Kendall Neukomm (00:00)
Hello everyone and welcome back to Whitley Penn Talks, where we give you valuable insights to help you make confident, informed decisions and move your business forward. My name is Kendall Neukomm and today we’re talking about what you need to know as we are currently sitting in the 2026 tax season. So I’m excited to be joined today by John Karp and Kristen Sayegh. Welcome back both of you.

Kristen Sayegh (00:55)
Thanks for having us.

Jon Karp (00:56)
Well, we’re glad to be here. Thanks.

Kendall Neukomm (00:58)
Awesome, awesome. ⁓ both tax partners here at Whitley Penn, so I will let the two of them do a quick intro. It’s been a little bit since they were officially on the channel, but Jon, we’ll start with you.

Jon Karp (01:09)
Sure, I’m Jon Karp, I’m a tax partner here in the Dallas office. doing taxes for a little over 30 years now and been at Whitley Penn for a little over 15.

Kristen Sayegh (01:19)
My name is Kristen Sayegh and I’m a tax partner in our Houston office. I’ve been with the firm practically my entire career. They acquired a firm that I was part of when I was just a baby, but that acquisition was in 2012. So 14 years now with Whitley Penn and ⁓ do a lot of work in the private client service space. So a lot of the questions today that are structured towards individuals fall right in line with the types of clients I serve daily.

Kendall Neukomm (01:48)
Awesome. Awesome. Well, thank you both for reintroducing yourselves to the audience and we’re happy to dive in today and learn more from what you both have been seeing over the last few months. So to kick us off, we saw a lot of changes in legislation this year, including increased standard deductions, changes in TIP and overtime taxation, senior deductions, salt limits. Could both of you get us started by walking through the changes that your clients have been seeing the most or that have been the most surprising and explain what each of these entails for our listeners?

Jon Karp (02:22)
So the increased standard deduction, I won’t say that they saw that as a change. While we as professionals see that as a change, think our clients, that’s what it was last year. So we remind them that the change is it’s permanent. So it’s interesting that while it’s a change in the law, because they talked about it, it’s not really a change. But it is increased.

Kendall Neukomm (02:33)
Mm-hmm.

Jon Karp (02:47)
In every other change that talks about itemized deduction, that standard deduction impacts that. Like I think some clients don’t understand the impact that it takes a while to get over that standard deduction hump to where you can truly itemize your deductions, which plays into some of the other additions that we’ll talk about with the no tax on tips, the no tax on overtime, because you don’t have to itemize to get those.

Kendall Neukomm (03:11)
Mm-hmm.

Jon Karp (03:16)
So those are treated a little different.

Kristen Sayegh (03:19)
Yeah, and I would say you’ll hear this is an interesting time for the podcast because it is March 23rd that we’re recording this.

So John and I have already worked through a slew of returns already, probably going to do many more in the next three weeks than we have the last three weeks, but we’ve already started to see the impact of this. So some of what we’ll be referring to is like live from the battlefield, if you will, of us doing these tax returns.

But you know, in the news, was lots of talk about no tax on tips, no tax on overtime. I think the biggest ⁓ surprise to our clients is that many of them, doesn’t really affect. The income thresholds for a lot of the things that passed in the bill over the summer are potentially low, depending on your scale of what is a lot of income. But no tax on tips phases out when a single person makes more than 150,000 or a married person makes more than 300,000. So whether or not that’s a lot of money to you or not, you may be thinking you weren’t going to pay tax on your tips and then you realize, wait, I’m over the threshold, it doesn’t apply to me. Same for overtime, overtime has the same ⁓ threshold, you know, whereas I think the news hype these up and we’re talking about it a lot, maybe the actual taxpayer, and specifically our clients are realizing, I don’t get any benefit for it.

