What the One Big Beautiful Bill Means for Individual Taxpayers: Key Planning Considerations

On July 4, 2025, the “One Big Beautiful Bill Act” (OBBBA) was signed into law, and while the legislation includes major changes for businesses and international taxation, it also introduces a wide range of provisions that will significantly impact individual taxpayers. This article is meant to assess the most impactful provisions for those taxpayers, especially high earners, families, and those with estate planning needs, with a focus on strategic planning for the coming months and years.

Permanent Extension of Tax Cuts and Jobs Act (TCJA) Rates & Deductions 

The OBBBA makes the TCJA’s individual tax rates, brackets, and standard deductions, permanent, with inflation adjustments. Beginning in 2026, the standard deduction increases to:

• $15,750 for single filers
• $23,625 for heads of household
• $31,500 for married couples filing jointly

Personal exemptions are permanently eliminated, except for a temporary $6,000 senior deduction (2025–2028) for taxpayers over age 65, phased out at $75,000 AGI (single) or $150,000 AGI (joint).

Child Tax Credit Enhancements 

The child tax credit (CTC) is permanently increased to:

• $1,700 for tax year 2025
• $2,200 starting in 2026, indexed for inflation

The additional child tax credit is also made permanent. However, the phaseout thresholds of $200,000 AGI (single) and $400,000 AGI (joint) are not indexed for inflation.

Incentives for Child & Dependent Care 

The tax credit for child & dependent care is increased for lower income taxpayers starting in 2026. Taxpayers with AGI of $75,000 or less ($150,000 for joint filers) will receive a credit equal to 35% of their qualified child & dependent care expenses, with greater percentages available for those taxpayers with AGI of less than $75,000.

In addition, the maximum W-2 income exclusion amount for dependent care assistance is increased from $5,000 to $7,500 starting in 2026.

Above-the-Line Deductions for Tips & Overtime 

From 2025 through 2028, taxpayers may deduct:

• Up to $25,000 in tip income
• Up to $12,500 in overtime pay ($25,000 for joint filers)

These deductions are subject to phaseouts based on adjusted gross income (AGI). However, the IRS has yet to issue guidance on what constitutes “eligible tip income,” particularly in the context of digital payments and non-traditional tipping occupations. Until then, taxpayers and employers should maintain detailed records and monitor IRS updates closely.

The “Trump Account” for Children 

A new tax-favored savings vehicle known as the “Trump Account” has been created for children under age 18. Key features include:

• Annual contributions up to $5,000
• Tax-free withdrawals for education, small business investments, or first-time home purchases
• A one-time $1,000 government-funded deposit for qualifying children born between Dec. 31, 2024, and Jan. 1, 2029
• Employer contributions up to $2,500 are excluded from income

This account functions similarly to a Roth IRA, with investment restrictions and early withdrawal rules.

Estate & Gift Tax Exemption Increased 

The estate, gift, and generation-skipping transfer tax exemption is permanently increased to $15 million, indexed for inflation, effective for taxable years beginning after December 31, 2025. This provides long-term certainty for estate planning and wealth transfer strategies.

State & Local Tax (SALT) Deduction Cap Increased (with a Catch) 

The SALT deduction cap is increased to:

• $40,000 for most filers
• $20,000 for married filing separately

However, a phaseout applies for taxpayers with modified AGI over $500,000. The deduction is reduced by 30% of the excess income, but not below $10,000. Thus, for high-income earners, especially professionals like physicians or business owners, this phaseout may incentivize income deferral, reduced hours, or increased retirement contributions to stay below the $500,000 AGI threshold. Under the new law, the increased SALT deduction cap described above is available only through tax year 2029, after which the cap will revert to the pre-OBBBA level unless further legislation is passed. Additionally, the pass-through entity tax (PTET) election remains available in many states, offering business owners a workaround by allowing state taxes to be paid at the entity level and deducted without regard to the SALT cap.

Other Key Provisions 

• Charitable Deductions: Starting in 2026, non-itemizers can deduct up to $1,000 ($2,000 for joint filers). For itemizers, charitable contributions are deductible only to the extent they exceed 0.5% of AGI.

• Alternative Minimum Tax (AMT): TCJA’s increased exemption amounts are made permanent for tax years beginning after December 31, 2025, but phaseout thresholds revert to 2018 levels ($500,000 single / $1 million joint, indexed for inflation).

• Mortgage Interest: The $750,000 cap on mortgage interest and the elimination of home equity interest deductions are made permanent. In addition, mortgage insurance premiums can once again be deducted as mortgage interest expense.

• Car Loan Interest: A new deduction (2025–2028) allows up to $10,000 of interest on loans for U.S.-assembled vehicles, subject to AGI limits.

• Casualty Losses: Deductions are now allowed for state-declared disasters, not just federally declared ones.

• Miscellaneous Itemized Deductions: For those who itemize deductions, miscellaneous itemized deductions subject to the 2% of AGI floor are permanently disallowed.

• Deductible Education Expenses: Permanent extension to the Section 67 deduction for miscellaneous itemized deductions with some adjustments.

• Losses from Gambling and Other Wagering Activities: Losses are limited to 90% of total losses incurred, to the extent of total winnings from such activities in the same tax year.

• Qualified K–12 Expenses from 529 Accounts: Effective for taxable years beginning after December 31, 2024, the annual cap on tax-free distributions from 529 plans for elementary and secondary school expenses is increased from $10,000 to $20,000 per beneficiary.

• Tax Credits for Contributions to Scholarship Granting Organizations: Individuals may claim a tax credit of up to $1,700 per year for contributions made to a qualified scholarship granting organization, starting in 2027.

Final Thoughts 

The new law introduces significant opportunities and challenges for individual taxpayers. These changes introduce complexity and potential tax cliffs that require proactive planning. At The Bonadio Group, we are here to help you navigate these changes. If you have questions about how the OBBBA may affect your personal tax situation, estate plan, or financial goals, please reach out to your Bonadio advisor.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.