever the state rules were, it would, it would show up as a business expense on the profit and loss, which indirectly led to those taxes being a federal tax deduction for the owners.

And on the state tax returns, the state would provide a corresponding tax credit for those payments to offset the state taxes that were due. And so this was a workaround through the business itself. each state looks a little bit differently, and something that we were expecting to be able to use at least through 2025.

And this bill appears to be putting an end to that.

Health Saving Accounts and 529 Plan Adjustments

Evon: some other things to keep an eye on here are reforms to HSA accounts and some adjustments to 529 plans. This version of the bill essentially doubles the contribution limits for HSAs.

So, for example, right now the limit is $4,300 a year. In 2025. For an individual, if you are covered by yourself on a high deductible health plan, that qualifies or [00:11:00] $8,550 if you were on a family plan. And this bill would essentially double that to $8,600 for an individual and $17,100 if you were on a family plan.

With inflation adjustments. That being said, there are income phase outs for this. Eventually, if you get to a certain point of adjusted gross income, you phase down to those original limits. But something to keep an eye on there. It also helps to sort of eliminate some of these eligibility traps, so to speak, that might keep you from being eligible for using an HSA.

So for example, those that are age 65 and older. I cannot qualify in use an HSA plan, but what this would allow for is that those who are 65 and older that are enrolled in Medicare Part A, but not in part B, can continue to be eligible. And that’s for you if you’re continuing to work and you have healthcare coverage through work you’ve opted not to enroll yet in part B, this is something that’s gonna allow you potentially to continue to be eligible to [00:12:00] contribute to an HSA.

similarly, there are some workarounds. If your spouse has a Healthcare, FSA, a flexible spending account that they’re, that they’re contributing to, but you don’t, it’s gonna have some workarounds that allow you to continue to be eligible for your own HSA. So some enhancements there,

same thing for 529 plans, it expands some of the abilities for you to use those funds.

So, for example, it would cover professional credentials and continuing education. So the CFP designation, for example, continuing education, things like that. So it expands the use a little bit for 529 plans, and it also expands the list of K through 12 expenses as well.

Bonus Depreciation Back at 100%

Evon: Some other quick ones here. So, bonus depreciation, right now, the, the percentage of bonus depreciation is proposed to come back to a hundred percent. , If you’re familiar with bonus depreciation, it’s a cousin of the section 1 79 accelerated depreciation.

When you buy certain types [00:13:00] of assets like equipment or real estate, property you’re able to depreciate the cost of those things by default over a set schedule of time.

So five years, seven years, 15 years, 27 and a half years, and so on. What bonus appreciation and Section 1 79 allows you to do is it allows you certain types of property, it allows you to accelerate the depreciation into the current tax year rather than spread it out over a period of time and.

Bonus depreciation has come down over the years on the percentage of the cost you can accelerate. as a result of tax Cuts and Jobs Act, it was set to a hundred percent, meaning you can, you can bonus depreciate a hundred percent of the cost of the, of the asset that you’re working with.

but that came down at a certain point, 20% every year. So currently in 2025, it’s only 40% of the cost. 2026 would be [00:14:00] 20%. Depending on the year that you purchased and place the asset or property in service.

And what the new bill would do is it would return us to a hundred percent bonus depreciation, but only for property acquired and placed in service after January 19th, 2025, which interestingly is inauguration day, and before January 1st, 2030.

So essentially through these next five years or so, we’re going to be back at a hundred percent. Which can be a big deal, especially if you are a real estate investor. You are using things like cost segregation studies to separate out All of the components of the property into different types of assets and with different depreciation schedules. If this goes through, this is something that can be pretty useful for you from a tax planning perspective.

The Higher Estate Tax Exemption Continues On

Evon: The estate tax exemption is continuing on at its high level, and [00:15:00] in fact increases. So it would be $15 million per individual or $30 million per married couple with continuations for inflation. So that continuous on on, and there is a host of other interesting, tax provisions here. , Like tax free tips and, deductions for for car loan interest at certain levels of income if the vehicle was assembled in the US So there’s other things in there, but, those are some of the primary things that we’re looking at as it relates to optometrists.

