Tax changes under the One Big Beautiful Bill Act
By Mark Sipos, LFG Tax Director
The passage of the One Big Beautiful Bill Act has been one of the most discussed topics coming out of Washington in the past few weeks. LFG Tax Services is diving into the new legislation, deciphering what it means for our clients, and keeping a close watch on tax planning opportunities and IRS interpretations of some of its components. Here are a few highlights we think will be of interest to you:
- The TCJA rate schedules for tax years beginning after December 31, 2017, are now permanently extended, as well as several key parts of the 2017 Act.
- No Tax on Tips: A temporary deduction of up to $25,00 in tip income for workers in “customarily tipped” occupations. Individuals phased out for MAGI above $150,000 and Joint filers at $300,000. Expires December 31, 2028.
- No Tax on Overtime: Temporary above-the-line deduction of $12,500 (single) / $25,000 (joint). Deduction phases out at $150,000 of MAGI (single) / $300,000 (joint), expiring at the end of 2028.
- The lifetime estate tax exemption has been permanently increased to $15 million (indexed for inflation) per US person. The Act stopped short of a full repeal and would essentially extend the current generous lifetime estate tax exemption. The limit means that only the wealthiest 1% or fewer taxpayers would ever face a tax on their estate after death.
- The qualified business income deduction under IRC Section 199A is now made permanent at 20%. The phase-in of the limitations for higher-income taxpayers would also change, allowing a greater number of those with income from SSTBs to benefit from the deduction.
- The cap on the SALT deduction increases from $10,000 to $40,000 beginning in 2025; however, that increase will be phased out for most individuals who earn more than $500,000. The wealthiest taxpayers, particularly those residing in states with high property and sales taxes, will likely see a decrease in any potential SALT deduction.
- The charitable contribution deduction is limited for those who itemize their deductions. A .5% of adjusted gross income reduction on the deduction for charitable contributions applies to those who itemize. This reduction applies in addition to the same overall cap on itemized deductions noted below.
- Itemized deductions are effectively capped at 35% when offsetting ordinary income for those in the top 37% tax bracket (19% when offsetting capital gains).
- Senior Deduction: $6,000 per taxpayer 65 and older, phasing out at MAGI above $75,000 (single) / $150,0000 (joint). Expires December 31, 2028.
- Car Loan Interest Deduction: Temporary deduction of up to $10,000 in auto loan interest. Auto must be assembled in U.S. for tax years 2025-2028.
- Charitable Deduction: Above-the-line deduction for non-itemizers of $1,000 (individual) and $2,000 (joint).
If you have any questions on how any of these highlighted components of the bill will impact you, please reach out to us. We are here to help you navigate through these changes in a positive way.
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