Amy and Mike welcome back Paul Allen from PimTax to discuss the One Big Beautiful Bill Act (OBBA) and its implications for military families and retirees. They explore various tax changes, including the auto loan interest deduction, expanded child tax credit, and the SALT cap increase. Paul provides insights on charitable contributions, end-of-year tax planning, and the importance of preparing for the upcoming tax season. The discussion emphasizes the need for proactive tax strategies and awareness of new deductions and changes in tax law.

Chapters

00:00 Introduction to the One Big Beautiful Bill Act

02:40 Impact on Military Families

04:25 Considerations for Military Retirees

06:21 Understanding the SALT Cap

08:28 Charitable Contributions Changes

11:34 Surprises and Overlooked Opportunities in OBBA

16:57 End of Year Tax Planning

19:13 Roth Conversions and Phase Out Limits

22:12 Preparing for 2026 Tax Year

23:47 Final Thoughts and Action Items

Takeaways

• The One Big Beautiful Bill Act has specific provisions for military families.

• Auto loan interest deduction will be available for new vehicles in 2025.

• Expanded child tax credit will benefit many military families with children.

• The SALT cap increase will primarily benefit higher income earners.

• Charitable contributions will have a new 0.5% floor starting in 2026.

• Planning ahead for taxes is crucial to avoid last-minute stress.

• Be aware of the IRS’s staffing issues and potential delays this tax season.

• Roth conversions can be beneficial but should be approached carefully.

• Understanding state tax implications is important for military retirees.

• Organizing financial documents early can streamline tax preparation.

Links

Paul Allen – Pim Tax – ⁠https://pimtax.com/⁠

Military Tax Experts Alliance – ⁠https://militarytaxexperts.org/⁠

Schedule a consultation with Mike: https://nextmissionfinancialplanning.com/contact/   

Schedule a consultation with Amy: https://www.instarfp.com/contact

Transcript

Amy (00:00)
Hey Mike, ⁓ as we are heading into the end of the year, screeching into the end of the year here, ⁓ we have Paul Allen from PimTax teed up again. He’s our, he was our, I think he was our first guest and then our first repeat guest. ⁓ He’s fantastic as hopefully most of our listeners know. And we’re going to be talking about the One Big Beautiful Bill Act. ⁓ So very excited to talk with Paul, get some updates on this.

Mike Hunsberger (00:14)
It was.

Amy (00:28)
tax bill that that’s a little bit unique. ⁓ So super excited.

Mike Hunsberger (00:34)
Yeah, it’s going to be a good episode. I encourage you to listen and figure out, what can I do before the end of the year? And then what do I do as we start 2026 to make sure, hopefully, taxes are less taxing next year.

Amy (01:24)
So we’re excited to have Paul from PymTax back. ⁓ Paul, you were a guest a little while ago. It’s exciting to have you back here to talk about one big, beautiful bill act. For those who didn’t get a chance to listen to you the first time, can you give us a quick introduction of yourself?

Paul Allen (01:42)
Sure. My Paul Allen is, ⁓ as Amy said, and I have a tax service called PIM tax services. Been in business for this would be my 11th season. And, ⁓ before that, well, I was, ⁓ a Navy officer. I retired from the Navy in 2010, kicked around for a little bit, doing some government work and then decided to open a tax practice. I’m also a financial planner.

Amy (02:05)
We’re excited to have you here. Thanks for coming on the show again.

Mike Hunsberger (02:10)
Yeah, our first our first repeat guests. So, ⁓ yeah. Well, we appreciate it. So, ⁓ so, as Amy kicked off, we want to talk some about the one big, beautiful bill act. And, ⁓ you know, that passed around July 4th. We covered it a little bit on here, but it’s great to have a true tax person on here. But so am I corrected my assessment that, you know, while it was a big deal?

Paul Allen (02:12)
⁓ I’m thrilled. I’m honored and thrilled to be back.

Amy (02:16)
you

Mike Hunsberger (02:40)
As far as changes that people are going to see for this year compared to last year, there’s probably not that much difference. Is that a good assessment?

Paul Allen (02:50)
I think for your audience, is mostly military families, I think that’s largely true. There are a couple of exceptions that I think will impact military families’ ⁓ provisions in the OBBA, whatever we’re going to call it. But ⁓ it was not as comprehensive as the Tax Cuts and Jobs Act, but there were still quite a lot of moving parts to this ⁓ legislation. The aspects of it that I think will matter most to military families.

