Tue, October 7, 2025

On July 4th, President Trump signed the bill H.R.1, dubbed the One Big Beautiful Bill Act (“OBBBA”), into law. The Act contains provisions that could have a significant impact on taxes with careful planning. Complicating matters (is tax law ever not complicated?) is the fact that there are different start and stop dates throughout the bill, with some changes effective in 2025, while others don’t kick in until 2026 as well as various levels of income at which tax benefits may be phased out. As we head into fall, we thought it would be helpful to highlight what we believe are some of the key provisions of OBBBA that may impact our clients. We will also note some potential planning strategies that may be considered both this year as well as in future years in keeping with our belief that all good planning should have a multi-year view. As always, consult with your tax and legal advisors and your advisory team here at TFC to determine whether a particular strategy is applicable to your situation and will help you and your family accomplish your long-term goals.

 

Elements of OBBBA That Case A Wide Net

1. The tax brackets from the Tax Cut and Jobs Act of 2017 (TCJA) have been made permanent.
   1. The highest income tax rate bracket remains at 37%
2. Higher standard deductions have been made permanent: Effective in 2025, the amounts are as follows:
   1. Single & Married Filing Separately (MFS): $15,750 (indexed)
   2. Head of Household (HoH): $23,625 (indexed)
   3. Married Filing Jointly (MFJ): $31,500 (indexed)
3. State and Local Tax (SALT) Cap Raised to $40,000: State and local tax deductions had been capped at $10,000 by the TCJA. Under OBBBA, this has been raised to $40,000 for most taxpayers, with limits based upon Modified Adjust Gross Income (MAGI).
   1. Increased deduction phases out when MAGI is over $500,000 for most filers
   2. If MAGI is over $600,000, deduction reverts back to original $10,000 amount
   3. Increased cap is effective for tax years 2025-2029 before reverting back to $10,000 starting in 2030

Planning Ideas: The uncertainty that existed about the potential “sunsetting" of the TCJA rates and brackets has been removed. This allows for more certainty around managing tax brackets with planning ideas such as Roth IRA conversions and the deferral or acceleration of income. In a prior update we highlighted the benefits of Roth IRAs, not only for the account owner but also beneficiaries who would inherit those assets. (Read Prior Update Here). The increased SALT deduction cap may allow more individuals to itemize deductions, thus increasing the tax benefits of charitable giving. What will be critically important is to understand the interplay between the different provisions of the law and what the net impact will be to your overall situation.

Tax Provisions Impacting Businesses

1. Bonus depreciation: Restored the 100% bonus depreciation for qualified property placed in service after January 19, 2025.
2. Section 179 deductions: The maximum amount a business may deduct for qualifying expenses is increased to $2.5 million, with the phaseout threshold raised to $4 million, both indexed for inflation after 2025.
3. Qualified Small Business Stock (QSBS) gain exclusion: There is an exclusion from gross income of gain from the sale or exchange of qualified small business tock. The amount of the gain excluded is dependent on when the stock was acquired and how long it was held. This can be a very valuable provision for small business owners who acquired stock at issuance from a small company that has grown into a valuable enterprise. OBBBA relaxed the required stock holding periods, allowing for partial gain exclusion for periods of less than 5 years.

Additional OBBBA Provisions

1. Enhanced deduction for Seniors: Although eliminating taxes on Social Security income was considered, it was not part of the final legislation. There is an enhanced deduction for seniors, on top of the higher standard deduction, allowing for planning opportunities that may not have existed previously for retirees.
   1. Those age 65 or older may benefit from an additional deduction of $6,000 per person. This is subject to phase-outs starting at $75,000 of MAGI for individuals and $150,000 for married filing jointly couples. This is a temporary deduction, effective for 2025-2028.
2. The Qualified Business Income (QBI) Deduction was made permanent: Certain recipients of pass-through income, including REIT income, may qualify for a 20% deduction.
3. Charitable deductions for non-itemizers: A charitable contribution deduction for certain charitable contributions starts in 2026 ($1,000 for single filers, $2,000 for joint filers). Taxpayers do not have to itemize to use this deduction.
4. Limitation of Charitable Deductions: Beginning in 2026, charitable contribution deductions will be limited by instituting a floor of 0.5% of adjusted gross income.
5. Estate and Gift Tax Exemption: A permanent increase in the exemption to $15 million per person goes into effect in 2026 (subject to indexing).
6. Expansion of 529 Plan Qualified Expenses: Allows for the use of 529 plans to pay for more K-12 and homeschool expenses as well as postsecondary credentialing expenses.
7. Reduced taxes on Tips and Overtime wages: Available through 2028, up to $25,000 of qualified tip and/or overtime pay may be able to be deducted from taxable income.

Planning Ideas: Seniors that are close to phaseout levels will need to pay close attention to their income to take advantage of the enhanced deduction. Consideration should be given to increasing charitable donations in 2025 (possibly through a Donor Advised Fund) before limitations are enacted in 2026. The use of Qualified Charitable Distributions (QCD’s) from IRA’s continues to be a key planning opportunity for those over the age of 70½, both now and in future years.

The tax bill was wide-ranging and included many other provisions that will have an impact on different taxpayers, including items related to Alternative Minimum Tax (AMT), student loan debt, clean energy credits and auto loan interest. As is often the case with financial planning, there is no one right answer for everyone. On a recent webinar, Ed Slott, a well-known CPA and IRA expert, referred to the arcade game “whac-a-mole” when discussing tax planning for the OBBBA. The interplay of the different provisions, income phase out ranges, and varying effective dates continue to stress the need for individualized planning. As always, one’s personal goals should drive the decisions that are made. We are available to work with you to help understand and recognize opportunities for tax-efficiency and ensure your portfolio is properly aligned to meet your long-term goals.

Sincerely,

Michael Meehan and Leann Sullivan