New Tax Legislation Explained: A Financial Advisor’s Guide to the OBBBA

Financial planners and clients alike have been preparing for the expiration of key provisions in the 2017 Tax Cuts and Jobs Act for many years – how might changing tax rates and deductions impact planning goals and strategies? How can we plan ahead?

On July 4^th, the passage of “One Big Beautiful Bill” (or OBBBA, as we’ll refer to it) eliminated much of that uncertainty and introduced a host of new tax laws. As with any major tax legislation, there is much more to this bill than can be digested in a single sitting, so we are providing a high-level review of the provisions we expect will be most impactful for our clients.

Permanent extension of 2017 Tax Cuts and Jobs Act (TCJA) ordinary income tax brackets: While current tax brackets were originally set to sunset at the end of this year, OBBBA preserves the 10%, 12%, 22%, 24%, 35% and 37% tax brackets indefinitely, with the lower 10% and 12% brackets receiving an extra inflation adjustment next year.

Standard deduction changes: OBBBA increases the standard deduction across the board and introduces a temporary increase for qualifying taxpayers age 65+.

• Increased standard deduction: Standard deductions will increase slightly beginning in 2025:
  • $15,750 from $15,000 filing single
  • $23,625 from $22,500 filing as head of household (HOH)
  • $31,500 from $30,000 married filing joint (MFJ)
• Temporary additional standard deduction for seniors (2025-2028): Taxpayers age 65+ will qualify for an additional standard deduction:
  • $6,000 filing single; $12,000 MFJ where both spouses are 65+
  • The additional deduction phases out gradually for higher-income households, starting at $75,000 single / $150,000 MFJ and fully phased out at $150,000 single / $250,000 MFJ
  • Note: Although this provision has been touted as “no tax on Social Security”, there is no direct link between the additional standard deduction and Social Security income. However, many Americans who are collecting Social Security that also qualify for the additional standard deduction may find that their total deductions ultimately exceed their total Social Security income.

 

Itemized deduction changes: OBBBA introduces a handful of important changes to itemized deductions starting this year, including an increase to state and local tax (SALT) deductions, limitations for taxpayers in the 37% bracket, and the return of mortgage insurance premium deductions.

• Temporary increase to state and local tax (SALT) deductions (2025-2029): OBBBA increases maximum SALT deductions from $10,000 to $40,000.
  • The limit will increase by 1% per year from 2026 to 2029
  • SALT cap of $10,000 resumes in 2030
  • Subject to a phaseout based on MAGI: deduction is reduced by 30% of MAGI above $500,000.
• Limitations for high income taxpayers (2026): OBBBA places a limitation on allowable itemized deductions for those in the 37% tax bracket, essentially narrowing the benefit of itemizing for the highest earners and reducing the effective tax benefit from 37% to 35%. If you fall within the 37% tax bracket and itemize, we recommend coordinating with your advisor and tax preparer.
• Mortgage insurance deduction (2026): Premiums are once again deductible starting next year.

 

Charitable giving changes: Depending on whether you itemize or take the standard deduction, OBBBA introduces some important changes on how to report charitable giving on your tax return.

• Above-the-line deduction (2026): OBBBA allows up to $1,000 filing single / $2,000 MFJ to be deducted above the line for cash charitable gifts, as long as gifts are not made to Sec 509(a)(3) supporting organizations or donor advised funds.
• New 0.5% AGI floor (2026): For those who itemize, charitable contributions have historically been subject to deductibility “ceilings” depending on the type of contribution (cash, securities, property). Starting next year, OBBBA introduces an additional “floor” on deductibility of charitable contributions equal to 0.5% of adjusted gross income (AGI). The new law specifies which types of charitable contributions are reduced first by the AGI floor, so we recommend consulting with a tax preparer if this itemized deduction applies to you.

 

Planning for minor children: A larger child tax credit and the introduction of “Trump Accounts” lead to additional planning opportunities for children.