And of course, every military family is different, broadly speaking, I think is the auto loan interest deduction. So people that bought new vehicles in 2025, be able to deduct that new vehicles built in the United States. ⁓ we’ll be able to deduct that auto loan interest and then also the expanded child tax credit. I think many military families having children will, will like that expanded child tax credit and

could impact people that are in a ⁓ qualifying combat ⁓ exclusion zone for taxes. There’s sort of a decoupling this year of the refundable portion where you don’t have to have, it’s not as directly related to your earned income. So you can have a very low earned income like you may have experienced in a combat zone and still get a lot of that. ⁓

tax credit refunded to you. those two things I think is what I’m expecting to see this year is the big impacts to our military families.

Amy (04:25)
Now along those same lines, so that’s sort of the overview for what might most impact ⁓ current military families. What about military retirees? Do you think there’s sections that might be a bigger deal for folks who are in the retired phase of life?

Paul Allen (04:42)
Well, there’s 40 year retirees, 40 year old retirees, and then there’s 70 year old retirees, right? So there’s the senior deduction for people over 65 now. there’s the additional deduction. I was originally supposed to, the president wanted to make social security not taxable. That proved to be harder than it was gonna be able to get done in one year. it was.

Modified into this senior citizen deduction of an additional $6,000 that does phase out for married couples filing jointly between 150 and $250,000 of adjusted gross income, but that will impact them for sure. Again, the retirees that are fully retired, not just military retired, right? Like, like the three of us are military retirees, but we’re still working.

Mike Hunsberger (05:35)
Right.

Yeah.

Paul Allen (05:37)
And

Amy (05:37)
Okay.

Paul Allen (05:37)
we’re not going to be impacted by that scene reduction, although I’m getting close. I’m much closer than you guys are already getting that. Otherwise.

Amy (05:42)
you

Paul Allen (05:47)
Yeah, I don’t, I don’t think so. I don’t think so because the rest of the things, maybe the salt cap, ⁓ you know, because older, you know, if you’re still working, you tend to have, you know, advanced in your second career. So you’ve got a nice pension. You’ve got a, ⁓ you’ve got your second career, maybe both of you as a, as a married couple, maybe both spouses have a good second career. And so those higher incomes.

tend to will tend to be using that salt cap increase more than people with lower incomes.

Amy (06:21)
can you just expand a little bit on this all cap kind of walk people through it because, you know, I think maybe there’s not a ton of clarity around what it is or how it applies and how it works.

Paul Allen (06:32)
I did kind of just open that door and not go very far through it, didn’t I? So the SALT ⁓ is an acronym for state and local taxes. So state and local taxes ⁓ until 2018, until the Tax Cuts and Jobs Act, state and local taxes were able to be fully deducted from your federal income taxes for those who itemized their deductions.

Amy (06:37)
you

Paul Allen (06:57)
Starting in 2018, there was a $10,000 limit on the state and local taxes that could be deducted on your federal income tax return. Starting this year in 2025, that has increased to $40,000. So we will see people who pay more in state and local income taxes, which again tend to be people with higher incomes because they can afford more expensive houses and so they have higher property taxes. They have

higher incomes, so they have more state taxes and they will ⁓ typically be the ones who are benefiting from that state and local ⁓ tax increase, the increased deductibility of that state and local taxes. Again, I don’t expect to see a whole lot of people actually using that because the standard deduction is so large now that I think most families are still going to use the standard deduction regardless.

But I do think it’ll impact a few people and they’ll be getting a better tax result based on that increased state and local tax cap.

Did I hit it? Did I get it?

Mike Hunsberger (08:07)
You. No, I think that was great. I think that was great. And one of the other things that’s, you know, really hasn’t changed this year, but will next year as part of the itemizing is along the lines of charitable deductions. Can you talk a little bit about those changes and maybe how somebody would think about it this year?

Paul Allen (08:28)
You’re thinking ahead like a planner. Like a planner. So it’s not a 2025 issue. For 2025, the charitable giving tax treatment is the same as it has been in the past. Starting in 2026, there’s going to be two changes to it, which is there’s a, for itemizers that have significant charitable contributions, there’s going to be a 0.5 %

Mike Hunsberger (08:31)
you

Right.

