The "One Big, Beautiful Bill Act" (OBBBA) is more than just a political talking point—it's legislation that brings significant tax changes affecting individuals across income brackets, ages, and occupations. As you navigate these changes, it’s crucial to understand both permanent and temporary provisions that could reshape your financial strategy. Here's what you need to know about how the OBBBA could impact you.
Income Tax, Deductions & Credits
The lower income tax brackets initially introduced by the TCJA are now made permanent, with adjusted thresholds to match. You’ll also find that the higher standard deduction continues, increasing annually with inflation, easing your tax burden further.
If you have dependents, note the modified Child Tax Credit, featuring both refundable and nonrefundable amounts, with income-based phaseouts that might change your eligible credit amount. Additionally, the $10,000 car loan interest deduction
is available, provided the vehicle involved is assembled in the U.S.
A unique opportunity exists with up to $25,000 in tip income receiving a temporary tax break. Stay tuned for the list of eligible occupations to see if this affects your returns. Furthermore, the SALT deduction cap increase to $40,000
might bring relief in high-tax states, but be aware of potential phaseouts for higher-income brackets.
Wealth Transfer, Investment & Retiree Provisions
If you're of retirement age, there’s a temporary $6,000 "Senior Bonus" deduction
for those meeting income requirements. Estate planning also gets a boost, with permanent increases in the estate, gift, and generation-skipping transfer tax exemptions up to $15 million.
The capital gains brackets have been tweaked with inflation in mind, helping investors like you plan strategically to remain in lower tax ranges. Permanent relief from the Alternative Minimum Tax (AMT) serves as reassurance; however, be mindful that higher incomes may still expedite the phaseout process.
Other Noteworthy Changes
The OBBBA also brings significant changes to Medicaid, including $1 trillion in funding cuts, implementing new work/volunteer requirements, and tightening eligibility. Moreover, it introduces "Trump Accounts" for eligible children, offering tax-advantaged growth, specific contribution limits, and structured investments.
Take note, the phase-out of clean energy and EV tax credits means it's wise to act promptly if you're contemplating a purchase or home upgrade. Evaluating your tax strategy should be a year-round effort, not a last-minute rush come tax season. Engaging with a financial advisor or tax professional sooner rather than later can provide the personalized guidance necessary to navigate these evolving tax landscapes.
Ultimately, the OBBBA affects a diverse spectrum of taxpayers, from lower-income families to affluent investors and retirees. Proactive steps and careful planning can help you leverage the changes to your benefit.
