2025 Tax Changes: What the One Big Beautiful Bill Means for You

Important Disclosure: This article is for general informational and educational purposes only and does not constitute tax, legal, or investment advice. Tax laws are complex and individual circumstances vary. The provisions described reflect the One Big Beautiful Bill Act (H.R.1) as signed into law; however, guidance from the IRS and Treasury on implementation details may evolve. A qualified CPA, tax attorney, or financial advisor should be consulted before making any financial decisions based on this information. Trusted Path Wealth Management is a registered investment advisor. Registration does not imply a certain level of skill or training.

The One Big Beautiful Bill Act (H.R.1) brings sweeping tax reforms for 2025 that will affect many Americans — retirees, families, business owners, employees, and investors alike. From higher standard deductions and expanded child tax credits to new savings accounts and changes to clean energy credits, this legislation reshapes a number of planning considerations.

The changes below span retirement income, estate planning, education, business deductions, and family benefits. Because some provisions are temporary or subject to income phaseouts, proactive, personalized planning is important to understanding how these changes may apply to each taxpayer's situation.

Standard Deduction & Senior Planning Considerations

One of the most notable individual tax provisions in the One Big Beautiful Bill Act is the permanent extension of the higher standard deduction, originally introduced under the Tax Cuts and Jobs Act (TCJA).

New Standard Deduction (Made Permanent)

These amounts are made permanent and will be adjusted annually for inflation starting in 2026.

New Senior Deduction: $6,000 per Person (2025–2028)

Individuals over age 65 will receive an additional $6,000 deduction per person starting in 2025, expiring after 2028.
That means a married couple where both spouses are over 65 could claim $12,000 extra on top of the standard deduction.

Available to both itemizers and standard deduction filers
Phases out at $150,000 AGI for MFJ, and $75,000 for all other taxpayers

For retirees with modest income sources beyond Social Security, this deduction may help reduce the taxable portion of Social Security benefits — though the actual impact will depend on each taxpayer's overall income picture and filing status.

The Council of Economic Advisers — a White House advisory body — projected that the share of Social Security recipients owing no federal income tax on their benefits could rise from approximately 64% to 88% under this legislation. These are government projections and individual results will vary.

RMD Timing Considerations

For taxpayers turning 73 this year and facing a first Required Minimum Distribution (RMD), there is a timing decision to consider:

Taking the RMD in the current year allows potential pairing with the $6,000 senior deduction (or $12,000 for joint filers) available starting in 2025, or
Delaying it until April 1 of the following year may be preferable depending on the taxpayer's broader income picture.

This deduction may factor into multi-year tax planning around retirement withdrawals, Social Security timing, and Medicare premium thresholds — though the right approach depends on individual circumstances. The senior deduction expires after 2028, so the window for coordination is limited.

As a fee-only fiduciary financial planner in Santa Rosa, Trusted Path Wealth Management works with retirees to model the tax impact of RMDs, Social Security, and applicable deduction rules to support more informed decision-making. Results will vary by individual situation.

State and Local Tax (SALT) Deduction Updates

The One Big Beautiful Bill Act includes significant changes to the State and Local Tax (SALT) deduction for taxpayers who itemize.

Increased SALT Cap Starting 2025

• The existing $10,000 SALT cap increases to $40,000 for Married Filing Jointly (MFJ) and Singles, and $20,000 for Married Filing Separately (MFS), beginning in 2025.
• This increase is temporary, running through 2030, after which the SALT deduction reverts to $10,000.

Phase-In and Phase-Out Details

Income Limits and Phaseouts

• Available only to taxpayers with Modified Adjusted Gross Income (MAGI) up to $500,000 ($250,000 for MFS).
• Fully phases out at $600,000 MAGI ($300,000 for MFS).

Important Notes

• The changes reintroduce a marriage penalty for SALT deductions due to different thresholds for joint vs. separate filers.
• These updates primarily benefit itemizers in higher-tax states whose incomes fall below the phaseout thresholds.