Paul Allen (08:57)
floor 0.5 % of your AGI floor. if you have

$100,000 AGI, then a half percent of that is $500. Did I do that right? Yeah, $500. So your charitable contributions will have to exceed $500 before they start to count, okay, going forward. However, there’s also going to be, this is something that was very popular during COVID was the government said, hey, we’re gonna make a special deduction for charitable contributions that you can do in addition to,

Mike Hunsberger (09:10)
You good?

Paul Allen (09:33)
itemizing. for people who didn’t itemize, they still got some tax deductibility for their charitable contributions. That is coming back and it’s going to be starting in 26, not in 25, it’s starting in 26. It’ll be up to $2,000. It’s $1,000 per person, $2,000 for married couples, I believe. I’m not 100 % on all my 26 numbers yet because I’m still trying to get the 25 ones straight in my head. But I believe that’s how it’s going to work. if you

Mike Hunsberger (09:59)
yeah.

Paul Allen (10:03)
Use the standard deduction as most people will. can starting in 2026, you can also get an additional deduction for charitable contributions up to a thousand dollars for single filers, $2,000 for married couples filing jointly. But if you itemize your deductions and you’re going to itemize your charitable deductions, there will be a 0.5 % floor on that. And as my friend Lila Quintilliani

likes to point out that this does not impact the QCD, right? So the qualified charitable deductions that people can make, people who have IRAs and they are required to take required minimum distributions can do a qualified charitable distribution directly from their IRA to a charity. And that is not going to be subject to the 0.5 % floor. So that sort of increases the value of that deduction.

Mike Hunsberger (11:04)
Yeah, that’s great. you know, so yeah, and you know, so one of the things that I mean, we’re running out of time. But if you’re hearing this and thinking about making a big donation, could make sense to, you know, bunch into this year versus waiting till next if you’re going to, you know, be in the itemizer camp, because then you won’t have the floor. But yeah, it’s, you know, a couple couple changes there along those lines. And good news for, you know, the people that

Paul Allen (11:05)
or that strategy.

Mike Hunsberger (11:34)
no longer itemize because now you can at least get, if you’re terribly minded, to at least write off some of that. So that’s a good deal.

Paul Allen (11:44)
Yeah, I think it’s great.

And it’s gonna be good for the charities too, which is fabulous.

Mike Hunsberger (11:47)
yeah, yep.

Amy (11:50)
So when you look ⁓ at ⁓ all the things that are in O-Triple-B-A, whatever we’re calling it, we don’t have like a clever acronym name just yet. They didn’t think that through when they named this bill. ⁓ But is there anything that you were surprised to see in there or anything that you see as ⁓ might be an overlooked opportunity by people going forward or sort of gotchas that might be happening or that might happen?

Paul Allen (12:22)
I surprised by anything. I would say I was surprised at the number of new deductions and the way that they are being implemented because the no ⁓ tax on tips is actually a deduction. The no tax on overtime is actually a deduction. ⁓ No tax on auto loan interest is a deduction and then the new senior citizen deduction.

All of those are being implemented, not on schedule A for itemizers, right? These are being taken in addition to the standard deduction. But they’re not being implemented where we normally do that on a tax return as adjustments to income. But instead, we’re building this category that we’re calling between the line deductions, right? We used to have above the line deductions, which were before AGI was calculated then.

below the line, are essentially itemized deduction. These are deductions that are going to go on the tax return. If you’re familiar with the 1040, where the QBI deduction goes. So all these are going to fall right there ⁓ after your AGI is calculated. So what does that mean? That means they can’t be used as a strategy, right? Because sometimes you’re trying to make do a tax strategy to reduce your AGI so that you’ll qualify for certain other benefits or credits, right?

They won’t do that for you, but they will be taken in addition to your standard deduction, which is good.

