The One Big Beautiful Bill Act, signed on July 4th, 2025, brings some sweeping changes to the U.S. tax code. There are updates that can shape financial planning strategies for years to come. Here are a few of the main highlights that advisors and tax filers should know:
- Permanent lower tax rates: The federal income tax bracket schedule and rates established by the 2017 Tax Cuts and Jobs Act (TCJA) are now permanent. The brackets-10%, 12%, 22%, 24%, 32%, 35%, and 37%-will no longer be sunset, providing some predictability for clients across all income levels.
- High standard deductions: The nearly doubles standard deduction, a signature of the TCJA, is now permanent and indexed for inflation. For 2025, married filing joint can expect a deduction of $31,500, while head of household will be $23625, and for single filers $15,750.
- SALT deduction cap boost (temporarily): From 2025-2029, the cap on state and local tax (SALT) deductions rises from $10,000 to $40,000, gradually increasing by 1% a year. However, the larger cap begins phasing out for incomes above $500,000-reverting to $10,000 again in 2030 unless extended by Congress. This has the potential to alter the standard deduction vs itemization calculus for many filers.
- No tax on tips or overtime: A new provision eliminates federal income tax on tips and overtime for most workers, lowering effective tax rates for a significant portion of the workforce. Qualified tips up to $25,000 can be deducted per individual. There is a phase out based on income. If single filers have a modified adjusted income of over $150,000 and $300,000 for joint filers. As for the overtime pay, you do not have to pay tax on the premium above your normal hourly wage. In other words, if your hourly wage is $20 and your overtime pay is $30 an hour, you will not have to pay tax on the $10 per hour difference. This deduction is capped at $12,500 for single filers and $25,000 for joint filers.
- Expanded benefits for families: The child tax credit is increased to $2,200 per child and made permanent, alongside improved adoption and Other Dependent Credits.
The 529 education plan rules are broadened by allowing larger tax-exempt withdrawals for K-12 and secondary expenses.
- Miscellaneous deductions eliminated: The law permanently disallows many miscellaneous itemized deductions, including investment management fees, affecting high-net-worth individuals.
The changes emphasize the importance of update tax planning. Your advisor should help clients revisit tax strategies well before tax-filing season to make sure you are fully leveraging the new law’s opportunities and avoid any costly surprises. At Meikle Financial, we take pride in our tax preparation backgrounds and want to make sure our clients are updated, educated, and aware of how the new tax laws affect them. Please call with any questions.
Sources: H&R Block tax preparation, bipartisanpolicy,org, tax foundation, McAfee & Taft