The expanded SALT cap may be relevant to retirement withdrawal planning when coordinated with RMDs, Social Security timing, and other deductions — though individual results depend on each taxpayer's specific tax profile. The higher cap expires in 2030, so planning decisions made in the near term may carry implications across a multi-year window.

Itemized Deductions: New Floors, Limits & Reductions

While the One Big Beautiful Bill Act expands the standard deduction, certain itemized deductions are subject to new limitations.

Charitable Contributions: 0.5% AGI Floor

For taxpayers who itemize, charitable contributions are deductible only to the extent they exceed 0.5% of Adjusted Gross Income (AGI).

For example, for a taxpayer with an AGI of $100,000, only the portion of charitable giving over $500 would be deductible.

Itemized Deduction Limitation ("Haircut Rule")

The bill introduces a limitation that reduces total itemized deductions for higher-income taxpayers.

Total itemized deductions are reduced by:
2/37 of the lesser of:

• Total itemized deductions, or
• The amount of taxable income that exceeds the start of the 37% bracket

This means higher-income filers will not be able to deduct 100% of itemized deductions. A modest reduction applies as income rises above the 37% bracket threshold.

This change primarily affects higher-income taxpayers with significant deductions such as charitable contributions, mortgage interest, or state and local taxes.

Gambling Losses: New 90% Rule

• Previously, gambling losses could fully offset gambling winnings (up to the amount of winnings) for itemizers.
• Under the OBBBA, only 90% of gambling losses are deductible.

Example: If a taxpayer won $10,000 and lost $10,000 in the same year, only $9,000 in losses would be deductible, leaving $1,000 in taxable gambling income.

Alternative Minimum Tax (AMT) Updates

The One Big Beautiful Bill Act makes AMT exemption amounts and phaseout thresholds permanent, providing more planning certainty for affected taxpayers.

Key Exemption Amounts for 2025

• Single Filers: $88,100 exemption, phaseout starting at $626,350
• Married Filing Jointly (MFJ): $137,000 exemption, phaseout starting at $1,252,700

Potential Planning Implications

The higher exemptions and elevated phaseout thresholds may reduce AMT exposure for some taxpayers, including those exercising Incentive Stock Options (ISOs). Previously, many individuals exercising ISOs faced AMT consequences that required careful timing. Under the new rules, that risk may be reduced for some — though outcomes depend on individual income, deductions, and option structures.

Federal Estate Tax Updates

The One Big Beautiful Bill Act proposes significant changes to federal estate tax exemptions.

Higher Estate Tax Exemptions (Made Permanent)

• For 2025: exemption is $13,990,000 per person
• For 2026: exemption increases to $15,000,000 per person
• Amounts will be adjusted for inflation in future years

For married couples, with proper planning and portability elections, a combined exemption of approximately $30 million may be available in 2026 and beyond.

Reviewing Existing Estate Plans

Many estate plans were drafted under the assumption that TCJA exemptions would expire after 2025. With higher limits now made permanent, certain strategies — such as irrevocable trusts, credit shelter trusts, or early gifting arrangements — may warrant review. State-level estate taxes are separate and unaffected by federal changes.

Common areas to revisit with an estate planning attorney:

• Use of credit shelter trusts or bypass trusts
• Gifting strategies using annual exclusions or 529 Superfunding
• State-level estate tax exposure
• Alignment of trust terms with current exemption levels

MAGA Accounts & Employer Contributions

The One Big Beautiful Bill Act introduces MAGA accounts (Money Accounts for Growth and Advancement) under §530A — a new type of tax-advantaged savings vehicle for children.

MAGA Accounts – §530A

• Available for children under age 8
• Parents can contribute up to $5,000 per year per eligible child
• Funds cannot be withdrawn until the beneficiary turns 18
• Funds can be used for:
  • College education
  • First-time home purchase
  • Starting a small business

Withdrawals are taxed at capital gains rates, which may provide a long-term tax advantage relative to ordinary income rates — though actual tax impact will depend on the beneficiary's circumstances at the time of withdrawal.