If there’s an overlooked opportunity, think it was our government’s opportunity to make the tax code simpler, right? Like deductions like this are very popular because if you get to use it, everybody loves like being able to reduce their taxes, but the implementation of these, all these new rules just means there’s all these new things people need to look out for. And especially for this first year, because OBBA came…

Wait, triple BA. You said there’s no acronym, Amy, but that I thought that was quite good. I like O triple BA. ⁓ but like you said, it came July 4th. ⁓ and so the IRS, you know, after laying off 25,000 people are getting rid of reducing their work, their manpower force by 25,000 people got tasked with implementing a bunch of new laws and rules. And so, ⁓ what they, what they ended up

Mike Hunsberger (14:25)
Yeah.

Paul Allen (14:53)
doing to sort of streamline things was telling all of the, you know, the employers don’t have to provide the W-2 information this year in 2025. They don’t have to provide the W-2 information for tips. They don’t have to provide the W-2 information for overtime. ⁓ Lenders don’t have to provide a 1098 for auto loan interest this year. And so, you know, those

those ⁓ reminder mechanisms when you get a document in the mail that says important tax document enclosed, you know, that spurs your memory like, yeah, that’s right. This is a deduction issue. Those aren’t going to exist. So taxpayers need to be thinking like, I did buy a new car and I do have new car loan this year and I’m not going to get a document. So I need to provide something else that shows the interest I paid to substantiate right on your tax return. How much

of a deduction you get. And to just remember that you this thing is now there and and that you’re you know you may be eligible for it.

Mike Hunsberger (15:58)
Yeah, that’s a great point. hadn’t heard that, thought about that, that yeah, they’re not going to have the documents this year that show everything. Because you know very well, it’s, know, for Amy and I do as planners that, you know, even though they get the documents, folks don’t always think it through and pass it to whomever is doing their taxes. you know, and it’s like, well, don’t you have this document?

you know, and just file it without. So, yeah, it’s that’s that’s a great point. So something that we definitely want to, you know, make sure we’re reminding our clients on that this won’t this won’t be there. So, so, yeah, we’re now, you know, rapidly approaching, you know, just about two weeks, a little bit more left in the year. Any any thoughts of what folks can do? I mean, a lot of times the windows really closing quickly.

But ⁓ any thoughts on things people should be doing now before the end of the year?

Paul Allen (17:04)
⁓ Well, between now and the end of the year, I think at this point, you’re kind of just with charitable contributions because those can be made on the 31st. And as long as you’ve got some record that it was sent on the 31st, you can, you can claim that on your tax return, trying to do, you know, sort of maybe you’re in the middle of a traditional to Roth conversion strategy or something like that. Getting we’re almost at that point where, you know,

Fidelity and Vanguard and Schwab don’t want to hear from you about opening a new account and moving your stuff right now, right? So they’re getting swamped with those end of year requests. you maybe can still get it done, but you’re really pushing it, I think, at this point to try and get that done. ⁓

But some things like your IRA contribution, if you’re doing deductible or even non-deductible contributions to a traditional Roth IRA can be done after the end of the year, ⁓ up until April 15th, up until the time that you file your tax return.

⁓ And then or an HSA, which is not very common for military families or veteran families to have because you have to essentially give up TRICARE, which is a very valuable benefit to give up in order to have an HSA. But there are a few out there who I run into who have that issue. if you’re, know, and if you’re going to, if you’re giving up TRICARE to get an HSA, you better be maxing that thing out, right? To get maximum value out of that thing. ⁓

Mike Hunsberger (18:35)
Yeah.

Paul Allen (18:40)
Yeah, that’s about it for end of year planning that I’ve got.

Amy (18:43)
Now, how would you think? mean, because there are some new phase out limits that came into effect for 2025, right? So some things that we weren’t tracking at the beginning of the year, but now exist. you made the comment about Roth conversions and of course, everybody’s getting 30 or so emails a day from TSP about Roth conversions next year. ⁓ Do you have any sort of sage advice or thoughts for people around maybe taking a harder

look at Roth conversions and being more careful about the phase out limits for this year.