So that’s the tax planning side. Nothing major. I mean, a lot of it just continues on what we are currently experiencing with slight tweaks, slight improvements maybe, depending on how you’re looking at it.

Major Proposed Student Loan Changes For Both Current and Future Borrowers

Evon: Now, let’s talk about the student loan aspects of the bill. And this is where there are major reforms happening and not all of them.

And just to be frank, not all of them positive for optometrists. Let, let’s dive into what we see here.

History of Student Loan Repayment Plans

Evon: So before I do, I, I think it’s also helpful to give a little bit of, back, a little bit of a background for student [00:16:00] loans, especially as it relates to income, different repayment plan, of when and how those are created.

So as you think about the history of federal student loans Our government, congress and presidents have done a really good job of creating a really complicated web of student loan rules depending on when you went to school and when you took out student loans.

rather than. Create new rules and clean up old rules, they have tended to layer rules on top of each other and student loan repayment options on top of each other. So for example, when we look at the very first income-driven repayment plan, if you remember, income-driven repayment plan, IDR is sort of the umbrella term that describes all of these different types of plans.

And then there are, there are technically five different plans. And your eligibility for those depends on who the borrower is. The very first one, ICR, income-contingent repayment, was created by law, I believe, in [00:17:00] 1993.

And you were eligible for it starting 1994. then came IBR, income based repayment that was created again by law in 2007. First eligibility was 2009, there’s an old version of that. If you took out your loans before 2014 and there’s a new more favorable version of that, if you took out your first Federal loans after July 1st, 2014.

So ICR and IBR both created by laws and then came three others created by Presidential Authority , executive action. the first one was PayYou Earn. This was created in 2011 by President Obama’s executive action. And it was created based on the authority that,that the president was given by that original law that created ICR.

So President Obama was acting on authority given to him by that original law and created Pay As You Earn a more generous version of that [00:18:00] repayment plan. then came Revised Pay As You Earn in 2015 again by President Obama based on the authority from that same law.

And then finally, president Biden created the very extremely generous SAVE plan, during the COVID era. Which was the most generous of all, and also based on the same authority given by that law. So we have these sort of layers of repayment plans added on top of each other over the years, some based on actual statute, others based on the authority given by that original ICR statute.

And the authority that the president has is really the question, of the court cases related to the SAVE repayment plan. the courts are now deciding whether the President, president Biden had the, actually had the authority given by that law to create such a generous plan.

That’s essentially what’s happening here.

And so this current bill, this big one, big beautiful bill, is going to overhaul [00:19:00] substantially the current student loan system, and it’s gonna do that for current borrowers and future borrowers.

New IDR Plan – Repayment Assistance Plan (RAP)c

Evon: And it’s going to introduce this new repayment plan called the Repayment Assistance Plan RAP.

And what this plan does is it’s going to have. and it’s gonna calculate your payments based on a percentage of your adjusted gross income, a percentage of AGI, and it’s a graduated level of percentages, so it’s gonna be anywhere from 1% to 10% of your AGI, depending on what your income is. for optometrists, you’re most likely looking at 10% of AGI.

So for example, if your adjusted goes income is $200,000, your payment’s gonna be $20,000 per year or roughly $1,600 per month.

And it would still allow you to file taxes separately and exclude your spouse’s income from the calculation. It would have forgiveness, but over 30 years instead of 20 years or [00:20:00] 25 years And it allows a small $50 a month reduction in payments per child and and payments under this plan would still qualify for PSLF.

and this repayment plan’s likely to be less favorable than the others. If you think about how the others are calculated, it starts with your income. It subtracts out an amounts based on the poverty line for your family size.

And then it multiplies that by 10% or 15% for the old IBR and so the new plan basically just takes very likely 10% of your AGI just directly and so from your AGI directly and with without subtracting that poverty line amount. So it’s very likely to lead to higher payments and a longer timeline towards forgiveness and.

