July 4th is a significant day for our nation, marking not only our country’s birthday but also a pivotal change in legislation that will impact all taxpayers. The world is still digesting the nearly 1,000-page bill, signed into law on Friday, July 4th, 2025. We aim to provide you with a high-level overview of the most significant aspects.
Income Tax Bracket Unchanged and Permanent
In 2017, President Trump passed the Tax Cuts and Jobs Act (TCJA). This legislation benefited taxpayers by reducing their income tax liability and was set to sunset at the end of this year. The One Big Beautiful Bill (OBBB) makes permanent the current tax bracket system, as initially outlined in the TCJA. This clarity is tremendously helpful in planning Roth conversions, retirement income, and overall tax management.
New Senior Deduction
Starting this year, individuals over 65 will receive a $6,000 deduction per person through 2028. Phaseouts begin for those with adjusted gross incomes of $75,000 for single filers and $150,000 for those filing jointly. The legislation does not directly reduce how Social Security is taxed, despite confusing messaging. Its impact will be felt most by middle-income seniors earning $50,000 to $200,000 a year, essentially negating the tax due on their Social Security.
Estate & Gift Tax Exemption Increased
Effective 2026, the estate and gift tax exemption will be increased to $15 million per person / $30 million per couple (indexed for inflation). This exemption is made permanent, providing certainty, as it was also set to sunset under the TCJA.
State and Local Tax (SALT) Deduction Increase
Under this deduction, taxpayers can deduct certain state and local taxes. The TCJA capped SALT deductions at $10,000 a year, and this harmed higher-income taxpayers in high-tax states. The OBBB will increase the deduction to $40,000 for 2025-2029. This increase phases out for adjusted gross incomes between $500,000 and $600,000.
Charitable Giving Deduction Changes
Starting in 2026, taxpayers who do not itemize can deduct charitable gifts of up to $1,000 for single filers and $2,000 for married filing jointly filers. This provision is not indexed for inflation
There is also a new floor of 0.5% on deductions for taxpayers who do itemize beginning in 2026 as well. This means that those taxpayers who itemize and make charitable contributions will only be able to claim a tax deduction on dollars that exceed 0.5% of their adjusted gross income. So, a couple with an adjusted gross income of $300,000 could deduct charitable donations over $1,500.
Car Loan Interest Deduction
A deduction of up to $10,000 annually for interest on new car loans as long as stipulations in the act are met (example – vehicle must be for personal use). The phase out for this deduction starts at adjusted gross incomes of $100,000 for single and $200,000 for joint filers.
Income Specific Deductions
Tip income can be deducted up to $25,000. $12,500 per person of overtime income can be deducted ($25,000 per joint return). For both of these income-specific deductions, phaseouts start at adjusted gross incomes of $150,000 for single and $300,000 for joint filers, with the deduction being reduced by $100 for every $1,000 earned above these thresholds.
Trump Accounts: Child Focused Savings
New tax-advantaged investment account prefunded with $1,000 for each child born 2025-2028. Children born before 2025 are eligible for the IRA-like accounts but not the $1,000 Trump contribution. These accounts also allow for $5,000 annual contributions before the child turns 18, as well as a provision that allows employers to contribute $2,500 tax-free for dependents.
529 Plan Qualified Expenses Expanded
There was an expansion of qualified expenses for 529 Plans, allowing more funds to be used tax-free for education. Eligible expenses include testing fees, dual enrollment tuition, educational therapies and adaptive learning tools, tutoring and outside-home educational classes, books or digital educational content, curriculum, and instructional materials.
While the name might be playful, the One Big Beautiful Bill Act is serious business. These are just a few of the provisions of the act. With some provisions already in effect and others taking effect in 2026, now is the time to familiarize yourself with the bill and its provisions. From preserving lower tax brackets and enhancing deductions for seniors to expanding savings incentives for families and those with charitable inclinations, these provisions will shape the financial landscape for years to come. As details continue to emerge, we remain committed to helping you understand and navigate these changes, ensuring your financial strategy aligns with your goals.
Get in touch with us today if you have any questions or want to talk further about your financial goals.