Government Deposits for Newborns

• $1,000 government-funded deposit for qualifying children born between December 31, 2024, and January 1, 2029
• The bill does not include $5,000 baby bonus checks, contrary to some earlier reporting

Investment Rules

• All MAGA account assets must be invested in mutual funds tied to a U.S. equity index

Employer Contributions – §128

The bill creates a new employer benefit allowing contributions to MAGA accounts:

• Employers can contribute up to $2,500/year per employee (not per child)
• The contribution limit is indexed for inflation
• Employers must maintain a written plan document
• Nondiscrimination rules apply, including the 55% average benefit test from dependent care assistance programs

These accounts may complement other savings tools such as 529 plans, Roth IRAs for teens, or custodial brokerage accounts. As a fee-only fiduciary advisor in Santa Rosa, Trusted Path Wealth Management works with clients to evaluate how these options fit within their broader financial plan. Whether a given account type is appropriate depends on individual goals and circumstances.

Child Tax Credit Updates

Increased Credit Amount (2025–2028)

• The Child Tax Credit increases to $2,200 per qualifying child starting in 2025 through 2028
• The refundable portion increases to $1,700
• After 2028, the credit reverts to $2,000 per child

Phaseouts and Eligibility

• Phaseout thresholds remain:
  • $400,000 for Married Filing Jointly
  • $200,000 for all other filers
• A valid Social Security number is required for the qualifying child
• At least one parent must also have a valid Social Security number

Planning Considerations

For families near the phaseout thresholds, coordinating income timing and deductions across tax years may be relevant to optimizing eligibility. A tax professional should be consulted to evaluate each family's specific situation.

Student Loan Changes

Taxable Loan Forgiveness

The bill repeals a provision in the American Rescue Plan Act (ARPA) that excluded certain student loan discharges from income (for loans forgiven between 12/31/2020 and 1/1/2026).

• Some types of loan forgiveness may now be taxable depending on loan type and forgiveness program
• Borrowers in programs such as Public Service Loan Forgiveness (PSLF) or income-driven repayment plans should evaluate potential tax exposure with a qualified tax advisor

Parent PLUS Loan Program Changes

• New total borrowing limit: $65,000 per student
• Annual cap: $20,000 per student
• Parent PLUS loans will no longer be eligible for income-driven repayment plans after July 1, 2026

Repayment Plan Restructuring

The bill eliminates current income-contingent repayment plans for loans disbursed after July 1, 2026. Borrowers will have two options:

• Standard Repayment Plan – Fixed payments over 10 to 25 years
• Repayment Assistance Plan – Payments based on Adjusted Gross Income (AGI) with a 30-year term

The bill does not include broad student loan forgiveness.

Graduate and Professional Student Loan Caps

• Eliminates the Grad PLUS program starting July 1, 2026
• New borrowing limits:
  • Graduate students: $20,500/year, capped at $100,000
  • Professional students (e.g., medicine, law): $50,000/year, capped at $200,000

529 Plans and Education Funding

With stricter loan limits and reduced forgiveness options, 529 plans may play a more important role in education funding strategies. The "Superfunding" strategy — contributing five years' worth of annual gift exclusions upfront — remains available and may be worth discussing with a financial and tax advisor.

Employer-Paid Student Loan Benefits

The bill makes permanent the §127 income exclusion for employer-provided educational assistance:

• Up to $5,250 per year excluded from taxable income
• Adjusted for inflation after 2026

Family & Charitable Tax Provisions

Dependent Care Assistance Program (§129)

• The maximum annual exclusion increases from $5,000 to $7,500 per household
• Applies to employer-provided dependent care benefits under §129

Adoption Credit (§23)

• Up to $5,000 of the adoption credit becomes refundable under §23
• May provide greater benefit to moderate-income families who might not otherwise fully utilize the credit

Charitable Deduction for Non-Itemizers (§170(p))

• Reinstates §170(p), available during 2020 and 2021
• Non-itemizing taxpayers may deduct cash contributions up to:
  • $1,000 for single filers
  • $2,000 for joint filers
• Applies to cash contributions to qualified charitable organizations
• Proposed as a permanent provision

Deductible Car Loan Interest (2025–2028)

Interest on certain new car loans may be tax-deductible for a limited period — a provision not available since 1986.

