The One Big Beautiful Bill Act (OBBBA) opens new doors for proactive tax planning—but many of these opportunities may be time-sensitive. By evaluating income timing, deductions, and long-term savings strategies now, individuals can reduce their tax burden and strengthen their financial foundation.
This article highlights several of the individual tax changes introduced by the new law and potential planning opportunities for 2025 and beyond.
Income Timing: Shift Income to Your Advantage
The OBBBA introduces a new era of tax complexity—and opportunity. With changes to income thresholds, permanent tax bracket extensions, and a revised Alternative Minimum Tax (AMT), strategic income timing has become a critical lever in tax planning.
- Favorable Tax Brackets Made Permanent: The OBBBA permanently extends the lower individual tax rates originally introduced by the Tax Cuts and Jobs Act (TJCA), which were set to expire at the end of 2025. These rates remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Tip: Defer or accelerate income depending on your tax bracket year-to-year. High-income earners may benefit by shifting income to a year with lower marginal rates or deferring income through retirement contributions. - AMT Shifts Back Toward Pre-TCJA Thresholds: The TCJA significantly reduced the number of households subject to the Alternative Minimum Tax (AMT) by increasing the AMT exemption amounts and raising the income thresholds where those exemptions phased out. These changes, along with limits on deductions and the elimination of personal exemptions, narrowed the gap between regular and AMT taxable income, dramatically reducing AMT liability for most taxpayers. Under the OBBBA, the higher AMT exemption amounts are made permanent. However, beginning in 2026, the exemption phaseout thresholds will be lowered to $500,000 for single filers and $1 million for joint filers. Additionally, the phaseout rate will double from 25% to 50%, increasing the likelihood of AMT liability for higher-income households starting in 2026. Taxpayers near these thresholds should revisit their projections and planning strategies.
To optimize outcomes under OBBBA, taxpayers should review their income trajectory and identify opportunities to shift income into lower-rate years or defer recognition through vehicles like retirement contributions. For those nearing new AMT thresholds or fluctuating income levels, revisiting projections with a tax advisor can help minimize liabilities and enhance long-term tax efficiency.
Optimize Deductions: Make the Most of What’s Allowed
Under OBBBA, we’ll see modest increases to the standard deduction starting in 2025 and changes to itemized and below-the-line deductions over the next several years. Taxpayers should begin planning now for strategic deduction timing, such as bunching expenses and charitable giving, to optimize benefits ahead of the broader itemized deduction changes set for 2026. High earners and those in states with significant state and local tax (SALT) liabilities should pay particular attention to phaseouts and new limitations that may impact their long-term planning. Careful year-to-year planning will be key to optimizing outcomes as many provisions phase in between 2025 and 2026.
Standard Deduction:
Beginning this year, the standard deduction gets a modest boost. Under the updated figures:
- Single taxpayers will see their deduction increase from $15,000 to $15,750.
- For heads of household, the deduction will rise from $22,500 to $23,625.
- Married couples filing jointly will see an increase from $30,000 to $31,500.
These adjustments reflect inflation indexing and will be part of the new permanent tax baseline moving forward.
Itemized Deductions:
The final version of the OBBBA introduces a variety of revisions to itemized deductions. The impact of these changes will vary based on individual taxpayers’ circumstances, and some have a bigger effect than others. The majority of these updates are scheduled to take effect beginning with the 2026 tax year.
Tip: Bunch Deductions Strategically! Consider “bunching” charitable donations or medical expenses into a single year to exceed the threshold for itemizing deductions. In alternate years, you can take advantage of the higher standard deduction, optimizing your deductions over time.
- State and Local Tax (SALT): Beginning in 2025, the federal cap on SALT deductions will see a temporary boost. The cap will rise from $10,000 to $40,000. This higher limit will be indexed for inflation, increasing by 1% annually. The deduction limit will return to $10,000 in 2030 unless further legislative action is taken. It’s important to note that the enhanced SALT deduction won’t be available in full to all taxpayers. The Act includes a phaseout provision that reduces the allowable deduction by 30% of the amount by which a taxpayer’s modified adjusted gross income (MAGI) exceeds $500,000, with a minimum deduction of $10,000 after MAGI reaches $600,000. This income threshold, like the increased SALT cap itself, will be adjusted upward by 1% annually through 2029. The increase to the SALT deduction cap stands out as the only provision affecting itemized deductions in 2025. All other modifications to itemized deductions are slated to begin in the 2026 tax year.
