Good morning and happy Monday!
“The hardest thing to understand in the world is the income tax.”
– Albert Einstein
After months of negotiations, on the 4th of July, Donald Trump signed “The Big Beautiful Bill” which is a massive piece of legislation that will affect every person reading this memo.
This was an 870-page comprehensive tax package that has far more than I can provide in an email this morning, but I will attempt to provide the highlights here.
The most important part of this legislation is making the current tax brackets “permanent.” I feel it important here to point out that virtually nothing is permanent in Washington D.C., but what this means is that there is no scheduled expiration for these tax brackets. 2025 was the final year of the current tax code, so without legislation we would have a significant tax increase at all income levels. From my perspective this is a positive thing.
I personally am a fiscal conservative, so from my perspective there are some good things and some bad things about this bill. I will try my very best to be neutral in my commentary here, but I do feel it necessary to point out that the deficit spending of our politicians is problematic at best. This tax bill, although providing many attractive tax provisions, will continue our economy in deficit spending mode. One of these days the leaders of our nation will have to address the issue of our ballooning national debt, but there seems to be no appetite from either party for that presently, much to my chagrin.
A few disclosures: I am not a CPA (and none of what I discuss here should be interpreted as tax advice, consult a CPA for tax guidance), and I am not a politician (thank God!). I have done my best to gather all the data I could and consolidate it here for your reference, but I cannot promise everything is 100% correct. This is a fluid situation and I’m spending hours doing my best to sort through everything, but I may have inadvertently missed something or oversimplified something. I thank you in advance for your patience and understanding.
Ok, on the business of the bill (as best as I can decipher) 😉
- Permanent Extension of 2017 Tax Cuts (TCJA): The OBBBA (One Big Beautiful Bill Act) makes permanent the lower tax brackets, increased standard deduction, and other provisions from the 2017 Tax Cuts and Jobs Act, preventing a potential 62% tax increase for many taxpayers. The top income tax rate remains at 37%, and the standard deduction increases by $1,000 for individuals and $2,000 for married couples filing jointly, with an additional temporary $6,000 boost for seniors through 2028. I’ll expand on this more next week with the full brackets themselves and some financial planning thoughts with the brackets.
- No Tax on Tips and Overtime (Through 2028): A new deduction allows tipped workers to exclude up to $25,000 in qualified tips from federal income tax, phasing out for individuals earning over $150,000 (or $300,000 for joint filers). Similarly, hourly workers can deduct up to $12,500 in overtime pay.
- Car Loan Interest Deduction (2025–2028): Households can deduct up to $10,000 annually in interest on new auto loans for U.S.-made vehicles, with phase-outs starting at $100,000 for individuals and $200,000 for joint filers.
- Qualified Business Income (QBI) Deduction: The 20% QBI deduction for pass-through businesses (e.g., sole proprietorships, partnerships, S corporations) is made permanent, providing continued tax relief for small business owners.
- Estate and Gift Tax Exemption: The estate and gift tax exemption increases to $15 million per individual starting in 2026, indexed for inflation, offering significant opportunities for high-net-worth individuals to optimize wealth transfers.
- Capital Investment Expensing: Businesses can immediately expense 100% of costs for machinery, equipment, and new factory construction, with the expensing cap raised to $2.5 million, fostering investment and growth.
- 529 Plan Expansion: 529 accounts now cover additional K-12 expenses (e.g., tutoring, textbooks, special education), and the bill introduces tax credits for donations to voucher schools, enhancing educational funding options.
- Medicaid and Social Program Changes: The OBBBA cuts $800 billion from Medicaid over 10 years, introduces work requirements and imposes stricter eligibility verifications. This was a controversial provision in act with many objecting to millions of people losing Medicare coverage. In actuality, the requirement under the bill is that those who are able-bodied and aged 18-64 must work 80 hours a month (average 20 hours a week) to be eligible for Medicare benefits. Probably not as controversial as it was made out to be. This starts on December 31, 2026. Eligibility will be required every 6 months instead of the current 12-month requirement.
- Student Loan Repayment Changes: Existing income-driven repayment plans, including the SAVE plan, are replaced with a new Repayment Assistance Plan (RAP), potentially increasing monthly payments for borrowers.
- SALT (State and Local Taxes) deductions increase from $10,000 to $40,000 in 2025 (now!), increasing by 1% each year through 2029. It reverts, back to $10,000 in 2030. If you itemize this is where state and local taxes such as real estate taxes and state/city income taxes are deductible on your federal return. Again, only if you itemize. I can dive more into depth on this at a future point.
- Child Tax Credit: increases from $2,000 to $2,200 per child in 2025 (would have gone to $1,000 in 2026 without a tax package). $1,700 of this $2,200 child tax credit is refundable in 2025, meaning that even if a taxpayer does not pay taxes, they would get $1,700 refund per child. If a tax filer claims 2 children and pays $5,000 in taxes, the tax bill would be reduced to $600 … a $4,400 savings (2,200 x 2 children). This is income capped with phase outs starting at $200,000 (single) and $400,000 (joint). Glad to provide more information upon request.
- Established “Trump Accounts” which are tax-advantaged savings accounts for children born from 2025-2028. Upon birth, the federal government will deposit $1,000 into each child’s account to be invested in a diversified fund that tracks a U.S. stock index. Parents & employers will be able to contribute to the accounts as well. This is kind of a neat way for children to get exposure to investing at a young age. A middle school or high school class on economics takes on a whole new meaning to these kids when they have actual money invested themselves.
- EV & Clean Energy Tax Credits: This bill ends the $7,500 tax credit for the purchase or lease of an EV (electric vehicle) starting September 30, 2025. So, if you were planning on purchasing an EV and getting a tax benefit, you’ve got a small window remaining. Other tax credits for energy-efficient home upgrades (solar panels, etc.) end 12/31/2025.
Now, one of the things that was campaigned for but did not make it in the finalized bill was exempting Social Security from taxation (changes to Social Security, including taxation, is generally prohibited in reconciliation legislation). This is disappointing, however, a temporary additional standard deduction of $6,000 per senior (age 65+) or $12,000 per senior couple will apply for tax years 2025-2028 for those with incomes below $75,000 (single) and $150,000 (joint). This applies to all income, not just Social Security, and starts now … in 2025 (very attractive!). If your income is above the income thresholds, there is a phase out, and it’s completely eliminated with incomes over $175,000 (single) and $250,000 (joint). According to the Social Security Administration “the bill ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits.” For my clients who are 65+ there are multiple strategies for us to employ here. I’m still sorting through a bunch of ideas … stay tuned. 😊
Believe it or not, there’s the super simplified version 😉
I will continue to sort through all of this, and I intend on using next week’s memo to address further practical implications of this bill.
In the meantime, please do not hesitate to reach out if there is anything we can do to assist you on your journey. It is an honor to help navigate these waters with you.
Make it a great week ahead.