Jeff Strouse
Our take on the 2025 Tax Reform: One Big Beautiful Bill
As you are most likely aware, on July 4th, President Trump signed into law the One Big Beautiful Bill Act (OBBBA). This is being described as the most significant overhaul of the tax code since the enactment of the Tax Cuts and Jobs Act (TCJA) in 2017, during the first Trump administration. This new law makes several provisions of the TCJA permanent. The law was the result of extensive negotiations and received support along partisan lines. Only time will tell whether all aspects of the law will function as intended. In the meantime, we’ve reviewed the final version and highlighted key provisions that we believe will be most relevant to our clients, starting with your 2025 taxes. Let’s dive in!
A focus on individual taxpayers:
Tax Brackets
- Lower Tax Brackets Stay: The 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets; first introduced in 2018 will not expire. Most Americans avoid a tax hike.
- Higher Standard Deduction: For 2025, the standard deduction rises to $31,500 (married/joint), $23,625 (head of household), and $15,750 (single or separate). This will continue to be indexed to inflation.
Temporary increase in SALT cap:
The Act makes permanent the cap on state and local tax deductions beginning with the 2025 tax year. It temporarily increases the cap on deductions from $10,000 to $40,000 for state and local taxes and further increases the cap by 1% per year until the 2030 tax year, when the cap reverts to $10,000. However, the temporary $40,000 cap is phased out for taxpayers with more than $500,000 in modified adjusted gross income (MAGI), so that the cap is reduced to $10,000 for taxpayers earning $600,000 or more in MAGI. If you itemize deductions and live in a high-tax state, this change means you could deduct more of your local taxes for the next several years if you fall under the income threshold.
No Tax on Tips
The Act provides for a temporary federal income tax deduction for tips that employees and certain independent contractors receive. This development marks a significant shift from prior law, under which all tips were fully subject to income tax as regular wages. The deduction limit is $25,000 for qualified tips and expires after 2028. The deduction phases out for individuals with MAGI over $150,000.
No Tax on Overtime
The Act provides for a temporary federal income tax deduction for eligible overtime pay. This marks a notable change from prior law, under which all overtime pay was fully taxable as regular wages. The deduction limit is $12,500 and expires after 2028. The deduction phases out for individuals with MAGI over $150,000.
No Tax on Car Loan Interest
Interest on the purchase of certain new passenger vehicles assembled in the U.S. will be deductible up to $10,000 (years ’25-’28) and phased out for individuals with MAGI over $100,000.
Elimination of certain green energy tax breaks:
The One Big Beautiful Bill eliminates many green energy incentives. Several tax breaks created by the Inflation Reduction Act (passed by the Biden administration in 2022) will be eliminated soon, including:
- The electric vehicle (EV) tax credit for new and used cars will expire after Sept. 30, 2025. If you’re thinking about purchasing an EV and want to take advantage of the credit, you’ll need to make your purchase before that deadline.
- The tax credits for energy-efficient home improvements, such as upgrading windows, insulation, or HVAC systems, will expire after Dec. 31, 2025.
No Tax on Social Security: Not Quite
Although Trump’s campaign pledge was “no tax on Social Security,” this provision of the Act allows a temporary personal exemption for individuals aged 65 and older (whether they are receiving Social Security benefits or not) under the following conditions, and is an exemption, not a blanket no tax on Social Security:
- This benefit is a $6,000 exemption for taxpayers who have attained the age of 65 before the end of 2025. For married couples filing joint returns, if both spouses have attained the age of 65, both would be eligible for this exemption. Married couples filing separate returns are not eligible for this exemption.
- This exemption for seniors is available only for the 2025-2028 tax years and will no longer be available for the 2029 and later tax years.
- This $6,000 deduction is phased out for single taxpayers with modified gross income over $75,000, and for married joint filers, MAGI above $150,000.