• Child Tax Credit (2025): Permanent increase to $2,200 per child, indexed for inflation starting in 2026.
• Trump Accounts: OBBBA introduced a new option for starting retirement savings early with a type of IRA account (dubbed “Trump account”) available to US citizens born in 2025 through 2028 with a Social Security number. Starting in 2026, Trump accounts will be jump started with a $1,000 contribution through a federal pilot program if parents opt in. Though many details remain unknown, the rules for these accounts differ depending on the age of the beneficiary.
  • Under 18:
    • $5,000 annual contribution limit starting in 2026 (to be indexed for inflation)
    • No earned income requirement
    • Contributions are non-deductible
    • Contributions are not included in the beneficiary’s income
    • Investment options are limited to those that track a qualifying index (like the S&P 500)
    • Federal, state and local government entities and qualifying charities can contribute to Trump accounts on the beneficiary’s behalf, and these contributions do not count towards the $5,000 limit
    • Employers can contribute up to $2,500/year, which does count against the $5,000 limit
    • Can contribute to both a Trump account and IRA/Roth IRA if qualifications are met
    • No distributions are allowed until the year the beneficiary turns 18 (exclusions for 529/ABLE accounts)
  • Over 18:
    • Treated like a traditional IRA, but with after-tax contributions and pre-tax earnings
    • No penalty-free distributions until age 59 ½
    • No limit on investment options
    • RMD rules remain unclear

 

Tips & overtime: Targeted deductions for workers on tips and overtime are among some of the more news-worthy OBBBA provisions.

• Tips (2025-2028): Up to $25,000 in qualified tip income is deductible, with no difference in the deduction limit for single vs. joint filers. Note that because this is a deduction, and not an exemption, tips will still be subject to some forms of tax like state income tax and/or payroll tax. The deduction is phased out starting at MAGI of $150,000 single or HOH / $300,000 MFJ.
• Overtime (2025-2028): Unlike the tips deduction, the limit for qualified overtime income does vary by filing status: $25,000 MFJ, or $12,500 all other filers – though the same income phaseout applies.

 

Legacy planning: OBBBA retains and even increases the doubled gift and estate tax exemption at $15M starting in 2026, with inflation adjustments to follow. This was a significant planning priority for some folks as the Tax Cuts and Jobs Act sunset approached, which would have reduced the exemption by 50% starting next year.

While major legislation like OBBBA can add complexity, our eyes remain on the planning opportunities we can provide for our clients in an evolving landscape. We will continue to proactively review these provisions to help identify strategies that best align with individual goals and provide further updates so you can navigate the headlines with clarity and confidence.

 

Meghan (Carson) Muñoz, CPA, CFP®, CDFA®
Senior Financial Advisor

 

Alaska Wealth Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Alaska Wealth Advisors’ investment advisory services can be found in its Form ADV Part 2 and/or Form CRS, which is available upon request.

CFP – Certified Financial PlannersTM (CFP®) are licensed by the CFP® Board to use the CFP® mark. CFP® certification requirements include: Bachelor’s degree from an accredited college or university, completion of the financial planning education requirements set by the CFP® Board (www.cfp.net), successful completion of the CFP® Certification Exam, comprised of two three-hour sessions, experience requirement: 6,000 hours of professional experience related to the financial planning process, or 4,000 hours of Apprenticeship experience that meets additional requirements, successfully pass the Candidate Fitness Standards and background check, agree annually to be bound by CFP® Board’s Standards of Professional Conduct, and complete 30 hours of continuing education every two years, including two hours on the Code of Ethics and Standards of Professional Conduct.

CPA – The Certified Public Accountant (CPA) is the statutory title of qualified public accountants in the US who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements. Certification is administered by each state.

The Certified Divorce Financial Analyst® (CDFA®) designation is awarded to professionals who address unique financial issues of divorce with data to help achieve equitable settlements. To obtain the designation, candidates must complete the course of study and successfully pass the examinations. The position requires 15 hours of divorce-related continuing education every two years.

Sources: Kitces, IRS, Ed Slott