What the One Big Beautiful Bill Act Means for Your Financial Plan

Caitlin Allard |
Categories
ARC Blog

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. This sweeping legislative package combines permanent tax reforms, new deductions, and significant spending changes across federal programs. Here are a few of the most talked about tax provisions and how they might impact your financial plan.

Individual tax rates and higher standard deductions are now permanent

The tax rates that became effective in 2018 and were previously scheduled to revert to higher rates in 2026 have permanently been extended along with the increased standard deduction amounts.

  • Effective dates: 2025 onward
  • Tax rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%
  • 2025 Standard deduction: Single - $15,750; Head of Household - $23,625; Married Filing Jointly - $31,500
  • Planning considerations: With the higher standard deduction amount the hurdle to itemize deductions remains high. Consider strategies to group itemized deductions such as charitable contributions or property taxes in certain years to maximize your deductions over several years.

A temporary boost to the SALT deduction cap

The maximum deduction for state and local taxes (SALT) temporarily increases from $10,000 to $40,000 through 2029. The increased limit phases down for high-income earners.

  • Effective dates: for 2025 through 2029
  • Deduction limit: $40,000 per tax return ($20,000 each for married taxpayers filling separately). This amount increases 1% per year from 2026 to 2029 before reverting to the old $10,000 limit in 2030.
  • Income restrictions: The deduction begins phasing down for taxpayers with a modified adjusted gross income (MAGI) of $500,000 and fully reverts to the $10,000 deduction for those over $600,000 in MAGI.
  • Planning considerations: The phaseout of the increased deduction is quick for those over $500,000 in MAGI. For households nearing that threshold and thinking about taking additional income, capital gains or Roth conversions, for example, planning becomes critical. Carefully consider the cost and benefit of incurring that additional income as it may not only affect your tax rate, but the amount you can deduct as well.

New deduction for seniors

Individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.

  • Effective dates: for 2025 through 2028
  • Deduction limit: the $6,000 senior deduction is per individual. A married couple where both spouses qualify is eligible for $12,000 total additional deduction
  • Income restrictions: The deduction phases out for taxpayers with a modified adjusted gross income over $75,000 or $150,000 for joint filers and is fully phased out for households with over $175,000 in MAGI or $250,000 for joint filers.
  • Planning considerations: For lower- to moderate-income retirees, the extra standard deduction may translate into savings. However, by having a phaseout range, calculations for Roth conversions may be more complex for higher-income retirees.

Taxes on tip income

Individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips.

  • Effective dates: for 2025 through 2028
  • Deduction limit: the maximum annual deduction is $25,000
  • Income restrictions: The deduction phases out for taxpayers with a modified adjusted gross income over $150,000 or $300,000 for joint filers
  • Planning considerations: Taxpayers who regularly receive tips as part of their compensation should continue to watch for guidance published by the IRS. The IRS is required to provide a list of occupations that qualify for this deduction by early October.

Taxes on overtime income

Individuals who receive qualified overtime compensation as required by the Fair Labor Standards Act (FLSA) may deduct the pay that exceeds their regular rate of pay, such as the “half” portion of “time-and-a half” compensation.

  • Effective dates: for 2025 through 2028
  • Deduction limit: the maximum annual deduction is $12,500 for individuals or $25,000 for joint filers
  • Income restrictions: this deduction phases out for taxpayers with a modified adjusted gross income over $150,000 or $300,000 for joint filers.
  • Planning considerations: This deduction offers real tax savings for workers who regularly earn FLSA overtime, but only the premium portion qualifies— and only if properly tracked and reported. Payroll systems will need to be updated to be able to report the overtime premium separately. Taxpayers who are eligible for overtime compensation should also continue to stay updated and watch for future IRS publications on the topic.

A new auto loan interest deduction

Individuals who purchase a qualified vehicle for personal use may deduct interest paid on a loan used to purchase the vehicle. The vehicle must have undergone final assembly in the United States. Used or leased vehicles do not qualify.

  • Effective dates: for 2025 through 2028
  • Deduction limit: the maximum annual deduction is $10,000
  • Income restrictions: the deduction phases out for taxpayers with a modified adjusted gross income over $100,000 or $200,000 for joint filers
  • Planning considerations: For taxpayers already planning to purchase a new vehicle and finance the purchase, ask the dealership if the car qualifies for the interest deduction.

These are just a few of the new tax rules that are included in the OBBBA; there are many more in the bill’s 800+ pages that could affect business owners, those with large estates, parents of minors, 529 account holders, student loan borrowers, and those who donate to charitable organizations. As they work through all the provisions in the new bill, expect more guidance from the IRS along with a redesign of Forms W-2, 1099, and 1040 when it’s time to prepare your 2025 income tax return early next year.

It's also worth noting that state conformity to these new rules will vary. Some states may continue to tax tips or overtime or may not provide a deduction for vehicle loan interest. Look for additional developments at the state level if you live or work in a state with an income tax.

Ultimately, these wide-reaching policy changes will likely introduce both opportunities and complexity to your taxes and overall financial plan. Reach out to your trusted financial advisor for help navigating these new rules and developing a tax-smart strategy.

Recent IRS Publications:

One Big Beautiful Bill Act: Tax deductions for working

Americans and seniors | Internal Revenue Service

 

by Caitlin Allard, CFP®, EA

Director, Advisor Resource Center

Read All Blogs Here 

 

 

Disclosures & Important Information 

Securities offered through LPL Financial, Member FINRA/SIPC. LPL Tracking Number: 771950. Investment advice offered through WCG Wealth Advisors, a registered investment advisor. WCG Wealth Advisors and The Wealth Consulting Group are separate entities from LPL Financial.

*Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59½ may result in a 10% IRS penalty tax in addition to current income tax.

**Information and interactive calculators are made available to you as self-help tool for your independent use and are not intended to provide investment, tax, or legal advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstanced. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.