Understanding The “One Big Beautiful Bill Act” – What It Means for You

buskaretirement
Tue, 22 Jul 2025 16:01:47 +0000
Investing & Markets

You’ve likely seen the headlines about sweeping changes to the tax code and retirement rules thanks to the newly proposed One Big Beautiful Bill Act (OBBBA). Here’s a plain-English guide that not only summarizes each key provision, but more importantly, explains what it could mean for real people-and the practical steps you may want to consider.

Extension of the 2017 Tax Cuts and Jobs Act (TCJA)

What changed?
The individual income tax brackets and the expanded standard deduction-originally set to expire after 2025-are now permanent.

What it means for you:

Long-term planning clarity: With brackets no longer set to rise automatically in 2026, it’s easier to forecast your lifetime tax liability, time capital gains, or plan Roth conversions.

Roth conversion window stays open: If your current marginal tax rate is lower than what you expect in retirement, now is still a good time to convert traditional IRA/401(k) money at a lower rate.

Standard deduction vs. itemizing: The permanently higher standard deduction means many households still won’t itemize. That impacts charitable giving-consider strategies like bunching donations or using a donor-advised fund (DAF).

Action Step:
Re-run your multi-year tax projection with your advisor to evaluate strategies like Roth conversions, income bunching, or strategic deductions.

Salt Deduction Cap

What changed?
The cap on deducting state and local taxes (SALT)-income, sales, and property-rises from $10,000 to $40,000 for 2025, then gradually phases out at higher income levels and reverts to $10,000 in 2030.

What it means for you:

Temporary relief for high-tax states: If you own property in states like New York or California, you may see meaningful federal deductions again-at least for the next five years.

Alternative Minimum Tax (AMT) caution: If you’re subject to AMT, the SALT deduction might still be limited. Review your exposure with your tax advisor.

Action Step:
If you’re planning to sell property or recognize significant income between 2025 and 2029, coordinate that timing to align with this temporary deduction window.

New Temporary Deductions & Credits (2025-2028)

“Trump Accounts” for KidsWhat changed?
Each child born between 2025 and 2028 receives a $1,000 government-funded “starter” account. Parents and others can contribute up to $5,000 per year, per child. Funds grow tax-free and can be withdrawn tax-free for qualified uses (education, first-time home purchase, or starting a business).

What it means for you:

Early compounding power: A $1,000 government contribution growing at 9% annually for 18 years could grow to ~$4,717-even before family contributions.

More flexibility than 529 plans: Qualified uses extend beyond education, which may appeal to families with diverse future goals.

Action Step:
Review your annual savings plan and decide how to allocate funds between 529s and Trump Accounts based on expected education vs. homeownership priorities. Deduction for Tip Income
What changed? Up to $25,000 of qualified tip income (or $50,000 for joint filers) is now deductible. This phases out at $150,000 AGI for individuals and $300,000 for joint filers.
What it means for you: If you’re a server, barber, rideshare driver, or rely heavily on tips, you can lower your taxable income-potentially reducing both income and self-employment taxes.
Action Step: Keep detailed, daily tip records-this deduction is likely to be closely monitored by the IRS. Overtime Pay Deduction
What changed? You can now deduct up to $12,500 of overtime pay (or $25,000 for joint filers), subject to the same AGI limits.
What it means for you: If you’re a nurse, police officer, or seasonal worker who regularly earns OT, this could help reduce the “tax bump” from extra income. Senior Deduction – $6,000 per person age 65+
What it means for you:

Reduces Social Security taxation: Social Security becomes taxable once “provisional income” exceeds $25,000 (single) or $32,000 (joint). This new deduction may move some retirees below those thresholds.

IRMAA planning benefit: Lowering AGI can help avoid Medicare premium surcharges.

Action Step: Have your advisor assess if this deduction moves you into a lower Social Security taxation bracket, and adjust IRA withdrawals or other income accordingly.Car Loan Interest Deduction
What changed? You can deduct up to $10,000 of interest on loans for vehicles assembled in the U.S.
What it means for you: This effectively reduces the after-tax cost of financing a new vehicle-if final assembly happens in the U.S.
Action Step: Check the vehicle’s VIN or consult the dealership to confirm U.S. assembly before buying.

Permanent Increase in the Federal Estate Tax Exemption

What changed?
Starting in 2026, the estate tax exemption rises to $15 million per person ($30 million per couple), indexed for inflation.
What it means for multi-generational family farms and businesses:

Reduced liquidity crunch: Previously, land-rich but cash-poor families often had to sell assets to pay estate taxes. The higher exemption gives families more flexibility.

More time for succession planning: With less pressure to raise cash quickly, families can thoughtfully implement plans like conservation easements or family partnerships.

Action Step:
Coordinate with your advisor and estate attorney to review your current estate plan and optimize asset transfer strategies under the new exemption levels.

Next Steps

Map your timeline. Note key dates-like the temporary deductions (2025-2028) and the SALT cap reversion in 2030.

Coordinate your strategy. Align your tax, investment, and estate planning strategies with your CPA, advisor, and attorney.

Stay flexible. Technical corrections or state-level changes may still follow. Plan proactively-but be ready to adapt.

Questions?

We’re here to help you turn complex legislation into personalized, actionable strategies. Call our office at (715) 355 – 4445 to schedule a meeting and explore how the One Big Beautiful Bill Act may impact your financial roadmap.