What tastes better? Hamburgers and hot dogs with family and friends, or an 1,100-page piece of legislation served on your plate? Depends on who you ask. On July 4th, President Trump signed what is officially known as the "One Big Beautiful Bill Act"1 (OBBBA) into law. A tax bill focused on extending the 2017 Tax Cuts and Jobs Act (TCJA) was anticipated, and expected, once Republicans won control of the Oval Office and the Legislative Branch back in November, but the provisions and details of the bill were in flux until the final hours. We now have all the details. According to the Tax Foundation, the OBBBA passing will prevent tax increases on 62% of taxpayers that would occur if the TCJA expired as scheduled at the end of this year2. For the record, I will leave debates about the projected impact on GDP growth, the spending deficit, and government debt to the many economists who are far more qualified than I am.
While many items such as "no tax on tips and no tax on overtime pay," that President Trump campaigned on made it into the bill (albeit with limitations,) there are many provisions that impact a greater number of individuals and businesses owners that I will try to detail below. As with all tax policy, nothing is ever simple (sigh), so here's an attempt to simplify it. While these changes will provide taxpayers with meaningful opportunities to enhance their personal financial situations (some I will highlight at a high level below the summary table,) the purpose of this is to simplify and summarize the provisions that will impact most of the general and business owner population.
A couple of things to highlight before we get started:
• The OBBBA's more than 1,100 pages covers a wide range of legislative issues beyond taxes that touch areas such as healthcare, energy and education policy, and more. While those areas are important and impactful, the focus of this piece is the taxes.
• As noted above, these are not all the tax provisions that were included/excluded in the bill (tax on tips and overtime, Trump accounts, etc.) That would be far too long, and I'd probably lose most readers, if I hadn’t lost you already!
• Lastly, I want to note that "permanent" only means it does not have a date outlined in the bill where a provision sunsets, and it could be stripped/altered if new legislation were to pass.
The table below summarizes many of the key tax changes.
Quick hit planning ideas:
• Increased Standard Deduction - For taxpayers, especially those 65 and older, the increased standard deduction (and bonus for those over 65,) provides room to realize/earn more income without paying additional tax. This provision has increased and extended the window through 2028 to potentially harvest more capital gains, conduct Roth conversions, and be pay less tax on realized income.
• SALT Cap lifted to $40,000 - Similar theme as above but for those who do not utilize the standard deduction and pay state and local income taxes above $10,000. This has the potential to be especially meaningful to those itemizers who earn less than $500k/year. This provides a window through 2029 to pull more income forward while potentially using the increased cap to pay no income tax on that income.
• Increased use of 529 funds for K-12 private education - one of the themes we often hear as advisors is that parents are hesitant to fund 529 accounts because the future of higher education is unknown. Will it be free? Will my child even go to college? Well, now that you can utilize up to $20k/year/child for private K-12 education, this can help. For those parents with younger children who they want to send through private school, this is a great way to tax-efficiently save and grow your money for that future expense.
• Extension of QBI passthrough income deduction - With this being extended permanently, this could be an opportunity for business owners not currently structured as passthroughs (likely C Corporations that would convert to an S Corp,) to confidently make the change. The increased income threshold for SSTBs will also allow more small business owners to take advantage of these tax savings.
• Reinstatement of 100% bonus depreciation and Section 179 increase - For business owners/operators purchasing capital and real estate, this is a fantastic opportunity to depreciate the full purchase (up to $2.5M,) in one year. Pairing timing of purchases with higher profit years, high taxable income from other sources, etc. has the potential to generate meaningful tax savings.
There you have it. Lots of pages create lots of planning opportunities. It is not often that opportunities like this come around, and there are many more than the few listed above. Time for our advisory teams at Stonebridge to get to work on this and make the most of it!
If you have any more questions or concerns please reach out to your advisory team.
Disclaimer: This is not tax advice, and you should always consult with a CPA or tax professional. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. (22-LPL)
1 https://www.congress.gov/bill/119th-congress/house-bill/1/text
2 https://taxfoundation.org/research/all/federal/big-beautiful-bill-senate-gop-tax-plan/