Paul Allen (19:18)
I don’t know that it’s sage advice, but I am a big fan of converting to Roth. Even people like me pushing that senior discount will still get value out of that, ⁓ I think. ⁓ And so as a tax strategy, it’s hard for us tax professionals because we’re always trying to maximize this year’s return or this year’s result. And for planners like yourselves,

⁓ you’re looking at the bigger picture, which is, how do we reduce your lifetime taxes? Not just this year where you may end up having to pay some more to set yourself up to pay less taxes for the rest of your life, right? ⁓ Which is the right thing to do, absolutely. But some tax return preparers might resist you ⁓ on that front, right? Of saying, well, you don’t want to do that. You’ll just end up paying more taxes now because we’re kind of always thinking in the present. ⁓

I don’t know that I have any real sage advice except that I am a fan of it. I ⁓ was very pleased to see the in-plan conversions coming out for TSB. ⁓ I don’t worry about that myself because I would just roll everything out to an IRA and convert it. But people that are still in the military for sure, if in-plan conversions are available, I would take them.

But look at your overall tax situation first. Don’t just rush into it. You know, just because something is a good idea doesn’t mean it’s a good idea to do right now. Right? So you want to look at the overall tax impact of what that’s going to be because you know, if you have a couple hundred thousand in your TSP and you convert that in one year, welcome to the 37 % bracket, my friend. You don’t want to set yourself up for that. Right? So you want to set yourself up for doing it in a tax efficient manner. Even if it takes three to five years to

Mike Hunsberger (21:06)
the

Paul Allen (21:15)
to convert it all.

guess that is what I would advise is make sure you make sure you know what the tax impact is going to be before you do it because once you do it you can’t undo it.

Amy (21:29)
Yeah, yeah. And 100 % agree Roth conversions, love Roth conversions, ⁓ maybe more things to pay attention to and watch out for so that they’re not surprises on this year’s tax return.

Mike Hunsberger (21:45)
Yeah, yeah, Paul, you mentioned the IRAs that can be funded through, you know, when you file your taxes, April 15th, that ballpark. Anything else people should be getting ready to do so that they are prepared for, you know, next year’s, you know, preparing their return for 2025 and, you know, looking ahead to that 2026 tax year.

Paul Allen (22:12)
Well, I guess for this year, aside from what I said already, I would just, you know, be prepared to be patient with the IRS more so than usual. Like I said, they let go, right, beginning of the year, new administration, let’s let go of 25,000 people from the IRS, middle of the year, let’s make sweeping changes to the tax laws that need to be implemented by the IRS who is now understaffed, right? So I think the environment is, shall we say, ripe for some chaos this year.

also I think we’ve had two different IRS commissioners this year so far. So just be prepared that things may not go smoothly. Fingers crossed. Maybe they will, you know, sometimes people rally and pull it out, but there, there could be issues. And so be prepared to be patient. That’s one thing I would say. And then for 26.

Well, I would love it if people were thinking about 26 right now instead of 25, right? That’s ultimately what we planners advocate for, Is planning ahead instead of reacting at the end of the year, right? Which is what you’re saying. Okay. People were in reaction mode. What can they still do to salvage some good, some, some tax strategy between now and, ⁓ and, the end of the year. But, but if you’re planning for 26, you know, you start that plan now and start implementing.

your tax plan for the whole year early in the year, you will find that you’ll have a lot, I think a lot better success.

Amy (23:47)
So heading into sort of the closeout, you will, one thing that everybody should, anybody who has to file a tax return, one thing that everybody should do this week.

Paul Allen (24:03)
You should know how you’re going to file your tax return, I would say this week. If you’re working with a professional like myself, then have that person picked out and make sure they have space available for you. Because if you wait till March, you’re likely to get the, you know, get the hand, you know, ⁓ I will be full at that point. You will have to go on extension. You know, we can put people on extension. But now is the time.

to contact a tax professional if you plan to work with one and if it’s not your same person that you’ve used in the past, if you’re using a different person, ⁓ contact them now and make sure that they are available because the number of tax firms is shrinking. And so ⁓ the demand is escalating because the…

The supply is falling. It’s an economic selection now. Sorry. ⁓ and then the other thing is, ⁓ if you’re doing your own, right, figure out how you’re doing your own, because there was a free file system last year in many States, about half dozen States or so. And that has gone away. The IRS has said, we don’t have time for that this year because we’re implementing all these new changes. And so, so that’s gone. So make sure you know, you know, pick your.

Pick your tax filing software of choice and make sure that you know how you’re going to get it, when you’re going to get it. And then get it early and get started early. I guess it’d be make that plan. But I think your question was what should they do this week? And this week I would say know how you’re going to get it done.

