By Michael "Drew" Tyler, CFA | July 2025
Here’s a breakdown of the most relevant provisions for our clients and how they could affect your financial plan:
1. Higher Standard Deduction
Starting in 2025, the standard deduction increases to:
• $15,750 for single filers
• $31,500 for married couples filing jointly (indexed for inflation)
For many investors, especially early retirees and those in lower income years, this opens up the opportunity to:
• Further realize long-term capital gains tax-free (if under the income threshold)
• Larger Roth conversions without jumping tax brackets
🧠 Planning Tip: A couple could have up to $128,200 in total income (including capital gains) and still pay zero in federal capital gains tax thanks to the higher deduction and 0% capital gains threshold.
2. $2,000 Charitable Deduction Even if You Don’t Itemize
Starting in 2025:
• Individuals can deduct up to $1,000
• Couples can deduct up to $2,000
• Must be cash gifts to qualified charities
🧠 Planning Tip: This is ideal for clients who take the standard deduction but still give to charity. It also pairs well with Qualified Charitable Distributions (QCDs) for those over 70½.
3. New Deductions for Tips, Overtime, and Vehicle Loan Interest (2025–2028)
• Up to $25,000 of tip income can be deducted (for traditionally tipped industries)
• Up to $12,500 of overtime pay is deductible
• Auto loan interest is now deductible up to $10,000 (for vehicle purchased starting in 2025)
🧠 Planning Tip: These deductions phase out at higher income levels but create new opportunities for service workers, tradespeople, and younger clients.
4. Boosts for Families: Child Tax Credit + Trump Accounts
• Child Tax Credit increases to $2,200 per child
• New “Trump Accounts” give every newborn:
o A $1,000 federally funded start
o Families can contribute $5,000/year
o Accounts grow tax-deferred and convert into Traditional IRAs at adulthood
🧠 Planning Tip: While these new Trump accounts for newborns sound great, they may not be the best strategy for future saving aside from the initial “free” $1,000. Coverdell ESAs and 529 plans allow for tax free distributions for qualified education expenses and in the case of 529 plans can be used towards the beneficiaries future Roth contributions. These items make ESAs and 529s more attractive for education saving.
5. $6,000 Senior Deduction
Taxpayers aged 65+ now get an additional $6,000 above-the-line deduction (phases out at higher income levels). This is on top of the standard deduction.
🧠 Planning Tip: This deduction will help some seniors in the short term, but it is unfortunately only temporary and will be going away in 2028.
6. Temporary SALT Deduction Cap Raised
From 2025 to 2029:
• The SALT (State & Local Taxes) cap increases to $40,000 for married filing jointly
• Phases out above $500K MAGI
• Returns to $10,000 cap in 2030
🧠 Planning Tip: If you're in a high-tax state, this creates a five-year window where it might make sense to revisit how you are bunching deductions.
7. Estate & Gift Tax Exemption Increase
The federal estate and gift tax exemption is increasing to $15 million per individual ($30 million per couple), indexed for inflation.
🧠 Planning Tip: This offers a major (but possibly temporary) window for high-net-worth clients to transfer wealth tax efficiently through lifetime gifts, trusts, and other estate planning tools.
8. Expanded HSA Participation
Previously only those enrolled in high deductible health plans qualified for contributing to an HSA. Now under the new law those who have Bronze or catastrophic plans under the ACA can contribute to HSAs.
🧠 Planning Tip: HSAs are one of the most powerful types of accounts due to their triple tax benefit. Tax-deferred going in, tax free growth, and tax free distributions for qualified medical expenses.
✅ Final Thoughts
The One Big Beautiful Bill introduces a lot of complexity but also some new opportunities for smart tax and financial planning.
*This post is for educational purposes only and should not be considered financial advice.