The One Big Beautiful Bill Act (OBBBA) introduces significant changes to the tax planning of individuals. It makes several Tax Cuts and Jobs Act (TCJA) provisions permanent, and increases the standard deduction as well as the taxes on state and local tax (SALT) deduction limits and creates new deductions aimed at seniors and workers. These changes have led to both opportunities and challenges to compliance in the 2025 year and beyond.
Rates, Standard Deduction, and SALT Cap
- The seven income tax brackets in the TCJA that range from 10% to 37% are now permanent.
- The standard deduction is set to increase by $31,000 for joint filers. $15,750 for single filers and $23,625 for filers of the head of household by 2025.
- The SALT deduction cap increases to $40,000 in 2025. However, it gradually decreases to $10,000 for those who have modified adjusted gross incomes of more than $500,000.
Credits and Exemptions
- The tax credit for children increases to $2,200, with $1,700 refundable. Limits for $200,000 (single) as well as $400,000 (joint) are in effect for the rest of the coming years.
- The credit for other dependents ($500) is made permanent.
- The tax exemption for gifts and estates is set to reach $15 million per individual in 2026. Couples who are married can shield as much as $30 million.
Planning point: In the event of an increase in the estate tax exemption, certain taxpayers could choose to return assets to their estates for a step-up in basis.
New Deductions for Seniors and Workers
- Tip income tax deduction: A temporary deduction for 2025-2028, up to $25,000 for qualified tips. The deduction will be reduced when the modified adjusted gross income is greater than $150,000 for single-filers, and $300,000 for joint filers.
- The deduction for overtime: A temporary deduction in the years 2025-2028 of up to $12,500 for individuals, and $25k for joint filers to receive eligible overtime compensation. The deduction is reduced if the modified adjusted gross income is greater than $150,000 for single filers, and $300,000 for joint filers.
- Senior deductions: taxpayers who are 65 or older can get a deduction of $6,000 for 2025-2028. The deduction is reduced if the modified adjusted gross income is greater than $75,000 for individual filers and $150,000 for joint filers.
Other Dispositions
- Interest deduction on auto loans: Taxpayers can take a deduction of up to $10,000 per year for the interest they pay on a qualifying auto loan during 2025-2028. This deduction can be reduced if your adjusted gross income is more than $100,000 for single filers, and $200,000 for joint filers.
- QBI (qualified business income) deduction: The deduction of 20% on qualified business earnings is now permanent.
Planning For Taxpayers
- Taxpayers with high incomes must plan to prepare for SALT cap phase-out.
- Families should rethink their strategies of estate planning considering the exemption of $15 million.
- Employees in hourly or tipped professions must report properly in order to be eligible for deductions.
The most important takeaways
- The standard deduction will be increased permanently, with SALT deduction limit temporarily increased.
- The child tax credit is expanded as well as gift tax and exemption from estate tax are increased.
- The new deductions for overtime, tips and seniors provide temporary relief.
- Deducting interest on auto loans creates possibilities for car purchases.
The numerous tax law modifications implemented by OBBBA can cause some confusion among taxpayers. Our tax specialists at Parr & Ibarra CPA in Hurst, Texas can assist families and individuals optimize deductions, develop plans for estates and make the plans of temporary tax provisions prior to their expiration. Contact us today to get started.
