Now that the One Big Beautiful Bill Act has been passed by Congress and signed into law, here is a summary of the select provisions that I think are most relevant to you, my clients. This tax regime will be stable at least through the next presidential election. It may necessitate a review of your current tax-saving and tax-planning strategies. We should meet to discuss how this might change my recommendations at your earliest convenience.
The One Big Beautiful Bill's Impact on Your Financial Plans
My planning software has just coded in most of the more important provisions. So your financial plans now reflect the new tax reality. Across the board, the probability of meeting planned cash flows and ending wealth figures have gone up, but not dramatically.
The Tax Effects of the One Big Beautiful Bill
Tax Rates, Brackets & Standard Deductions
- Permanently Higher Standard Deduction: The larger standard deductions we’ve had since 2017 will continue. In fact, they were slightly increased starting in 2025. Basically, unless you have a large high-rate mortgage, large medical expenses, or you make large donations to charity in a single tax year, it will remain rare for most taxpayers to have enough deductions to make itemizing better than just taking the standard deduction(s).
- Bracket Adjustments: Starting next tax year, the 10% and 12% tax brackets will receive an extra inflation adjustment making them wider and lowering everyone’s effective tax rate slightly.
- Additional Senior Standard Deduction: A new supplemental standard deduction for those 65 and older of up to $6,000 per person now exists starting this year on top of the existing additional standard deduction for the blind/65+ of up to $2,000 ($2,000 for single filers, $1,600 per person for joint filers). But unlike the existing additional standard deduction, the new $6,000 deduction has an income phaseout that is fairly low. The deduction starts to phase out once your modified adjusted gross income (MAGI) exceeds $75,000 (for single filers) or $150,000 (for joint filers).
The One Big Beautiful Bill Provisions for Parents
- Permanent Child Tax Credit: The child tax credit was scheduled to drop to $1,000 from $2,000 for 2026. Now starting in 2025, the larger amount has been made permanent, boosted to $2,200, and will be indexed to inflation going forward. Note, only $1,700 of this credit is currently refundable. There are still income phaseouts, but they are fairly high so few households need worry about them now. That said, these phaseouts will NOT be inflation-adjusted. So eventually, the credit will be phased out for lower and lower income households.
- The New “Trump Account”: Several of you are expecting a child this year or next, have had a child in 2025 already, or have a grandchild on the way. For children born in the years 2025 through 2028, parents will eventually be able to apply for a $1,000 contribution from the government to fund a new “Trump account” as part of a pilot program. How you set this up and request the credit is unknown at this time. Actually, there’s a lot about this new account type that is unclear right now. But hey, it’s free money for your child’s retirement if you were lucky enough to be in family formation mode right now! (The accounts will operate sort of like an IRA but not quite.)
- PS: Anyone can open a “Trump account” for their child and contribute up to $5,000 per year, but in my opinion, its utility will be limited for parents who are mostly saving for education expenses in which case a 529 account is usually the superior option.
New Deductions
Charitable Giving
- New Permanent Charitable Deduction for Non-Itemizers: Starting in 2026, non-itemizing taxpayers will be able to make a deductible charitable cash contribution of up to $1,000 (Single) or $2,000 (MFJ) annually. Before, most taxpayers couldn’t receive a deduction on their taxes at all for their charitable giving if they didn’t itemize.
- What does this mean? If you don’t itemize but give small amounts to charity, you may want to defer giving until next year when you can claim a deduction for some or all of it. If you want to give more than this deductible limit but not enough to itemize, we should work on a plan to bunch multiple years of giving into a single year to get over the standard deduction. Or, we could set up a plan to defer all your giving until retirement when there are other opportunities available to you (such as using Qualified Charitable Distributions from retirement accounts).
For Teachers
- Educator Expenses: Technically, educator expenses will once again become an itemized deduction category. But you’ll need to itemize to be able to use it. Otherwise, you’re restricted to the small $300 to $600 deduction available to non-itemizers that is subject to certain exclusions. Since I work with teachers and it’s possible they may itemize in select future years, I wanted to highlight this change.
New Temporary Deductions Available 2025 through 2028
- “No Tax on Overtime”: A new below-the-line deduction is available to non-itemizers for overtime pay:
- It only applies to your overtime differential. So if you normally earn $30 an hour but receive time-and-a-half for overtime hours, only $15 per hour of overtime can apply to the deduction.
- The deduction is further limited to $12,500 (Single) and $25,000 (MFJ) per year.
- And it starts phasing out once your MAGI exceeds $150,000 (Single) or $300,000 (MFJ).
- Auto Loan Interest Deduction: Interest paid on auto loans taken out during these years is deductible up to $10,000 (you can refinance an existing loan as long as you don’t increase the principal remaining). However:
- The vehicle must be American-built and meant for personal use.
- Only limited vehicle types are eligible.
- And there are MAGI phaseouts (that are, of course, totally different than all the other MAGI phaseouts for various other provisions!).
- This is one of those incentives where you somehow have to have enough income to afford a large auto purchase where the interest deduction would be high enough to make a difference on your taxes but not so high an income that the deductibility gets phased out. Go figure!
For Small Business Owners
- Section 199A made “Permanent”: The 20% Qualified Business Income (QBI) deduction was made permanent (relevant to sole proprietorships, partnerships, and S-corps). I won’t go too much into this here, but there are ways to maximize this deduction as a business owner that you and your trusted EA or CPA should discuss.
- There may be other business-related tax breaks and tax strategies available that depend on your industry and revenue level.
Tax Planning Around the One Big Beautiful Bill
Overall, the One Big Beautiful Bill doesn’t lower taxes as much as it makes “permanent” most of the existing brackets and rates. So the jump in tax rates back to the old tax regime we were planning for will now not take place. At the same time, the bill introduces many income phaseouts, complexities, and other restrictions that significantly limit the benefits for the average person. There are many other facets of the One Big Beautiful Bill that I didn’t touch on, such as expanded uses for 529 accounts, permanently higher estate and gift tax exemptions, limited deductions for tip income, and so forth. But they aren’t really relevant to many of my clients at this time.
Let me reiterate my offer to discuss how the new tax changes will impact you specifically. Just set up a time for us to talk, and we can dig into the details!
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