Jon Karp (04:47)
Well, and on the overtime, it may not even be the income limits. It’s if you have a job that says, hey, we’re going to pay straight time overtime, and it’s not time and a half. Well, that means you don’t get any of this no tax on overtime, because if they pay you straight time, that doesn’t count. It’s only the incremental difference of the time and a half of the half. And so there’s a ⁓ of employers who did just pay straight time overtime, and that’s all they’ve ever done now and they may be trying to figure out if they could change things but this all came down so fast, even to the extent that the revenue service has told employers hey just do your best. I mean we know that you’re not going to get this right

I think the other one that got some of our clients that are little older engaged was the senior benefit when you’re over 65. And that we have these deductions that, again, just like the no tax on tips and the no tax on overtime is above the line. don’t have to itemize and you get this. And I think for the seniors, this came about because they kept talking about social security, and we’re gonna take social security away, we’re gonna tax more social security, and instead, they gave this benefit of a $6,000 benefit, that’s just a deduction above the line. Again though, as long as you don’t phase out.

So then some of the planning is to make sure that if you have to make choices of how you’re taking your money for the next couple of years to make sure you get that $6,000, do you minimize your income to make sure you’re not facing out of that deduction? Because I look at it as a gift. The government’s given seniors a $6,000 gift if they can keep their income low enough.

Kristen Sayegh (06:41)
Yeah, and then I think the last maybe surprise that we’re seeing is just the increase in the state and local tax deduction. If you make less than $500,000, your state and local tax deduction can now be up to $40,000 instead of $10,000. Here in Texas, when property taxes are so high, most taxpayers were meeting the $10,000 deduction with just their property taxes. We weren’t talking about how much they were paying in sales tax. But with the increase going up to 40,000, your property taxes may not be more than $40,000. So all of a sudden we’re asking our clients, did you have any out of the ordinary expenses that we could add the sales tax on those deductions to your property taxes? And the IRS doesn’t want you to keep track every time you go to Target or Home Depot and add up all of those little receipts that you’re just kind of paying sales tax as you live your life. So they’ll give you a standard amount that we include in your return, but you can add to that standard amount extraordinary items. So I always give the examples of a car, a boat, jewelry, maybe household appliances, if you bought new kitchen, ⁓ refrigerator and everything like that.

So. we can add the sales tax on those specific items to the standard amount the IRS gives you. And for the first time in a long time, ⁓ from the cap being just $10,000, we’re now asking for this additional support to increase the state and local tax deduction.

Jon Karp (08:19)
And realize with everything we’re talking about, none of these are permanent in nature. So a lot of them expire, whether it’s in 28 or 29. So for instance, the state and local goes away after 29. It’s this little window of time now, having said that, what we also see is why we say it’s going away once the government gives us deductions, sometimes it’s very difficult to take them away. So these might survive, they might change. And when I say they could change, it may not be 40,000, maybe it’s 25. Like it really depends on what’s happening in Congress and where the budget is and where they have to trim. I think that’s important.

And it’s also, realize the planning for clients to plan for some of this, it was so late in the year that while they only really had six months at that point, right? So that some clients that may have not been enough time for them to totally make plans, take advantage of everything out there. and I say that with the senior deduction because a lot of people take their RMDs in January. Plus they may say, well, my RMD is 50,000 but I really need 200 to live. And so maybe they’ll just take more out of their IRA versus more out of an investment that just they could have taken principle of an after-tax investment to minimize it.

Kendall Neukomm (09:43)
Mm-hmm. Yeah, definitely. So a lot more focus on on this year in planning for next now that there’s a bit of a longer runway there for sure I would imagine ⁓

Jon Karp (09:53)
Absolutely.

Kendall Neukomm (09:56)
I do feel on kind of what we plan to talk about today. I know, I think we really just chatted through the SALT deduction there that we wanted to talk on question two, ⁓ for high income individuals and business owners, so what planning strategies would each of you recommend for the coming year, knowing that that salt deduction is a bit higher than it has been in the past?