Trump Accounts
This is a new development, as previously there were no tax-free growth accounts available for children, aside from Section 529 Plans, which are limited to covering educational expenses. However, under the new law, Trump accounts may be created on behalf of a child under the age of 18. The account grows tax-free, similar to an IRA account, except contributions to the account are made in after-tax dollars. The Act allows $5,000 in annual contributions to the plan until the year the child turns 18. In addition, a provision allows an employer to contribute up to $2,500 per year into a Trump Account for the benefit of the children of an employee, which would not be reported as compensation paid to the employee.
Such employer contribution is limited to $2,500 per employee, not the number of children of the employee. Furthermore, the federal government will fund a Trump Account with $1,000 for every child with a valid Social Security number born after Dec. 31, 2024, and before Jan. 1, 2029. Some requirements for a Trump Account are:
- Contributions to the account cannot be made until after July 4, 2026.
- A contribution to the account may only be made in a calendar year in which the beneficiary (the child) has not attained the age of 18.
- The beneficiary must have a Social Security number.
- The aggregate contributions for the calendar year may not exceed $5,000 (which limit will be adjusted for inflation). This $5,000 maximum contribution amount does not include the $1,000 contribution to the federal government funds.
- The contribution to the account is made in after-tax dollars (no deduction for contributions to the account).
- The account will have limited investment options.
Charitable Deductions
Under prior law, only taxpayers who itemized deductions were eligible to claim a deduction for charitable contributions, which meant that most Americans—who instead claimed the standard deduction—received no tax benefit for making donations. The Act has introduced significant reforms to the charitable deduction framework. Notably, the COVID-19 above-the-line deductions were made permanent, thereby extending charitable tax benefits to non-itemizing taxpayers. For taxpayers who do itemize, the Act implements a new 0.5% AGI floor, meaning only charitable contributions exceeding 0.5% of a taxpayer’s AGI are deductible. In addition, the maximum deduction benefit for top-bracket taxpayers was reduced from 37% to 35% per dollar donated, and the 60% AGI limit on cash donations to qualifying charities was made permanent.
The Act’s provisions might encourage charitable giving by most Americans, who do not itemize deductions. The Act may discourage philanthropy by higher-income taxpayers and itemizers, as well as corporate donors, although it may take several years to determine the impact. We may see accelerated charitable contributions in 2025 and bunching contributions in future years.
Alternative Minimum Tax (AMT)
The million-dollar exemption from the TCJA for the alternative minimum tax was extended and made permanent. The OBBA also reverts the AMT exemption phaseout thresholds to 2018 levels of $500,000 for single filers and $1 million for joint returns and increases the phaseout rate.
A brief focus on Small Business Owners:
Qualified Business Income Deduction
The popular 20% qualified business income (QBI) deduction for pass-throughs (S-corporations, partnerships, sole proprietorships) is now permanent and expanded.
100% Bonus Depreciation
Businesses can fully expense qualifying capital investments right away, encouraging growth and modernization. Applies to property acquired after January 19, 2025.
Section 179 Expensing
The maximum deduction for small businesses buying qualifying asset equipment is increased. That number will now be $2.5 million, with a phase-out up to $6.5 million.
While these changes appear to be structured to greatly benefit small businesses, you should now be contacting your CPA to determine how these changes will impact your business, what assets qualify, and what strategies should be put in place for 2025 and beyond.
Conclusion
You can see from this summary that numerous changes may affect your tax situation. In the coming months, we anticipate additional guidance from the Treasury and IRS that should provide further clarity. At Suncoast Prosperity Advisors, we are committed to working closely with you and your trusted tax professionals to ensure your wealth aligns with your goals and objectives. Thank you for your continued trust in us.
Investment advisory services are offered through Suncoast Equity Management, LLC; a Securities and Exchange Commission Registered Investment Advisor. We will do our best to confirm the accuracy of all information that appears in this newsletter but cannot guarantee accuracy, reliability, or timeliness. All information is provided without guarantee or warranty. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information, products, or services in this newsletter for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
