We hope you and your family had a wonderful July 4thholiday!
On July 4th, the One Big Beautiful Bill (OBBB) was officially signed into law. While we are still digesting the 800+ pages of new legislation, we wanted to highlight some of the important topics that may be applicable to you.
Taxes
Tax Rates. The 2017 Tax Cuts & Jobs Act (TCJA) reduced income tax rates. These reduced tax rates were set to increase after 2025. However, the OBBB made these tax rates permanent. The current tax rate structure (10%, 12%, 22%, 24%, 32%, 35%, 37%) will remain intact.
Standard Deduction.The 2017 TCJA also increased the standard deduction amount for all filers. The OBBB has further increased both the standard deduction and the additional standard deduction (for those age 65+) for the 2025 tax year.
Standard Deduction:
- Single: $14,600 (2024), $15,750 (2025)
- Head of Household: $21,900 (2024), $23,625 (2025)
- Married Filing Jointly: $29,200 (2024), $31,500 (2025)
Social Security.Many hoped that “no tax on Social Security” would make it into the OBBB. Unfortunately, that did not happen. There is still the same taxation on Social Security as there was before. However, the OBBB includes what is being referred to as the “Enhanced Senior Deduction”. Anyone over age 65 by the end of year may deduct up to an additional $6,000 (per individual) if they fall below specific income limits. If your modified adjusted gross income (MAGI) is larger than the below income amounts, your deduction will begin to be phased out.
MAGI Limit for Enhanced Senior Deduction:
- Single, Head of Household: $75,000 (fully phased out at $175,000)
- Married Filing Jointly, Surviving Spouses: $150,000 (fully phased out at $250,000)
This deduction is only for tax years 2025 through 2028.
No tax on Tips & Overtime.The OBBB allows for up to $25,000 of tip income & up to $12,500 of overtime income to be deducted from their taxable income. The taxpayer does not need to itemize to receive these deductions. Taxpayers may only deduct qualified tips that are reported on the proper IRS forms (ex. Form W-2, Form 1099, etc.). The deductions begin to phase out for single filers with income greater than $150,000 and for married filing jointly with income greater than $300,000.
No Tax on Car Loan Interest.The OBBB allows for a deduction of up to $10,000 in car loan interest paid. It must be an original car loan. It cannot be on a cash out refinance or on lease financing. The deduction is phased out for single filers earning more than $100,000 and for married filing jointly filers earning more than $200,000.
Children
Additional Expenses for 529 Eligibility.The OBBB has expanded the qualified uses of 529 plan expenses for grade K-12 (including homeschool) expenses. Beyond tuition, funds can now be used for other qualified expenses such as standardized testing fees, educational therapies, and workforce credentialing. In addition, the OBBB has increased the distribution limit for qualified K-12 expenses. Previously, one could only distribute $10,000/year tax-free for K-12 expenses. The OBBB increased that limit to $20,000/year.
Tax-advantaged savings account for newborns.The OBBB states that the government will make a one-time contribution of $1,000 to what is being called a “Trump Account” for children born between 1/1/2025 and 12/31/2028. The tax-advantaged account is designed to promote long term savings for minors. Contributions to the tax advantaged account are allowed until the beneficiary reaches age 18. Up to $5,000 per year can be contributed to these accounts, and there is no tax deduction allowed for contributions. The money grows tax-free until it is withdrawn and must be invested in a broad stock index. Account holders can make partial withdrawals when they turn 18 and access the full amount at age 25, but only for "qualified purposes" including paying for college, starting a business, or buying a first home. They get full access to the funds at age 30 to use for any purpose. Once cashed out, distributions will be taxed as long-term capital gains (0%, 15%, or 20%) if the funds are used for a qualifying purpose. Money spent on anything else will be treated as ordinary income.
Increased Child Tax Credit.A permanent increase to the credit from $2,000 (2024) to $2,200 (2025) per qualifying child. The credit will be phased out for single (and head of household) filers with income over $200,000 & phased out for those married filing jointly whose income is greater than $400,000.
Charitable Contributions
For those that do not itemize deductions.Typically, charitable contributions can only be deducted if you itemize deductions. Therefore, if you took the standard deduction (like more than 90% of us do), you received no tax benefit for making charitable contributions. The OBBB now allows for a deduction, even if you do not itemize deductions. Taxpayers that take the standard deduction can deduct up to:
- Single: $1,000
- Married Filing Jointly: $2,000
For those that do itemize deductions.The OBBB is instituting a 0.5% floor on charitable contributions for those that itemize deductions. This means that one would only receive a deduction for charitable donations in excess of 0.5% of their adjusted gross income (AGI).
Extension of Increased Estate and Gift Tax Exemption.In 2017, the TCJA dramatically increased the estate and gift tax exemption. The OBBB has further increased the exemption to $15,000,000 and will be inflation adjusted upwards from 2025 on. This prevents the exemption from reverting back to $5,000,000 (pre-TCJA). This will be effective for estates of decedents and gifts made after 12/31/2025. This is very beneficial for estate tax purposes… but don’t forget that some states still have an inheritance tax (like Pennsylvania!).
Individual State & Local Tax (SALT) Deduction Limits.Previously, those that itemize deductions could deduct up to $10,000/year for state & local income (and real estate) taxes. The OBBB has increased this limit to $40,000 for 2025. This deduction is phased out for Single filers earning more than $500,000, and for Married Filing Jointly filers earner more than $1,000,000.
HSA eligibility.To contribute to a tax-advantage health savings account (HSA), you must have a high-deductible health plan (HDHP). Previously, Bronze and Catastrophic plans sold through the Affordable Care Act (ACA) marketplace were not considered HDHPs. The OBBB automatically treats these plans as HDHPS. Therefore, individuals on these Bronze and Catastrophic plans can now contribute to HSAs.