Kristen Sayegh (10:19)
I think we’re bringing back a strategy that used to be discussed more before the salt deduction was only $10,000. And that’s trying to decide years that you’re going to itemize and then years you’re going to take the standard deduction. And we often call that grouping, where you possibly group your property tax from one year paid in January and the next year paid in December. So you’re grouping two payments into one year. ⁓ Combined with that, possibly one year you’re making your charitable contributions or making them right at December 31st and then making your next years in January. So we’re looking and trying to, it feels like they’ve given us the tool back to try to optimize between taking the standard deduction that the IRS is going to give you and itemizing.

And which years does that look best for and how do you group the payments that you can control to optimize between those two years. And so we’re having those conversations where we haven’t, it hasn’t really been beneficial in the past because of the limits in place.

Kendall Neukomm (11:25)
Yeah. And ⁓ for lay people and those like me listening to this episode right now, so we’re talking about deciding between the two options there. Is there a limit on how many standard deductions versus itemize you can take in a given time period?

Jon Karp (11:41)
Standard is one. I mean, either you’re married, filing joint, or you’re single. Like you get the standard or you don’t, right? And then it is, and other folks may have heard different terminology, by the way, where it’s grouping, bunching, doubling, like different folks refer to this differently in terms of their standard, not standard, but charitable and taxes and making their deductions. So realize if you’re doing charitable deductions, it’s up to 60 % of your adjusted gross income. Right? The standard is just what you get no matter what. It doesn’t matter.

Kendall Neukomm (12:17)
Mm-hmm.

Kristen Sayegh (12:19)
But Kendall, it doesn’t matter. You can choose standard for three years and then choose itemized for five and then flip to standard and back to itemized. It doesn’t matter. You can do whatever is most optimal every year. ⁓

Kendall Neukomm (12:25)
Okay, just determining which is most optimal for that year. Gotcha. That makes sense. I’m not a tax person. So for everyone listening, my questions come from ⁓ a genuine place and I want to make sure that everyone listening is ⁓ following the conversation like I am. So those are where my curiosity comes from.

Jon Karp (12:52)
Well then Kendall, so what, maybe we should have another, throw another couple of definitions for you. So when we were talking about, you know, the senior deduction, the no tax on tips and the no tax on overtime, we talked about that being above the line. What that really means is that that reduces your income before the taxes are even calculated.

Kendall Neukomm (12:57)
Perfect.

Jon Karp (13:13)
Right. it’s right. that means that it’s available whether you itemize or you don’t. So right. So you would get those deductions and then the standard deduction where charitable directions are below the line. Right? So that then you’re optimizing between do they give enough charity and do I have enough taxes versus taking the standard? And that’s kind of below the line. And then obviously when we talk about phase outs, because we’ve used that term a lot too, that it’s income rises above certain thresholds and albeit some of those thresholds may not be as great as we’d like them to be, your benefit of those deductions get tweaked down by the revenue services to where they could be nothing, right? Except for the state and local, you’ll always get 10.

Kendall Neukomm (14:00)
Mm-hmm. Yeah. Okay, that makes sense. if you’re listening and you are curious and you’re growing in your career and you’re exploring some of these questions for the first time, I think this is a great podcast to listen to and get some of those answers. So appreciate you both in clarifying for me there. ⁓ So moving kind of down again on what we plan to talk about today. So how are the changes to the retirement plan limits and contribution thresholds influencing the conversations that you’re having with clients about long-term wealth planning? So this isn’t something that we’ve chatted through just yet on this specific episode, but I do think that it’s important to think through that kind of planning for the coming year, the coming few years. So what have you both been talking about with clients recently?

