The One Big Beautiful Bill Act: Key Insights for Individual Taxpayers
The “One Big Beautiful Bill Act” (OBBBA) is more than just another piece of political legislation. It represents a significant shift with lasting effects on tax strategies for individuals across various income levels, professions, and life stages. Understanding these changes - and acting on them - can be crucial to your financial wellbeing. Here, we break down the main elements of the OBBBA to help you make informed decisions.
Income Tax, Deductions & Credits
Possibly the most notable change is the permanency of lower income tax brackets set by the Tax Cuts and Jobs Act (TCJA). The act also incorporates adjusted thresholds, which you may find beneficial. The higher standard deductions continue and will adjust annually for inflation, easing your tax preparation.
If you have children, pay special attention to the Child Tax Credit changes. The credit has both refundable and nonrefundable components that now come with income-based phaseouts. If you’re considering a vehicle purchase, there’s a new $10,000 deduction for car loan interest—provided the vehicle is assembled in the U.S.
For those in tipped occupations, a temporary tax break on up to $25,000 in tip income could affect you. Occupations that qualify for this benefit will be specified soon. If you reside in a high-tax state, the increased SALT deduction cap, raised to $40,000, could offer some relief. However, phaseouts may reduce this advantage if you’re a high-earner.
Wealth Transfer, Investment & Retiree Provisions
If you’re a senior, have you heard about the $6,000 “Senior Bonus” deduction? This temporary feature is income-dependent, so make sure to check eligibility. Additionally, estate, gift, and generation-skipping transfer tax exemptions have permanently increased to $15 million.
For your investments, the capital gains brackets are adjusted for inflation, potentially helping you stay within lower tax rates. The permanent removal of the Alternative Minimum Tax (AMT) might reassure you, though keep in mind that phaseouts might occur more aggressively for higher incomes.
Other Noteworthy Changes
A significant overhaul in Medicaid could impact you, especially with a $1 trillion funding cut, new work or volunteer requirements, and tighter eligibility conditions. If you have children, the creation of “Trump Accounts” offers tax-advantaged growth, with limits on contributions and a defined investment structure.
Be aware that existing clean energy and electric vehicle (EV) tax credits are phasing out. If you've been contemplating a purchase or home upgrade, the time to act is now.
The OBBBA affects a broad spectrum of taxpayers, from low-income families to affluent investors and retirees. Don’t wait until tax season to understand its nuances and optimize your strategy. Now is the time to evaluate the law's impact on your financial circumstances. Consulting with a financial advisor or tax professional can provide tailored guidance and help navigate both the permanent and temporary aspects of this transformative law.
Want to discuss your plan in the light of these new changes? Reach out to our office to consult with a financial professional.
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Disclaimer:
The information presented here is for educational purposes only and is not a solicitation for the purchase of any financial product. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting financial professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.