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Deciphering the OBBBA: Key Tax Proposals and Strategic Planning

Amidst significant legislative deliberations, the One Big Beautiful Bill Act (OBBBA) has emerged as a focal point of tax policy discussions. This comprehensive analysis delves into the pivotal aspects of the proposed legislation from Congress and underscores the critical need for prudent tax strategizing in light of potential legislative modifications.

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Core Provisions

The legislative branches aim to extend and bolster the Tax Cuts and Jobs Act (TCJA) benefits, many of which are set to expire by 2025. A closer look at the core proposals reveals adjustments with far-reaching implications:

  1. Standard Deduction and Tax Rate Modifications: Proposals seek to permanently cement the enhanced standard deductions, initially increased under the TCJA. Moreover, from 2025 to 2028, supplementary increments of $1,000 for singles, $1,500 for heads of households, and $2,000 for couples are envisaged. The top individual tax rate, temporarily lowered from 39.6% to 37%, and bracket inflation indexing are also poised for permanence.

  2. Enhanced Senior Deductions: To ease the tax burden on Social Security recipients, an augmented standard deduction of $4,000 to $6,000 is anticipated for seniors through 2028, contingent upon adjusted gross income thresholds.

  3. Revised Qualified Business Income (QBI) Deduction: The bill seeks to increase the QBI deduction from 20% to 23%, ensuring these changes are enduring. The phase-in threshold mechanisms are slated for simplification.

  4. Estate and Gift Tax Adjustment: An inflation-adjusted $15 million estate and gift tax exemption is on the horizon as a permanent fixture.

  5. Child Tax Credit Advances: Temporary elevations in the child tax credit to $2,200 or $2,500 per qualifying child through 2028 are planned, alongside amendments surrounding indexing and refundability.

  6. Saver's Credit Enhancements: Modifications are targeted at bolstering savings for lower and middle-income brackets, including ABLE account contributions akin to retirement accounts.

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  8. No Tax on Overtime or Tips: New deductions for overtime premium pay and tips in customary occupations, barring highly compensated individuals, are set to be introduced.

  9. Bonus Depreciation Policy: A full 100% first-year depreciation for qualifying business property spanning from 2025 to 2030 is proposed.

  10. SALT Deduction Increase: Contentious increases propose elevating the SALT deduction cap to $30,000, phasing out for higher-income taxpayers.

  11. Deduction on Auto Loan Interest: A deduction of up to $10,000 for U.S.-assembled vehicle loan interest from 2025 to 2028 is envisaged, phasing out based on income thresholds.

  12. Termination of Vehicle and Energy Credits: Post-2025, credits for clean vehicles and various energy-efficient home improvements face termination, barring manufacturer-specific allowances.

  13. Repeal of Personal Exemptions: Permanent repeal of personal exemptions and restrictions on certain itemized deductions are slated.

While these components represent the crux of the OBBBA proposals, taxpayers must proceed with caution as negotiations continue. The final legislative outcomes are anticipated by mid-year. For guidance tailored to your financial situation, reach out to our office.

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