And then it makes important changes to the options that you have as a current borrower. The SAVE plan and the Pay As You Earn and ICR are all [00:21:00] eliminated. All of those, all of those, all of those repayment plans based on the original law, those are all gone. And it’s gonna replace it with two options for current borrowers.

You’re either gonna choose between a modified IBR plan, which is basically the old IBR plan, or this new RAP.

So these are gonna be your options, which is not favorable for current borrowers. I mean, for, for current borrowers, especially if you took out loans after 2007, have either Pay As You Earn or new IBR. If you took out your first loans after 2014, which are more favorable payment calculations, both half payment caps and a 20 year route to forgiveness.

So these are gonna be pretty substantial changes for, for current borrowers. for future borrowers. So for those that are not in programs yet. but are going to be starting to take out your first student loans, in after mid 2026.

your only option’s going to be RAP or the standard repayment plan. If [00:22:00] this goes through as it is, it’s gonna lead to some pretty important decisions for anyone that is going towards forgiveness. Especially if you’re in this range where your student loan to income ratio is somewhere around one and a half to one, that route to forgiveness is gonna be more expensive, and so for all borrowers, you’re, you’re essentially gonna have to look at this with fresh eyes and see what makes the most sense.

Public Service Loan Forgiveness (PSLF) Remains Mostly Intact

Evon: when it comes to public service loan forgiveness, PSLF continues to be tax free. However, medical and dental, dental residencies are no longer going to count if you are entering those residencies.

after mid 2026, which is not as substantial as an impact maybe for Optometry, a much more substantial impact for for physicians coming outta med school. Student loans discharged if you’re disabled or deceased, will continue to be tax free.

However. Student loan forgiveness after 20 or 25 years becomes taxable once again. currently through 2025, forgiveness is tax free. What we were wondering if a [00:23:00] congress will extend that out into the future. but they took no action on that. And so 2026 and beyond, forgiveness again becomes taxable.

Wrap Up

Evon: and so these are some of the provisions I’m keeping an eye on. And again, this is not law, this is still proposed bill. I, I would imagine there are a lot of changes that are gonna happen as it goes through Congress.

In terms of the tax planning, again, it just, it essentially extends a lot of the tax provisions now with adjustments here and there. but we’ll keep an eye on that as things go through on the student loan side, it, it becomes more serious. I mean, these are major changes to current borrowers.

For you as a current borrower, you took out your loans. With a promissory note, with a contract, with a government under a certain set of rules. And essentially what this is doing is the government’s saying, we are not going to honor this contract that we, that we entered into with you.

we’re gonna change that as we go. I mean, this is something that a private borrower would never be able to do. Imagine your mortgage lender [00:24:00] suddenly increasing your interest rate, you know, 10 years in.

So I am hopeful that enough senators hear from their constituents, that for current borrowers at least, they grandfather you into the current roles that you’re working in. essentially they, on that, they just simply honor the contract that you signed as you took out these loans.

And I’m hopeful that’s something that we’ll see changed. in, in the show notes, I’ve included a draft letter if you want to, that you can take and edit and send to your senators in your state. This is not something I wrote, but this is something I got from someone else, for, for me to share.

So take that letter, send that out to your senators. And hopefully we’ll be able to see some adjustments here, but the student loan side is, is a more serious set of changes that we’re, we’re keeping an eye on.

That being said, we don’t know what will happen until it happens, and most of the people that I follow tend to expect that these senates side of this will be, will be released [00:25:00] somewhere just before 4th of July, early July.

So. We’ll keep an eye on that. I’ll be bringing you updates as we go, both through this podcast as well as my weekly eyes on the New Eyes on the Money newsletter , so I’ll throw a link in the show notes for you to sign up for that as well, if you wanna keep up to date on all this stuff.

But if you have questions, please let me know if you have concerns about how all this impacts your current planning. if you feel like you don’t have a game plan at all, reach out to me. Would love to get a chance to hear what’s on your mind and see how we can help and be a resource for you.

With that, really appreciate your time. Have a great weekend and we will catch you on the next episode. In the meantime, take care. [00:26:00]