The recent passage of the One Big Beautiful Bill Act (OBBBA) introduces important changes to tax laws that impact both individuals with financial planning goals and small business owners. While many provisions from previous tax legislation have been made permanent, new rules and nuances have also been added. These changes may have an impact on how you achieve your overall financial goals.
We hope this summary highlights key points to help you make informed decisions and take advantage of the latest tax landscape.
Tax Cuts and Jobs Act Made Permanent
The OBBBA made most of the expiring provisions from the TCJA permanent, with varying effective dates. Some provisions were modified to provide modestly more favorable outcomes, though some were also modified in ways that are not as friendly.
Individual Income Tax Provisions
Standard Deductions: The doubled standard deduction from the TCJA was made permanent and was moderately increased for each filing status. If you are impacted by the phaseouts of the State and Local Tax Deduction, Alternative Minimum Tax, or the new limitations on itemized deductions, this change could be positive.
Tax Rates and Brackets: The top tax rate will permanently remain 37% under the OBBBA, and the expanded brackets between rates were also made permanent.
Itemized Deductions: The TCJA paused the “Pease” limitation on itemized deductions for higher-income earners. The OBBBA replaced the previous limitation with a new limitation for those in the 37% tax bracket, effectively capping the benefit of itemized deductions to $0.35 for each dollar deducted. Additionally, it completely eliminated miscellaneous itemized deductions.
Alternative Minimum Tax (AMT): The TCJA increased the AMT phaseout amounts to $500,000 ($1,000,000 if filing jointly), adjusted annually for inflation. While the OBBBA made that increase permanent, it also reset the inflation starting point for the $500,000/$1,000,000 to 2026. This means if you have income of less than $626,350 or $1,252,700, but more than $500,000 or $1,000,000 in 2025; you will once again be subject to the AMT in 2026. The phaseout rate once your income exceeds $500,000 or $1,000,000 was also increased to 50%, up from 25%.
State and Local Tax (SALT) Deduction: The TCJA introduced a new limitation on itemized deductions for state and local taxes, allowing only $10,000 ($5,000 if married filing separately) for itemizers. The OBBBA increases the SALT deduction to up to $40,000 ($20,000 if married filing separately) starting in 2025. The bill retains the “marriage penalty” from the TCJA. If your AGI exceeds $500,000 ($250,000), the amount of deduction allowed is reduced by 30% for each dollar over the limit; but cannot be reduced below $10,000 ($5,000). Both the allowable deduction and AGI phaseout amounts will be increased by 1% each year until 2030. The amount will then “snap back” to $10,000 or $5,000 beginning in 2030. The $40,000 limit is completely phased out once AGI is $633,333, meaning for many high income earners, this provision does not provide many benefits.
Charitable Contributions: Under the TCJA, you could deduct up to 60% of your AGI for charitable contributions made in cash. While the OBBBA made this permanent, it also created a new floor of 0.5% of AGI before contributions are deductible. The disallowed amount may be carried forward, but only if your charitable contributions are in excess of the allowed amount. Non-itemizers are also allowed up to $1000/$2000 as an above-the-line deduction for charitable contributions, not subject to the floor.
Generational Wealth Provisions
Estate Tax Exemption: Under the TCJA, the estate and gift tax exemption was doubled from $5 million to $10 million per person, adjusted annually for inflation. For 2025, the estate and gift tax exemption per person is $13.99 million. The bill increased the base exemption amount to $15 million, starting in 2026. This amount will be adjusted for inflation beginning in 2027. For married couples, this means you will be able to shift $30 million out of your estate before being subject to the estate and gift tax. This also increases the amount you can shift to lower generations, as it increased the Generation Skipping Transfer Tax exemption to $15 million per person as well.
Trump Accounts: One of the new provisions in the bill is the creation of “Trump Accounts,” which allow non-deductible contributions of up to $5,000 per year per child. Children born between 2025-2028 will qualify for a one-time, $1,000 tax credit deposited into an account. Contributions can be made up until the beneficiary reaches the age of 17, and distributions generally cannot be made until the beneficiary reaches the age of 18. Distributions made for qualified expenses will be taxed at capital gains rates. While these received significant attention, for most families, they will be less valuable than other tools at their disposal such as 529 plans or Roth IRAs.
This is merely an overview of the provisions that will most impact individual taxpayers. While many of the changes are beneficial, the new limitations introduced for AMT, SALT, and itemized deductions may require careful planning to avoid missteps.
Small Business Provisions
Qualified Business Income (QBI) Deduction: The TCJA introduced a 20% deduction for qualified passthrough businesses within income limitations. Specified Services Trades and Businesses (SSTBs) face more stringent income limitations. The QBI was made permanent under the OBBBA. Additionally, the phaseout thresholds were increased to $75,000 ($150,000 if filing jointly); which will very modestly increase the amount of deduction allowed.
Qualified Small Business Stock (QSBS) Exemption: Since 1993, you have been allowed to exclude up to the greater of $10 million or 10 times your basis in qualified small business stock per issuer. To qualify, the business’s gross assets or tax basis could not exceed $50 million. The OBBBA increases the per issuer amount to the greater of $15 million or 10 times your basis and increases the gross assets or tax basis amount to $75 million. Additionally, these amounts will now increase for inflation each year beginning in 2027. These changes are effective for stock issued after July 4, 2025. This may provide new opportunities to issue qualified stock for small businesses and should also incentivize more investment in small businesses.