One Big Beautiful Bill Act: What It Means for You
Your guide to understanding the latest tax law changes. The One Big Beautiful Bill Act introduces new rules for deductions, charitable giving, estate planning, and 529 plans. Learn how these updates could shape your financial strategy in 2025 and beyond. This conversation is with Vector advisors Sharon & Joe.
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One Big Beautiful Bill Act: What It Means for You
The recently signed One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, represents one of the most sweeping tax reforms since the Tax Cuts and Jobs Act (TCJA) of 2017. At 870 pages, the legislation delivers significant updates for individual taxpayers, aiming to provide relief to middle-class families, incentivize savings, and simplify certain aspects of the tax code.
Many of these provisions either start this year, take effect in 2026, or expire in 2028, so understanding the timing is crucial. Below, we break down five key individual tax highlights that could directly affect your financial planning.
1. Increased Standard Deduction
For taxpayers who don’t itemize, the standard deduction has been significantly increased starting with the 2025 tax year:
Single filers: $15,750 (up from $15,000)
Married couples filing jointly: $31,500 (up from $30,000)
Heads of household: $23,625 (up from $22,500)
Additional deduction for taxpayers aged 65+: $6,000, bringing totals to $21,750 (singles) and $37,500 (married couples).
However, there’s a phase-out:
Single taxpayers earning over $75,000 see a 6% reduction, with the deduction fully phased out at $175,000.
Married taxpayers begin phasing out at $150,000, with a full phase-out around $250,000.
This provision is scheduled to expire in 2028.
2. SALT Deduction Expansion
The State and Local Tax (SALT) deduction cap—first introduced under the TCJA—has long been a sticking point for taxpayers in high-tax states. The OBBBA temporarily increases the cap:
New cap (starting 2025): $40,000 (up from $10,000).
Phase-out thresholds: Begins at $250,000 (single) and $500,000 (married filing jointly). Above these thresholds, the deduction phases down by 30%, eventually returning to $10,000 for the highest earners.
Annual inflation adjustments: From 2026 through 2029, the cap will rise by 1% annually before reverting to $10,000 in 2030.
Despite the phase-outs, all taxpayers are guaranteed a minimum SALT deduction of $10,000.
3. Permanent, Inflation-Indexed Estate & Gift Tax Exemption
For those planning their estates, OBBBA provides a major update:
Starting 2026: The federal estate and gift tax lifetime exemption increases to $15 million per individual (up from $13.99 million in 2025), with a separate $15 million exemption for Generation-Skipping Transfer (GST) tax.
The exemptions will continue to be indexed for inflation and remain portable between spouses (for estate/gift tax purposes, not GST).
Unlike prior law, there is no sunset provision, meaning these exemptions remain in place unless Congress acts to change them.
For families with sizable estates, this is a significant planning opportunity to lock in higher exemptions.
4. Charitable Giving: More Flexibility, New Limitations
OBBBA reshapes the tax treatment of charitable contributions starting January 1, 2026, introducing four notable changes:
Above-the-Line Deduction for Non-Itemizers: Up to $1,000 for individuals and $2,000 for joint filers (contributions must be to public charities, not donor-advised funds).
0.5% MAGI Floor for Itemizers: Only contributions exceeding 0.5% of Adjusted Gross Income (MAGI) are deductible. For example, a taxpayer with $1 million MAGI can deduct only the amount above $5,000.
35% Cap on Deduction Value: Even for taxpayers in the 37% bracket, deductions are capped as if taxed at 35%.
Permanent 60% MAGI Limit: The ability to deduct cash donations up to 60% of MAGI, set to expire in 2025, is now permanent.
Planning Tips:
Large donations planned for 2025 may benefit from being made this year before the MAGI floor and 35% cap take effect.
“Bunching” charitable contributions—grouping multiple years’ gifts into one year, especially via donor-advised funds—can maximize deductions and reduce taxable income strategically.
5. Expanded Uses for 529 Plans
Families saving for education gain new flexibility, with several expansions to 529 plan rules:
Higher K–12 Cap: Annual distributions for K–12 expenses double to $20,000 per child (starting in 2026).
Broader Eligible Expenses: Funds can now cover curriculum materials, tutoring, online education, educational therapies, standardized test fees, and dual-enrollment tuition.
Workforce Development: 529 funds may also be used for trade certifications (e.g., welding, aviation mechanics), licensing, exam fees, and continuing education required to maintain professional credentials (effective July 4, 2025).
These changes make 529 plans far more versatile for families considering private education or career training programs.
What This Means for You
Beyond these five highlights, OBBBA includes a variety of other provisions, including tax breaks on tip income, overtime pay, and deductions for U.S.-made auto loans, as well as expanded bonus depreciation for certain property and equipment.
Given the complexity of these changes and their varied timelines, staying informed and planning proactively is key. The right strategy may help you capture tax savings, manage cash flow, and maximize opportunities for your family’s financial future.
At Vector Wealth Management, we’re here to help you navigate these updates and ensure your financial plan reflects the evolving tax landscape. If you have questions about how these changes affect your situation—or how to plan ahead—reach out to our team today. New to Vector? Schedule an intro call to learn more.
These discussions aim to spark dialogue about enhancing retirement readiness and making more informed financial decisions. At Vector, we delve into the nuances of scenario planning, offer insights and guidance tailored to each client's unique circumstances. If you or someone you know is pondering their financial future or seeking clarity on their retirement plan, we're here to help.
This discussion is hosted by Vector’s Sharon Calhoun and Joe Grochowski.
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