The One Big Beautiful Bill - Part 1

Dear Clients and Friends,

I hope everyone is enjoying their summers so far!

The 4th of July is a special day in American history, especially in Philadelphia. Typically the sun is shining, beach traffic is ridiculous, cookouts are plentiful, and the night skies are filled with fireworks. Independence Day is when the nation celebrates the signing of the Declaration of Independence, one of the most important events of our country’s nearly 250-year long history.

A few weeks ago, on our country’s birthday, a major piece of legislation landed on President Trump’s desk. While it pales in comparison to the Declaration of Independence, the Big Beautiful Bill, or BBB, is nearly 1,000 pages of legislation that impacts the lives of every American.

A little context before we dive into the plethora of tax changes: I previously wrote a weekend reading on this topic that could be helpful, called “The Sunset You’re Least Expecting.” During Trump’s first term, the landmark Tax Cuts & Jobs Act (TCJA) bill was passed. This bill reduced tax rates until the end of 2025. Amongst the many campaign promises that Trump made last year, he indicated that he would extend his TCJA policies and introduce new tax cuts - hence the passage of the Big Beautiful Bill. If no new tax agreement was in place by the end of 2025, then tax rates would have reverted to what they would have been back in 2017; tax rates would have increased greatly for every American.

Since the BBB was recently passed and is still being digested by all of us, I’m going to highlight the major provisions that I think are the most important and impactful. The bill implements changes that are both permanent and temporary, but there will be more on this to come as we better understand this behemoth of a bill.

We will also publish a second article on this topic that will critique and highlight what we believe are the main pros and cons, in addition to discussing some of the mistaken beliefs about this bill.

•Tax Rates – The BBB makes the current reduced tax rates enacted by the TCJA permanent! In a nutshell, the TCJA restructured the U.S. tax code by reducing individual and corporate tax rates, nearly doubling the standard deduction, and capping state and local taxes (SALT). Thanks to the passages of the TCJA and BBB, the U.S. continues to be in one of the most favorable tax climates relative to history.

•Standard Deduction – Effective immediately, the BBB raised the standard deduction to $15,750 for single filers and $31,500 for married couples filing jointly from $15,000 and $30,000 respectively, indexed for inflation.

•Estate & Gift Exemptions – Beginning in 2026, the exemption is significantly raised to $15,000,000 per person.

•Senior Deduction – The BBB introduced a temporary $6,000 per person deduction to taxpayers over age 65 that phases out once modified adjusted gross income (MAGI) exceeds $75,000 for individuals and $150,000 for married couples. While President Trump proposed eliminating taxes on Social Security benefits, the House and Senate versions of this bill didn’t include any such eliminations, so this was a way to compensate for that.

•State and Local Tax (SALT) Cap – Effective in 2025, the BBB temporarily increased the SALT deduction from the current $10,000 cap to $40,000 through the end of 2029. In 2030, the limit reverts to the original $10,000 cap. More importantly, the write-off is reduced for taxpayers with more than $500,000 of income. Both the cap and the income threshold increase by 1% each year.

•Qualified Business Income (199A Pass Through) – The popular pass-through deduction for small business owners has been permanently extended and remains at 20% of eligible income. However, there were no changes to the “specified service trade or businesses” mandate.

•Charitable Deductions – In order to claim any tax benefits from your donations, you needed to itemize your taxes, plain and simple. The BBB now allows non-itemizers (91% of American taxpayers as of 2024) to deduct charitable gifts of up to $1,000 for single taxpayers and $2,000 for married taxpayers filing jointly in order to provide some financial incentive for the masses. (This was formerly only offered to the wealthy.) This kicks in starting next year, and only cash gifts qualify. Gifts made to Donor Advised Funds don’t qualify; however, most people who use DAFs already itemize.

•Auto Loan Interest Deduction – a new $10,000 deduction on interest paid for new car loans becomes available. A key caveat of the write-off is that the vehicle must be assembled in the U.S. This phases out for individuals earning between $100,000 - $150,000 and joint filers earning between $200,000 - $250,000.

•Child Tax Credit – The BBB permanently boosts the child tax credit to $2,200 from $2,000 starting this year, and adjusts the figure for inflation.

•529 Updates - Starting in 2026, the limit for K-12 costs will double from $10,000 to $20,000. Credentialing expenses will now count as qualifying expenses for 529 plans.

•EV Tax Credit – Originally expected to be in effect by 2032, the BBB eliminates the $7,500 tax credit for buying or leasing new electric cars, along with a $4,000 tax credit for buying used EVs. These credits disappear by the end of September 2025. Additionally, if you are planning on making your home more energy efficient (installing solar panels, electric heat pumps, etc.), get started ASAP, because the credits for these upgrades will cease by the end of December.

•Trump Accounts – Initially known as “MAGA” accounts, these tax-advantaged savings accounts are available to all children who are US citizens. The federal government chips in $1,000 for kiddos born from 2025 through 2028. Parents can contribute $5,000 per year, and employers can contribute $2,500 that wouldn’t be considered as taxable income. Any qualified withdrawals are taxed at capital gains rates as opposed to ordinary tax rates.

•No Tax on Tips – The BBB provides a temporary deduction of up to $25,000 for cash tips received by an individual. This deduction phases out with incomes of $150,000 for single filers and $300,000 for joint tax filers.

•No Tax on Overtime – Up to $12,500 ($25,000 for married couples filing jointly) of overtime compensation can now be deducted until 2028. The income thresholds are $150,000 for single filers and $300,000 for joint tax filers.

•Domestic R&D – Instead of amortizing or spreading out research and development costs, taxpayers can now immediately expense R&D expenditures beginning after December 31, 2024.

•Qualified Small Business Stock (QSBS) – The BBB implements a massive change for any entrepreneurs or investors in small businesses, as seen below.

As you can see, the Big Beautiful Bill has introduced sweeping changes to the tax landscape that will impact all of us in some way. As we continue to digest the new policies, we’ll be sure to bring up any opportunities during your annual reviews. We also plan to publish a second article on this topic which will explore how much this will help people of varying income classes, and how these policies will increase the national deficit and debt (which it will by a mind-blowing amount of money, by the way). I’ll leave you with this: is the Big Beautiful Bill really that beautiful? Time will tell, but let us know your thoughts!

Onward & Upward,

Devin