One Big Beautiful Bill Act Planning

As we move beyond simply understanding what is and isn’t in the new One Big Beautiful Bill Act (OBBBA), our focus shifts to how we’re thinking about these rules in the context of 2025 and 2026+ tax planning. One thing is for certain: this is an incredible opportunity to partner with our CPA friends to help find worthwhile strategies for our clients. As we mentioned in the OBBBA blog, there may be several proactive planning opportunities for those under $600,000 of AGI/MAGI.

In this article, we’ll discuss:

1. The SALT deduction
2. The new rules around charitable contributions
3. The new Senior Tax Deduction
4. Managing AGI/MAGI when approaching a deduction phaseout
5. Other tips for planning your itemized deductions
6. Will AMT become more prevalent?

As we look at the enhancements for individual taxpayers in OBBBA, it’s clear that managing income thresholds and phaseouts will be key. The increased SALT deduction, the Senior Tax Deduction, no tax on tips, no tax on overtime, and the deductibility of auto loan interest are all helpful provisions, until they’re phased out at higher income levels. While we won’t cover all these deductions here, we’ll focus on those most likely to impact our client base.

The SALT Deduction

One of the most hotly negotiated items in the final version of the OBBBA was the SALT deduction—short for State and Local Taxes (income taxes, sales tax, property tax, car tax, etc.). Through 2024, this deduction was capped at $10,000. Under the new law, the cap increases to $40,000, but it begins to phase down above $500,000 of MAGI and fully phases out to $10,000 by $600,000 of MAGI.

SALT, along with charitable contributions, mortgage interest (subject to limits), unreimbursed medical expenses (also limited), and a few other deductions, make up your Itemized Deductions. Taxpayers can deduct the greater of their itemized deductions or the standard deduction ($15,700 single; $31,400 married filing jointly “MFJ”).

By increasing SALT limits, more taxpayers may find themselves itemizing. However, the $500,000 to $600,000 income range is one of the costliest zones for taxpayers.

Example:

Let’s say you expect your MAGI to be $500,000 heading into December, with a $100,000 bonus on the way. If you take that bonus on your December 31st paycheck rather than deferring to January 15th, you not only add $100,000 of income—some taxed at 32%, some at 35%—but you also lose $30,000 of SALT deduction due to phaseout.

That creates $130,000 of additional taxable income—$100,000 from the bonus and $30,000 from lost deduction—resulting in an effective tax of 45.5% on that bonus ($45,500 tax on $100,000).

It gets worse: losing that $30,000 SALT deduction could mean your itemized deductions are no longer greater than the $31,400 standard deduction, making any charitable contributions non-deductible. It’s a tightrope walk in this income zone.

Charitable Contributions

Charitable giving is the most controllable—and discretionary—of the itemized deductions. Effective planning should evaluate the tax benefit of your donations against multi-year income expectations.

Questions to ask:

• Will your itemized deductions exceed the standard deduction this year?
• Are you in a higher tax bracket now than you expect to be in coming years?
• Could front-loading charitable gifts make sense?
• What impact does the new 0.5% AGI floor have on charitable gifts made after 2025?

Improper planning/timing may push you into the SALT phaseout zone, which could trigger a standard deduction and eliminate the tax benefit of already-given donations. While giving should always align with philanthropic goals, aligning it with smart tax strategy is also prudent.

And starting in 2026, charitable contributions will only be deductible to the extent they exceed 0.5% of AGI—adding urgency to the need for good planning.

The Senior Tax Deduction

This was Congress’s attempt to offer financial relief to those on Social Security, after “no tax on Social Security” failed to pass. Taxpayers aged 65+ can now deduct $6,000 per person, on top of the standard or itemized deduction. This deduction phases out at 6% of MAGI over the threshold ($150,000 MFJ).

Example:
If MAGI is $250,000 (MFJ), the couple is $100,000 over the threshold. Multiply that by 6% to get a $6,000 phaseout per taxpayer. That means the couple loses the full $12,000 Senior Deduction.

So, your AGI goes up $100,000, but your taxable income increases by $112,000 (due to losing the deduction). At a 24% marginal bracket, that’s a 26.9% effective tax on that $100,000.

Not all income is equal—$100,000 of ordinary income impacts you differently than $100,000 of capital gains—so your effective tax rate can vary significantly.

Managing AGI/MAGI

This is harder than it seems. Most deductions don’t lower your AGI/MAGI. And just because something is deductible doesn’t mean it’s smart to spend a dollar to save a quarter.

For W-2 employees:

• Max out pre-tax retirement plans
• Use HSA or FSA accounts, if eligible
• Leverage other pre-tax employee benefits
• Consider participating in deferred comp plans, if available
• Make deductible IRA contributions, if eligible

For business owners/self-employed:

• Use retirement plans (Solo 401(k), SEP IRA, etc.)
• Track and deduct all business expenses
• Evaluate home office deductions
• Use PTET elections where available
• If sole proprietor, consider electing partnership status for PTET
• Strategically time income and expenses
• Work with your CPA on depreciation opportunities

What Can Your Financial Advisor Do?

This is a game of tax-aware portfolio and cash flow management:

• Tax-loss harvesting
• Taxable vs. municipal bond evaluation
• Asset location strategies
• Blending withdrawals across different account types
• Charitable giving strategies (QCDs, itemized, non-itemized)
• Year-end planning with a multi-year view

Other Itemized Deduction Planning

Many deductions are just part of life, not something we can plan around. That said, small decisions around the edges can add up.

• SALT payments: Consider pulling forward estimated payments or pre-paying property taxes if it helps in a high-deduction year.
• Unreimbursed medical expenses: Only the amount above 7.5% of AGI is deductible, but if you’re near that threshold, timing procedures could push you over.

AMT: Is It Coming Back?

The Alternative Minimum Tax (AMT) kicks in when higher-income taxpayers, through deductions or capital gains, reduce their effective rate below 28%. The goal is to ensure they still pay a minimum level of tax.

The 2017 TCJA raised AMT exemption phaseouts and eliminated many deductions, making AMT largely irrelevant for most. OBBBA, being a TCJA extension, mostly keeps that intact.

But beware:

• The AMT phaseout for MFJ reverts to $1M in 2025 (down from $1.25M in 2024)
• Some OBBBA deductions (like SALT) are AMT add-backs
• Depending on your income character and deductions, more people may be affected

Conclusion

The One Big Beautiful Bill Act offers a powerful moment for proactive tax planning. For those in phaseout zones, timing and coordination between your CPA and financial advisor will be critical. There’s still time left in the year—don’t wait. With a multi-year strategy, you can make the most of what this new law has to offer.

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