One Big Beautiful Bill - A Planning Perspective

Your Money, Your Independence 

 Depending upon your news sources and social media algorithms, the One Big Beautiful Bill (OBBB) is either the worst bill ever and people will die, or it will unleash a new era of prosperity for the US economy. The truth is that it will do neither of these things. 

Like all things with Washington, OBBB has the good, the bad and the political virtue signaling (i.e. $1,000 Trump Accounts for U.S. citizen newborns). 

From a financial planning perspective, let’s review the 5 areas of broadest impact.

1. Extension of 2017 Federal Tax Cuts. The current tax rate structure, including a top marginal tax rate of 37%, remains in place permanently. It was to expire this year, meaning if you’re in the current 12%, 22%, 24% tax brackets, a 3% or 4% increase would have happened. While some disagree with this act, they’d be celebrating if Massachusetts went from 5% to 1% income tax. 

Also permanent is the estate tax and gift tax exemption, which prior to 2017 was $1 million. Today, it is $13.99 million per individual, adjusts for inflation and is a flat 40% tax on excess over the exemption.   

2. Expanded Standard Deduction and Child Tax Credit. Recall in 2017, the standard deduction was dramatically increased while many subjective write-offs were eliminated. This resulted in 90-93% of tax filers taking the standard deduction over the last 8 years, up from 68.7% tax filers in 2016.  

3. New Senior Tax Deduction. Tax on Social Security benefits was not eliminated, however through 2028 there is an additional $6,000 deduction per individual for those 65 and older. This equates to 88% of tax filers not paying a federal tax on their social security benefits.  

4. State And Local Tax (SALT) Deduction Cap Raised. OBBB temporarily raises the SALT deduction cap to $40,000 from $10,000, with a 1% annual increase through 2029. Good news for deductions on mortgage interest, property taxes and sales tax. However, it’s reduced by 30% if modified adjusted gross income (AGI) exceeds certain thresholds, such as $500,000 for joint filers. 

The OBBB ensures continued federal deductibility of PTET for pass-through entities, like S corporations and partnerships. These will pay state income taxes at the entity level, effectively bypassing the individual SALT deduction cap.

5. Permanent Small Business Tax Relief. This includes the 20% Qualified Business Income (QBI) deduction for pass-through businesses and 100% bonus depreciation for new capital investments. The maximum Section 179 expensing amount is increased, and immediate Research & Development (R&D) expensing is restored with a catch-up deduction option. 

Other notables that caught my attention:    

• Vocational and trade schools now qualify for 529 Plan expenses.

• Bronze and catastrophic insurance plans qualify as HSA expenses.

• No tax on overtime ($12,500) and qualified tips ($25,000). 

• Paid leave tax credits are permanent and expanded.  

• Increased childcare expense credits.

Finally, Congress got involved with student loan reform rather than defer to executive orders. 

To curb the blank-check effect, OBBB has eliminated “Cost of Attendance” loan limits for graduate students and parents of undergraduate students. 

Like the pre-existing caps on how much undergraduates can borrow ($12,500 annually, $57,500 aggregate), moving forward universities must deal with parents' ability to borrow capped at $20,000 annually and $65,000 in aggregate per undergraduate. Graduate student caps are now $50,000 annually and $200,000 in aggregate.

It’s a start to address the cause and not just the effect.

More to consider beyond this limited space, talk with your Certified Financial Planner to learn how you and your family can benefit. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

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