A First Look at the OBBB Act

 By Russell W. Hall, CFP®, CPWA®

The One Big Beautiful Bill Act has been signed into law, although as with all tax legislation there are many details to be ironed out.  However, our key takeaway is that the package largely extends or makes permanent the changes in the 2017 Tax Cuts and Jobs Act.  In other words, we expect that taxes and tax strategy for most of our clients will remain mostly unchanged from the past few years.  With that in mind, qualified charitable distributions, lumping donations using donor-advised funds, and other strategies that we’ve been using will continue to be attractive. 

Standard deduction levels remain high (increasing to $15,750 single / $31,500 married for 2025), so most taxpayers will continue to file standard deduction for the foreseeable future.   

Despite reports to the contrary, Social Security income will continue to be taxed.  There is an additional $6,000 increase to the standard deduction for senior taxpayers over 65, which may indirectly shelter some Social Security income, but it’s not specific to that.   

In addition, that $6,000 increase is only through 2028 and begins to phase out at the $75,000 (single) and $150,000 (married) levels of modified adjusted gross income.  Because of that, some clients will benefit only partially or not at all.   

We have already modeled the tax scenarios shown below under the new law – note that these are just examples and obviously won’t be the same as your situation.    

A single taxpayer over 65 with Social Security and other income totaling $48,000 of AGI would claim the full $6,000 deduction and see their federal tax bill drop from $2,200 under the previous law to $800 under the OBBBA.   

A married couple over 65 with AGI of $162,000 would only be able to claim part of the additional deduction ($10,500 instead of $12,000) and see their tax bill drop from $18,000 to $15,400 under the new law. 

The same couple but with AGI at $262,000 wouldn’t be able to claim any of the additional deduction.  Their federal taxes would remain essentially unchanged between the two laws. 

One new deduction (on top of the higher standard deduction) is for charitable donations.  Even if you don’t itemize, you can claim a deduction of up to $1,000 for single and $2,000 for married filers.  On the flip side, if you itemize charitable donations, the first 0.5% of your donations will not be deductible starting in 2026. 

For our clients in California, New York, and other states with higher income tax, the increase in the state and local tax (SALT) deduction cap from $10,000 to $40,000 for most filers is a welcome addition.  That is a limited increase, and is set to fall back to $10,000 in 2030. 

Tips and overtime now have a new above-the-line deduction through 2028, but with caps and income limitations ($150,000 / $300,000). 

For clients who have been able to take the 20% qualified business income (QBI) deduction, that has now been made permanent (although no less complicated to understand and calculate!).   

The increased child tax credit of $2,200 has also been made permanent and indexed for inflation.  In addition, new child savings accounts for children under 18 can be opened starting in 2026, with the government contributing $1,000 for children born between 2025-2028.  Withdrawals are not allowed before the child reaches 18, and at that point the account becomes similar to a traditional IRA for them (withdrawals are taxable income).  We expect more guidance on these accounts as the year goes on. 

The estate and gift tax exemption has been increased to $15 million and indexed for inflation, so most estates will continue to be exempt from tax.  There was concern about that limit dropping significantly next year.  

We hope this is helpful.  If you have additional questions, please visit our website at www.eclecticassociates.com to schedule a complimentary phone call or meeting with one of our fee-only financial advisors.