Breaking Down the New “Big Beautiful” Tax Breaks

On our nation’s 249^th anniversary, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. The 1,000-page bill deals with many aspects and sectors of our economy, including a plethora of updates affecting personal finance. We’ve included a few highlights for your perusal.

1. Income Tax Brackets

In 2017, the Tax Cuts and Jobs Act lowered income tax brackets. Originally, these tax brackets were set to revert to higher brackets at the beginning of 2026. The OBBBA permanently extends these record-low tax rates. Additionally, the Standard Deduction has increased to $15,000 for single filers and $30,000 for those married filing jointly (MFJ). This Standard Deduction will increase with inflation during future years.

2. Key Tax Breaks

A few novel tax breaks were introduced with the OBBBA.

• Overtime pay may be excluded from income.
  • Up to $12,500 for single filers ($25,000 for MFJ).
  • This benefit begins to phase away when adjusted gross income (AGI) reaches $150,000 ($300,000 for MFJ).
• Excludes income from tips up to $25,000.
  • This limit is the same regardless of filing status.
  • The AGI limit for single filers is $150,000, and the AGI limit for MFJ is $300,000.
• Senior citizens receive a large tax break.
  • Beginning at age 65, taxpayers can exclude $6,000 from their AGI.
  • This tax benefit phases out at an income of $175,000 for individual filers and $250,000 for MFJ.
• The OBBBA adds a new tax incentive for ministry-minded non-itemizers.
  • Up to $1,000 of charitable contributions are excludable from income for single filers, and $2,000 is excludable for joint filers.
  • This means that individuals and couples can deduct certain charitable contributions and take the standard deduction simultaneously.

3. Income Tax Deductions and Credits

Not only does the OBBBA contain new “above-the-line” exclusions from income, but it also legislates changes and additions to tax deductions and credits. For a start, the SALT deduction (State And Local Tax) was limited to $10,000 in the Tax Cuts and Jobs Act. This meant that you could only deduct $10,000 of taxes (property or income taxes) paid to your state, local municipality, or school. For many taxpayers, this deduction amount was not enough to cover the actual state, local, and property taxes paid. In the OBBBA, the SALT deduction amount is increased to $40,000. A new category of itemized deductions was added to the tax code: the auto loan interest deduction. Car buyers are allowed to deduct auto loan interest paid (up to $10,000 per year) from their income if their Modified AGI remains under $100,000 (single filer) or $200,000 (MFJ). If MAGI is above these limits, the amount deducted is phased out. As a bonus to qualifying parents, the OBBBA increased the Child Tax Credit amount from $2,000 to $2,200, which will be increased for inflation.

4. Estate Taxes

The Tax Cuts and Jobs Act raised the lifetime Estate/Gift tax exemption amount to $14 million in 2025. This exemption amount was set to decrease to $7 million in 2026, if Congress did not extend the higher amount. The OBBBA permanently extends the lifetime exemption at $15 million and indexes it for inflation.

5. “Trump Accounts”

Perhaps the most intriguing reform of all, the OBBBA allows the setup of “Trump Accounts”. Eligible minors may have a Trump Account set up for them. If the child is born between 2025 and 2028, the federal government will automatically set up an account for them and contribute $1,000 to the account. In addition to this initial contribution, all Trump Accounts are eligible to receive up to $5,000 per year. The funds in these accounts grow tax-deferred until withdrawn, and withdrawals are not permitted before age 18. For qualified expenses, such as college tuition, small business loan payments, or a first-time home purchase, the earnings on the account are withdrawn at long-term capital gains rates, which are generally lower than ordinary income tax brackets. For all other purposes, withdrawals are taxed at ordinary income rates, and a 10% penalty may apply.

Remember, many of these changes do not take effect until 2026. Please consult your tax professional to understand how the One Big Beautiful Bill Act will affect your taxes for this year and future years. Please reach out to us today to understand how this new legislation could impact your financial plan. At Faithward Advisors, we are committed to being your trusted investment management and financial planning partner.

 Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights. Securities offered through Osaic Wealth, Inc. member FINRA/SIPC. Investment advisory services offered through Faithward Advisors LLC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Dream More, Plan More, Do More is a registered trademark of Faithward Advisors, LLC, Reg. U.S. Pat. & Tm. Off. Any opinions expressed in this forum are not the opinion or view of Faithward Advisors or American Portfolios Financial Services, Inc. (APFS). They have not been reviewed by either firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.