Jon Karp (14:47)
So what I always look at clients, clients always ask about tax savings ideas. And then interestingly enough, when clients are, so we’ve just talked about all these phase outs and income limitations, but obviously if you want to retire and you want to put the most away in your retirement plans, then you have to make more money. So you have to report taxable income and have a higher earnings to max out certain retirement plans. You can always do 401k plans and max those out. And the thresholds, they keep moving those specials up and as folks hit 50, they add bonuses to those. And so as they keep having those referral and catch-ups, the answer to that is we’re always encouraging clients to do that. We’re saying you may as well do that. The other side is there’s an optimum between Roth IRAs and having a non-deductible portion out there.

Everybody thinks it’s tax savings, but if you’re even paying tax and you think you’re in a low, let’s say you’re in a 25 % tax bracket. And you think you might retire in a 37 % tax bracket, well, maybe you want to make sure you’re choosing a component of Roth 401k plans and you’re doing, taking advantage of that type of vehicle. So it’s not all just about tax savings. And then obviously we’ve seen the mega Roth back doors where people are making non-deductible contributions and then immediately moving that into a Roth IRA after their non-deductible contribution by the Secure Act and 2.0, they’re making it easier and easier for you to put money away. So even if you’re in a small business, you don’t even have to have your plan done until you file your tax return with extensions. So you may not even know you wanted a retirement plan, which it used to be. If you didn’t have that plan documented by December 31st, you just couldn’t do it. So they want to make sure you’re not just planning to live off of Social Security and they’re encouraging that participation in some sort of retirement vehicle.

Kristen Sayegh (16:50)
Yeah, and I think my perspective we always want to be having this conversation with the client’s financial advisor. We can speak a lot about the tax implications of the different plans and what the tax deduction would be or not be if you contribute to these plans. But a financial advisor is really going to be a one that, you know, can outline this and make sure that everything that’s being put away is actually accomplishing some goal. You don’t want to just put all of your earnings into a retirement plan every year when maybe you’ve already met your retirement savings goals and what you think you need in retirement, you’re already there and you could be doing more fun stuff with it.

So shout out to Whitley Penn Wealth too, because we do have a financial planning branch of the firm that could help with this. if you are at, a lot of times when clients ask me about some of these retirement planning questions, I’m like, you need to be having a financial advisor, not just somebody who invests your money. If they’re just investing their money, you should be getting with a financial planner that can do more planning and not just investing. All that being said, and me not being any of these listeners, financial planners, because I’m not one, I still think the Roth is a super great, amazing tool to be using.

What we regularly see in the tax returns that we file is people who are required to take distributions from their traditional IRA accounts and they don’t necessarily need that cash. So we talk about other ways to optimize that by doing qualified charitable distributions.

Jon Karp (18:26)
Wait, Kristen, what’s a qualified charitable distribution?

Kristen Sayegh (18:29)
So when you are required to take money out of your IRA, ⁓ a way to ⁓ minimize that requirement is to say, instead of giving me the cash, I want you to send money from my IRA to a charitable organization. And when you do that, you get to check the box that you took your required minimum distribution. But because the money went directly to the charity, it is not included in your income on your tax return.

So it satisfies the requirement of the requirement of distribution, but it does not go on your tax return. It doesn’t get reported as income on your tax return. And that matters because your income line on your tax return affects things like Medicare costs. So what we want to try to avoid is clients unnecessarily, because they don’t need it to live and function, having to take money out of their IRAs because they’re required to based on age and the value of the account inflating their income ⁓ for a reason that wasn’t needed, they didn’t need the cash, and then their Medicare costs increasing because their income is higher.

So all that to say, a Roth does not require required minimum distributions. So you get to dictate when you want to take the funds out and how that plays into your financial plan on maybe I retired last year, I’m not planning on picking up a consulting gig or Social Security is not going to kick in for a couple more years. So I’ve got some low income years that I can take, ⁓ take some IRA distributions. But ⁓ I personally think the Roth is still one of the best ⁓ tools out there, not being anybody’s financial planner and not knowing anything about anybody listening to this podcast.

Kendall Neukomm (20:13)
Great.