• Applies only to new cars assembled in the U.S.
• Campers and RVs are excluded
• Deduction limited to $10,000
• Income phaseouts:
  • $100,000 AGI for singles
  • $200,000 AGI for married filing jointly
• Effective for tax years 2025 through 2028

Employer-Provided Child Care Credit (§45F, Expanded)

• Credit increases from 25% to 40% of qualified child care expenses
• Small businesses may qualify for a 50% credit
• Adds a 10% credit for qualified child care referral expenses
• Credit cap:
  • $500,000 for most businesses
  • $600,000 for small businesses
• Indexed for inflation

Qualified Small Business Stock (§1202)

Changes to QSBS gain exclusions:

• Held 3 years → 50% gain excluded
• Held 4 years → 75% gain excluded
• Held 5 years → 100% gain exclusion
• Exclusion cap increases from $10M to $15M
• Applies to companies with gross assets up to $75M (up from $50M)

QSBS rules are complex. A qualified tax advisor should be consulted before relying on this exclusion in financial planning.

Health Savings Account (HSA) Expansion

• Bronze and Catastrophic marketplace plans now qualify as HSA-eligible
• Direct primary care arrangements become eligible
• Telehealth coverage may be offered pre-deductible

Expiration of Inflation Reduction Act Credits

Several clean energy and electric vehicle credits are set to expire under this legislation:

• Terminate after 9/30/2025:
  • §25E (previously owned clean vehicle credit)
  • §30D (clean vehicle credit)
  • §45W (commercial clean vehicle credit)
  • §6426(k) (sustainable aviation fuel credit)
• Terminate after 6/30/2026:
  • §30C (alternative fuel refueling credit)
  • §179D (energy-efficient commercial buildings)
  • §45L (new energy-efficient home credit)
• Terminate after 12/31/2025:
  • §25C (home improvement energy credit)
  • §25D (residential clean energy credit)
• Terminate after 1/1/2028:
  • §45V (clean hydrogen production credit)

Taxpayers who planned to use any of these credits should consult a tax advisor promptly regarding timing.

New Scholarship-Granting Organization Credit (§25F)

• Credit is the greater of $5,000 or 10% of AGI
• Annual national cap of $4 billion, starting in 2027
• Allocated first-come, first-served

No Tax on Tips (§224)

• Up to $25,000 in qualified tip income is deductible above the line
• Still subject to payroll taxes (FICA)
• Applies 2025–2028
• Excludes highly compensated employees (AGI > $150,000 in 2025)
• A valid Social Security number is required
• Applies to income reported on W-2, 1099-K, 1099-NEC, and Form 4137

Impacted professions may include barbers, restaurant servers, estheticians, and certain other service workers. The bill also expands the employer FICA tip credit to include hair care, nail care, and spa and body treatment services.

No Tax on Overtime (§225)

Workers receiving qualified overtime pay may benefit from a temporary above-the-line deduction:

• $12,500 cap for singles
• $25,000 cap for married couples
• Phased out at:
  • $150,000–$275,000 AGI for singles
  • $300,000–$425,000 AGI for joint filers
• Applies 2025 through 2028

General Disclosure: The information in this article is for educational purposes only and is not intended as tax, legal, or investment advice. Tax situations vary significantly by individual; the provisions described may not apply to every taxpayer's circumstances. IRS guidance and regulatory interpretation of new provisions may change. This article was prepared based on legislative text available as of the publication date and may not reflect subsequent clarifications. Trusted Path Wealth Management does not provide tax or legal advice. A licensed CPA, tax attorney, or other qualified professional should be consulted for advice specific to each individual's situation. Trusted Path Wealth Management is a registered investment advisor in the State of California. Registration does not imply a certain level of skill or training.

Sources

• Full Bill Text – H.R.1, 119th Congress (congress.gov)
• Council of Economic Advisers – One Big Beautiful Bill Analysis (whitehouse.gov)