Amy (25:42)
Yeah, I mean, and I would love to foot stomp that because there’s, you know, last tax season, ⁓ my clients are asking, do you know anybody? Sure, they’re all full. I know lots of people. ⁓

Paul Allen (25:55)
Yeah. It’s not uncommon.

was a, I’m a procrastinator myself in college. You know, I wrote all my papers the night before they were due, but, ⁓ you know, so a lot of people contact me on April 10th and they’re like, could you get me done by April 15th? There’s no way I could make that happen. There’s no way, unless they agree to be my only client. And then we got to really talk about the fee that that would be right. But yeah.

Amy (26:14)
Yes.

Mike Hunsberger (26:19)
Yeah.

Amy (26:19)
Yeah, yeah.

I mean, I think that one one thing that people need to understand is even if you think you’re going to owe, should you can still do your taxes and file them very early in the season. You don’t have to pay until April 15th.

Paul Allen (26:35)
Yeah, that’s a great point. I have a lot of people that we prepare will prepare their return in February and they find that they owe and then they don’t want to file it, which becomes a bit of a, ⁓ know, we need to sort of be tracking that fact that we need to circle back around to them and get them to sign and file that return. And yeah, you’re exactly right, Amy. You can you can file it. You do not have to pay until April 15th.

Mike Hunsberger (27:00)
Then anything, you know, one action for maybe military that are still serving.

Paul Allen (27:08)
Well, if you’re a landlord, get your profit and loss sheet together, right? Get your know what all your income and expenses were for your for your rental property or your side hustle. Maybe it’s not a rental property. You’ve got some, you you drive for door to ash or you’ve got some Etsy business on the side, whatever it is. A lot of families are doing this now. So just make sure you have this have your books in order, right? Which is for tax prep purposes for these small businesses or rental property businesses.

is a profit and loss sheet, right? Which just lists, it sounds, maybe it sounds fancy, but it’s really not. It’s just a list of like all of your income items and all of your expense items categorized. And you go to my website and I’ve made a little video for it because I had so many people ask me, what’s a P &L? And so I have a little video where I explain it now.

Amy (28:04)
Nice. And, you know, just to sort of wrap up a little bit, if people remember only one thing heading into 2026, what should it be about OBB or O triple BA, whatever we’re calling it, ⁓ or taxes in general?

Paul Allen (28:25)
Well, I would say sort of two things. I’ll foot stomp again on plan ahead, right? Don’t react in December, plan in January for that year, right? And then the other thing I would say is be aware that not just when the federal government changes tax laws, it impacts almost all the states because almost all the states, including Virginia, where I live.

The first line on the Virginia tax return is what was your federal adjusted gross income? Well, if the tax laws change, that may change, right? So be aware that all of the states, if you have to file state income taxes, all of the state tax law changes may have had some modifications as well. And for retirees, there are, think, five states who changed the way they’re taxing pensions this year. So five that I’m aware of. So be aware of that.

Make sure you are not paying ⁓ more than you need to pay on your military retired pay.

Mike Hunsberger (29:31)
That’s great. ⁓ So Paul, think we hit what we wanted to. Anything we missed that you want to talk about or if not, let us know how we can, know, folks can reach out to you if they are interested in possibly getting taxes done. You may get a flood hopefully in the next week before you fill up.

Amy (29:51)
You

Paul Allen (29:52)
Possibly. Well,

while in the event of that, I do want to plug my colleagues at the Military Tax Experts Alliance. It’s militarytaxexperts.org and it’s some some ⁓ of my friends and I who are do taxes and specialize in military families have this professional association. And so if you’re looking for a tax preparer and you especially if you have state tax issues.

⁓ You really need somebody who’s familiar with military tax situations and so I would go to military tax experts org to find your tax preparer if that’s what you want

Mike Hunsberger (30:35)
That’s great. We’ll make sure we put that in the show notes so people can find that. But yeah, appreciate that. Amy, anything else?

Amy (30:35)
us.

No, just thanks again, Paul. We know how busy you are with taxes and some other things you have going on. You do a lot of great work for military families across the financial space, and we’re just thrilled to have time with you again.

Paul Allen (30:56)
Thank you so much for having me on and thanks for those kind words.

Mike Hunsberger (31:00)
All right, take care, Paul.

Amy (31:02)
Take care.