Perfect. But for those listening, if you would like to meet with a financial planner, we have our team at WP Wealth and we can partner together with them from a tax side and from your retirement plan point of view and have those types of conversations. So thank you, Kristen, for laying that out and reminding the audience that we have both resources that we can use together. So thank you there. Jon, anything to add before we jump down to our next topic?

Jon Karp (20:45)
No, think it’s, I think, well, one thing, sorry, as I said, nope. I think the only thing is, much as you don’t remember that as much as you don’t include as income, you also don’t get a charitable deduction. So, but you don’t want the charitable deduction because then you would increase your income. So it just, I’ve had that question asked before from a client. Hey, I know I gave money. How come I don’t get it on my tax return? Well, because of the way you gave it, which is the better way to give it. 

Kendall Neukomm (21:07)
Mm-hmm. Can’t double dip there.

Jon Karp (21:10)
Can’t double dip.

Kendall Neukomm (21:11)
Well, moving us down a little bit on our plan where we’re gonna wrap up here in just a few minutes, but a lot of the deductions that we’ve seen have been highly specific. So which of these changes have you seen create the biggest benefit for your clients for those that have applied so far?

Jon Karp (21:28)
So for me, it’s the QBI that they’ve kept. So we tend to represent a lot of small business, well, they’re not necessarily small, but we represent a lot of business in entrepreneurial businesses. And so with the QBI, the qualified business income deduction, they’ve kept that in there. And so we’ve been able to get that 20 % back for our clients, which probably the reason they did that was to kind of make it more equal with the 21 % C-corp tax. And so we, to bring their tax rates down and it’s worked out really well for several clients. And I’ve watched that be extremely impactful. The other is the extra 40 % of bonus depreciation seeing that be extremely impactful for clients. I’ll let you dovetail on some other ones rather than all.

Kristen Sayegh (22:23)
Yeah, I mean, this podcast so far is kind of focused a lot on the individual side. ⁓ And the QBI that Jon just mentioned does impact the individuals. ⁓ In general, ⁓ everything from this bill and how we’re seeing it play out is kind of like nice for everybody, but nothing’s like shocking and just like life changing.

For example, when they brought QBI, when they started QBI in 2017, that is significant savings, like potentially hundreds of thousands of dollars in deductions. Nothing that we’ve discussed today or that’s in this bill is really like that, except for what John mentioned, the 100 % bonus depreciation being back, the expensing of research and development costs is huge for businesses. I would say the bigger impact is on the business side. I would think businesses are, you know, seeing their taxable income, either that they’re paying tax on it or that they’re flowing out to their shareholders and their partners. And that number is going to be significantly less than it was this time last year, which is great. ⁓ And so hopefully that leaves more cash in the business to, you know, keep putting money into the economy or increased wages for their employees or whatever. So I think the businesses are breathing much more of a sigh relief and all the individuals are like, oh, okay, that’s nice. I mean, I’m not going to change my lifestyle or pay for college with these savings, but overall everybody’s tax liability is probably a little bit less.

Jon Karp (24:07)
And then the other one is they fixed the 163J, which is the interest deduction and the disallowance. So they used to be an EBIT calculation, which is they would add, you didn’t get to take your depreciation and amortization. So there are a of folks that, a lot of taxpayers, I shouldn’t say folks, lot of taxpayers ended up paying tax on this phantom income because there was no, they couldn’t take the interest deduction. And so I literally have had several clients that last year paid tax on about half a million dollars and this year it’s down to like forty thousand dollars. Nothing else changed by the way, all things being equal like when we run the numbers and so you’ll see them pay less tax and it’s the way it should be right. I don’t think the government really meant to charge you a bunch of tax on money you never see.

Kendall Neukomm (24:46)
Good.