- Charitable Contributions: Beginning in 2026, charitable deductions will be subject to a new limitation. The OBBBA sets a floor of 0.5% of adjusted gross income (AGI). This may influence year-end planning strategies for maximizing deductions. It may also reduce the tax benefit of charitable giving for some households, particularly those with lower levels of giving relative to income.
- New Limitation on Itemized Deductions: The Act introduces a new cap on itemized deductions for individuals in the 37% federal income tax bracket. If you’re likely to fall into the top tax bracket, look at how this change could affect your overall tax picture starting in 2026.
- Mortgage Interest: While the Act maintains the $750,000 cap on acquisition indebtedness established under the TCJA, it introduces a meaningful change starting in 2026: the mortgage insurance premium (MIP) deduction is permanently reinstated. With OBBBA, eligible taxpayers will once again be able to deduct qualified mortgage insurance premiums, offering potential savings for those with lower down payments or FHA, VA, or private mortgage insurance policies.
New Deductions:
- Senior Deduction: Starting in 2025, individuals 65 and older will be eligible for a $6,000 additional deduction per person. However, this benefit begins to phase out once a taxpayer’s modified adjusted gross income (MAGI) exceeds $75,000—or $150,000 for those filing jointly.
- Charitable Contributions: For non-itemizers, the Act includes a new deduction for cash charitable contributions in 2026, with maximum deductions of $1,000 for single or $2,000 for joint taxpayers.
- Qualified Tips Deduction: Starting in 2025, individuals may deduct up to $25,000 of qualified tip income annually. To be eligible, the tip income must meet specific criteria. Taxpayers working in tip-based industries should review the requirements carefully to ensure they qualify for this new benefit.
- Qualified Overtime Compensation: The OBBBA introduces a new deduction for qualified overtime compensation, starting in 2025. The deduction is capped at $25,000 for married couples filing jointly and $12,500 for all others. Taxpayers must meet specific requirements for the overtime income to qualify.
- Auto Loan Interest Deduction: Starting in 2025, there is a new deduction for interest paid on certain qualified passenger vehicle loans. This deduction applies to new loans originated between 2025 and 2028 for personal-use vehicles that meet specific criteria. Taxpayers considering financing a vehicle purchase during this period may benefit from reviewing the requirements to determine if their loan qualifies.
With these updates in mind, taxpayers should reassess their deduction strategies now. Thoughtful timing, such as grouping deductions in strategic years, will be essential to maximizing tax efficiency under the new rules.
Build Wealth: Strategies for Long-Term Growth and Security
Several OBBBA provisions enhance long-term wealth building, particularly for high-income earners and for estate planning. From a permanently increased estate and gift tax exemption to expanded retirement and education savings opportunities, the Act creates new avenues for tax-efficient growth and asset protection.
- Increased Estate and Gift Tax Exemption: The OBBBA makes a significant change to federal estate tax planning by preventing the scheduled reduction of the estate and gift tax exemption set for 2026 under TCJA. Instead, the Act increases the exemption to $15 million per individual (or $30 million for married couples) beginning in 2026, with ongoing adjustments for inflation in future years. With the increased threshold now locked in, families with substantial assets can better implement gifting and legacy strategies without immediate estate tax concerns.
- New Tax-Deferred Accounts for Children: Under the new law, parents of eligible children can establish a tax-deferred savings account (a “Trump account”) for children born between January 1, 2025, and December 31, 2028. Each account receives a $1,000 initial tax-free seed contribution. Parents and others may contribute up to $5,000 annually per child. These accounts include specific rules governing withdrawals and account control and are designed to encourage long-term savings and financial responsibility.
- Fund Education Savings Accounts: OBBBA expands the range of education expenses that qualify for tax-free distributions from 529 plans, providing families with greater flexibility in how they use these education savings accounts. Beginning in 2026, the OBBBA also increases the annual distribution limit for these K-12 expenses from $10,000 to $20,000.
To take full advantage of the tax code changes in the OBBBA, taxpayers should review their estate, retirement, and investment strategies with their tax and financial advisors. The “usual” strategies of maxing out retirement accounts, timing Roth IRA conversions, and harvesting capital gains and losses are still valid and should be considered as you navigate the impact of the law on your personal situation.
Proactively Plan for Your Future with SC&H
Whether you’re adjusting your income strategies, evaluating deduction opportunities, or building long-term wealth, the key is to act early and stay informed. Careful planning today can lead to significant savings and a stronger financial future tomorrow.
Your tax or financial advisors can help you review your financial decisions and adjust your strategies accordingly. Contact our team today if you have questions on any of the provisions in the One Bill Beautiful Bill Act or need tax planning guidance.
