Archives for July 2025

Not surprisingly, the most common question I’m getting lately is some form of: how does this new One Big Beautiful Bill Act affect the tax planning decisions I should be making?

My very short answer is: for most people, it doesn’t — at least not dramatically.

The law made quite a lot of changes. (This article on Kitces.com from Ben Henry-Moreland is the most thorough walk through I’ve seen yet of the various provisions and how they work. I’d enthusiastically encourage you to read it.)

By far the biggest change though is also the simplest: it made the current tax bracket rates and the current standard deduction permanent (whereas previously the rates were scheduled to revert to their “old” higher levels in 2026, and the standard deduction was scheduled to revert to its “old” lower level in 2026).

That’s a significant change, affecting basically all US taxpayers. It means that, relative to a scenario in which this law wasn’t passed, you’re now going to be paying less taxes.

But it’s not a big change to any tax planning decisions. Maybe you had been planning on the 22% bracket becoming a 25% bracket again, and the 24% bracket becoming a 28% bracket again. But in most tax planning decisions, there’s so much uncertainty involved that it’s very unlikely that any decision that definitely did make sense with it being a 25% bracket next year now definitely does not make sense with it being a 22% bracket. They’re different, but they’re not that different.

Senior Deduction

There’s also the new senior deduction ($6,000 per person age 65+). You have very little ability to exert control over your age, so there’s no tax planning opportunity in that sense. The deduction phases out (from $6,000 per person to $0 per person) as your MAGI goes from $75,000 to $175,000 if single or $150,000 to $250,000 if married filing jointly. So this has the effect of increasing your marginal tax rate through that phaseout range (because each $1,000 of income also causes you to lose $60 or $120 of deduction).

But again, it’s just not a huge thing. For a single person in the 22% bracket, their marginal tax rate in the phaseout range becomes 22% x 1.06 = 23.32%. For a married couple filing jointly in the 22% bracket, their marginal tax rate in the phaseout range becomes 22% x 1.12 = 24.64%.  For a single person in the 24% bracket, their marginal tax rate in the phaseout range becomes 24% x 1.06 = 25.44%. For a married couple filing jointly in the 24% bracket, their marginal tax rate in the phaseout range becomes 24% x 1.12 = 26.88%. In other words, the biggest total difference is a bump of 2.88% to the marginal tax rate. That’s definitely something that should be included in your tax planning math, but the likelihood that something that did make sense a month ago suddenly doesn’t make sense now due to this deduction isn’t super high.

Deduction for State and Local Taxes

The deduction for state and local taxes used to be limited to $10,000 per year, and now it’s limited to $40,000. But that $30,000 increase phases out as your MAGI goes from $500,000 ($250,000 if married filing separately) to $600,000. That’s a big deal. Definitely a big enough thing to potentially affect a person’s tax planning. But of course most people aren’t affected, because most people’s income does not exceed $500,000.

Charitable Contributions

The law creates a new $1,000 deduction for charitable contributions ($2,000 if married filing jointly) that you can claim even if you use the standard deduction rather than itemizing. For some people, that may be the incentive they need to go ahead and make some donations.

On the other hand, for people planning to claim a larger charitable contribution deduction via itemizing, the new law actually reduces the deduction you can claim, by 0.5% of your adjusted gross income.

Neither of these changes the most tax-efficient methods for donating to charity (namely: by qualified charitable distribution if you’re at least age 70.5 and by donating appreciated investments if you aren’t yet age 70.5).

Deductions for Overtime Pay and Tips

There are new deductions for overtime pay (up to $12,500 or $25,000 if married filing jointly) and for tips (up to $25,000 regardless of filing status). These could be a big deal for people with these types of income. But again, the deduction itself doesn’t really change tax planning — it just means you’ll be paying less tax than you would if it weren’t for the deduction.

What could change a household’s tax planning is that both of these deductions phase out as your MAGI exceeds $150,000 if single or $300,000 if married filing jointly. Though most people who are paid hourly and/or who are paid tips do not have income levels in the phaseout ranges. So again we have a situation where for some people, yes, it will be a big deal and affect their tax planning decisions. But for most people, it’s a non-issue.

Do Your Research

There are many more changes made by the new law, in addition to what’s mentioned above. And it’s worth taking your time to research those changes to see which ones apply to you, and to think through how they might affect any decisions you need to make. (Again, I’d enthusiastically encourage you to read this article on Kitces.com from Ben Henry-Moreland for a thorough write-up.) I think most (not all!) people will find though that the summary is something along the lines of: you’ll be paying less tax than you would otherwise, but there’s no need to dramatically change which types of retirement accounts you contribute to, which accounts you spend from, whether you’re doing Roth conversions, or any of the other most common tax planning decisions.

As you have likely read, last week Congress passed the One Big Beautiful Bill Act, and the President signed it into law.

You can find the full text of the law here.

I’m not going to provide a full write-up of the various tax changes made by the new law. Instead, please see this excellent summary from the AICPA’s The Tax Adviser publication. (Don’t stop reading when you get to the heading “Business Provisions.” There’s a lot of additional stuff relevant to individual taxpayers beyond that point, such as the elimination of various environmental-related credits.)

Every time there’s a new piece of tax legislation, the most common type of question I receive is, “does the new law change _____?”

The challenge is that there’s no way to list all of the things that didn’t change. It’s a big law that makes a bunch of changes, but naturally most things in our tax code are not changed. If you want to be sure, you simply have to dig into the text of the Act itself.

One thing I do want to touch on though is the taxation of Social Security benefits. The SSA put out a press release that has caused a lot of confusion. The release mentions that many seniors will no longer have to pay tax on their Social Security benefits. Many people have understood this to mean that the Act changes the unique tax treatment of Social Security benefits. But that is not the case.

Internal Revenue Code section 86 is where we find the rules regarding the unique tax treatment of Social Security. The new Act does not make any change whatsoever to IRC § 86. To reiterate, the IRC section that determines taxation of Social Security benefits was not changed at all by the new law. Rather, the press release from the SSA is just speaking to the effect of the new $6,000 senior deduction for people age 65+.

For tax years 2025-2028, there’s a new $6,000 deduction for anybody who is at least age 65 by the end of the year. (For a married couple filing jointly who both qualify, it’d be $12,000. Married people filing separately do not qualify.)

The deduction phases out as your modified adjusted gross income exceeds $75,000 ($150,000 if married filing jointly). Specifically, the $6,000 deduction per person is reduced (but not below zero) by 6% of the excess of your MAGI over the applicable threshold. (In this case, MAGI is defined as adjusted gross income, plus any excluded foreign income or excluded income from US territories.)

In other words, for a single person age 65+, the deduction would phase out completely as their MAGI goes from $75,000 to $175,000. And for a married couple filing jointly, both age 65+, the $12,000 deduction would phase out completely as their MAGI goes from $150,000 to $250,000.

Note that, as with basically anything that phases in or phases out based on income level, this is another thing that can cause your actual marginal tax rate to be different than just your tax bracket. But in this case, the effect is relatively minor. For a single person age 65+, through the applicable range of income, your marginal tax rate will be 1.06-times whatever it would otherwise have been (e.g., instead of a 22% rate it would be 23.32%). For a married couple both age 65+, through the applicable range of income, your marginal tax rate will be 1.12-times whatever it would otherwise have been.