Right, right. Well, right before we wrap up today, this has been a really awesome conversation and we appreciate you both taking time to meet with us on this busy, busy time of year. But as we look ahead to 2026 and beyond and we get to some of our true tax planning times of the year, what are the biggest opportunities and potential biggest pitfalls you see for individuals and businesses as they’re planning ⁓ moving forward and what would you give as some broad advice there.

Jon Karp (25:30)
I think we’ve probably already addressed most of it. think from a business side, I think it’s the QBI and the look at your appreciation, planning your purchases. I think that in closing, think really, I think the thought process is, remember the tax code, like everybody looks at it as this Greek mythology code, but remember that in the end, it rewards proactive planning. And so like the people who benefit the most are the ones who are not chasing the headlines and they’re just proactively planning and they’re looking at the scenarios before year end. I mean, I had one client email me less than a month ago and they said, oh my gosh, we made so much more than last year’s or anything we can do. And I said, that would have been really nice to have known before December 31st. And so I think, and even in the business side, it’s the same thing.

Right. That you can’t chase the headline and you can’t be chasing the deduction. So you. So the best advice is to be keeping track of everything. Have your books and your records and everything pretty up to date. So you’re not finally wrapping your year end up in June. So that if you did need a new piece of equipment, if you were looking at going into buying a piece of real estate to build a new facility, those decisions could be made timely because like one of the biggest things we didn’t talk about in the business, on the business side was if you’re in the manufacturing business, you could build a brand new building and write the whole thing off in one year. Well, you’ve never been able to do that before. So there are some, some tax attributes out there for clients. But again, if you’re constantly just chasing the headline and not doing the product of planning, then you don’t get there. So that’s my two cents for finishing up.

Kristen Sayegh (27:20)
Yeah. No, I completely agree. ⁓ Tax planning has, with this bill, has 100 % become a multi-year modeling exercise versus a single-year decision. And it’s also going to take a lot more teamwork between the client and the CPA to make correct decisions. Deductions are being based on what your income is going to be phase-outs are impacting deductions much quicker. ⁓ And so, you know, where clients always email us and say, hey, I have a quick question. And they just want to call and be like, should I buy this piece of equipment this year not? The answer to that has become so much more complicated and based on many more factors other than I have a chance to buy a $50,000, you know, piece of equipment, should I do it? Or, hey, I need to, I made a pledge to this charity, is this a year to write the million dollar check? The answer to that question is so much more complicated.

And so, you know, always try to tell clients tax planning is a year round process. You would not try to win a sports game in the bottom of the ninth on a three, two count. That’s not when you’re like, hey, how are we gonna strategize and win this game? You’re doing it every inning. And so the same goes with tax planning. All of us are kind of bogged down with some compliance work kind of here mid-March to mid-April. But as soon as that mid-April deadline passes, we are very much in the season. That is the third and fourth inning of the baseball game. And it is time to plan and strategize and be talking about how the year is going.

What do we expect for the rest of year? And how can we make some significant moves that can have an impact?

There’s just not enough time to do that December 20th ⁓ when a lot of times that’s when business owners and individuals think about these things because the answers are just that much more complicated.

Kendall Neukomm (29:27)
⁓ Yeah, definitely. thank you both for your time. And for all of those listening out there, we do put out a tax pocket guide once a year. So if you have questions on on deductions, and you want quick numbers on what those look like for current year, we do have a resource that’s on our website that’s also probably going to be linked below on this podcast channel. you can click that, you can download it, save.

For those listening, contact your Whitley Penn professional if you have questions, if you want to set up a meeting and look forward to planning for the years to come. We want to be with you every step of that path. So thank you again for being here. Thanks for listening. And if you enjoyed today’s episode, be sure to subscribe on YouTube, Spotify, Apple, or listen right on our website at WhitleyPenn.com slash podcast. If you’re interested in downloading our current tax pocket guide, as I did just mention, receiving tax alerts and further insights, check the link below in the description of this episode and you’ll find everything there. Thank you both for joining today and I hope everyone has a wonderful rest of their day. Thanks guys.