On July 4, President Donald Trump signed H.R. 1, the One Big Beautiful Bill Act (OBBBA), into law. The legislation extends and makes permanent many of the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 that were scheduled to expire at the end of this year while also addressing other tax priorities of the Trump administration.
The One Big Beautiful Bill Act contains a number of provisions that could affect financial, tax and estate planning strategies for individuals and business owners. Following is a breakdown of some of the law’s key provisions and how they could impact your clients.
Income tax brackets are made permanent.
The lower income tax brackets enacted by the TCJA were set to expire at the end of this year. However, the legislation not only extended these lower rates, but it made them permanent. The individual income tax brackets for 2025 are as follows:
Tax Bracket Single filers Married couples filing jointly
10% $0-$11,925 $0-$23,850
12% $11,926-$48,475 $23,851-$96,950
22% $48,476-$103,350 $96,951-$206,700
24% $103,351-$197,300 $206,701-$394,600
32% $197,301-$250,525 $394,601-$501,050
35% $250,526-$626,350 $501,051-$751,600
37% $626,351 or more $751,601 or more
Note: Select tax brackets will receive additional inflation adjustments.
State and local tax (SALT) deduction cap is increased.
The itemized deduction limit for SALT has been raised from $10,000 to $40,000 for taxpayers with modified adjusted gross income (MAGI) up to $500,000. This cap will be raised by 1% annually through 2029 before reverting back to $10,000 in 2030. The higher SALT deduction limit will be especially beneficial for clients who live in high-tax states and cities.
Higher standard deduction is retained.
The higher standard deduction enacted by the TCJA has been increased and made permanent. The standard deduction this year will be $15,750 for single filers and $31,500 for married couples filing jointly, indexed annually for inflation beginning in 2026. Since the standard deduction was raised by the TCJA, the number of filers who itemize deductions has fallen from around 30% to less than 10%.
The personal exemption and miscellaneous itemized deductions are permanently eliminated.
These were temporarily repealed by the TCJA but this repeal is now permanent. The only exception is the educator expense deduction, which remains in the tax code.
Higher gift and estate tax exemptions are retained.
The TCJA raised the gift and estate tax exemption limits and these higher amounts have been increased and made permanent. The lifetime gift and estate tax exemption in 2025 will be $13.99 million for single filers and $27.98 million for married couples filing jointly, rising to $15 million and $30 million, respectively, in 2026, indexed annually for inflation.
Higher alternative minimum tax (AMT) exemption is made permanent.
The TCJA raised the AMT exemption, which significantly lowered the number of taxpayers who are subject to the AMT. The higher exemption has been permanently extended to $88,100 for single filers and $137,000 for married couples filing jointly in 2025, indexed annually for inflation. In addition, the exemption phaseout threshold reverted to $500,000, or $1 million for married couples filing jointly.
The qualified business income (QBI) deduction is made permanent.
The TCJA created a new deduction of 20% of QBI for pass-through business entities (such as S corporations, partnerships and LLCs) that would not benefit from the lower corporate tax rate. This deduction under Section 199A was scheduled to expire at the end of this year, but it is now permanent. The income threshold for the deduction was raised from $50,000 to $75,000 for single taxpayers and from $100,000 to $150,000 for married couples filing jointly.
New retirement accounts are created for minors.
Known as Trump accounts, these tax-free retirement accounts allow minors to contribute up to $5,000 annually to an IRA until they turn 18. No withdrawals are permitted before age 18, up to 50% of the account balance may be withdrawn for qualifying purposes between ages 18-25 and 100% may be withdrawn for qualifying purposes between ages 25-30. Full access to funds is available after age 30.
The One Big Beautiful Bill Act (OBBBA) also includes several new tax breaks that President Trump emphasized during the election campaign. These provisions affect tip, overtime and Social Security income:
Deduction for tip income.
This is in place of the “no tax on tips” campaign pledge. Employees who work in occupations that customarily receive tips can deduct up to $25,000 annually in tip income. The deduction is available through 2028 and phases out once MAGI exceeds $150,000 for single taxpayers and $300,000 for married couples filing jointly. The deduction is “above the line” so employees don’t have to itemize to claim it.
Deduction for overtime income.
This is in place of the “no tax on overtime” campaign pledge. Employees can deduct up to $12,500 (for single taxpayers) or $25,000 (for married couples filing jointly) of overtime income annually. The deduction is available through 2028 and phases out once MAGI exceeds $150,000 for single taxpayers and $300,000 for married couples filing jointly. The deduction is “above the line” so employees don’t have to itemize to claim it.
Senior deduction.
This is in place of the “no tax on Social Security” campaign pledge. Seniors who are 65 years of age or over can deduct an additional $6,000 (for single taxpayers) or $12,000 (for married couples filing jointly) on top of their standard deduction and the additional standard deduction for seniors. The deduction phases out at a rate of 6% once MAGI exceeds $75,000 for single taxpayers and $150,000 for married couples filing jointly. The deduction is “above the line” so seniors don’t have to itemize to claim it.
There has been some confusion about the senior deduction that was caused in part by an early press release from the Social Security Administration (SSA) stating that the OBBBA “eliminates federal income taxes on Social Security benefits for most beneficiaries.” This technically isn’t accurate as the senior deduction is not tied directly to the taxation of Social Security benefits and doesn’t eliminate Social Security taxation outright. The SSA has since issued a revised press release that makes this clearer.
Since the new tax law is still recent, now would be a good time to talk to your clients about how it could affect their retirement planning strategies. This gives you an excellent opportunity to open doors to retirement income, tax mitigation, tax diversification, asset protection, estate planning, and more. Have questions about how the OBBBA might affect a specific client scenario you’re working on? Reach out to your marketer to request a call with Tarkenton Financial’s Advanced Markets specialist, Heather Schreiber!
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