August 2025 Newsletter

The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4 and encompasses hundreds of provisions, including permanent tax cuts, increased defense spending, Medicaid reforms, energy policy shifts, an increase in the debt ceiling, and enhanced immigration enforcement.

Given the scope and complexity of the new law, our review will not be exhaustive but instead will highlight the critical and most impactful provisions in the tax code that may affect you.

We are always happy to entertain any questions. As with any inquiries regarding taxes, feel free to consult with your tax advisor.

Some of the major tax code provisions

Let’s get started.

1. To begin with, the **bill permanently extends the lower tax rates established by the 2017 Tax Cuts and Jobs Act (TCJA).**Without this legislation, those rates would have reverted to the higher pre-TCJA levels, and most Americans would have seen higher tax bills as a result.

The pass-through business deduction, also known as the Qualified Business Income (QBI) deduction, was set to expire, and the federal estate tax exemption would have reverted to its pre-TCJA level of $5.6 million per individual, adjusted for inflation from 2017. Most projections estimated that this would result in an exemption of approximately $6 million to $7 million per person or $12 million to $14 million per married couple.

The permanency is significant, as it spares taxpayers the recurring uncertainty of whether Congress will extend the rates and provisions at the end of a temporary and what feels like an arbitrary period.

However, as you are probably well aware, “permanent” in this context simply means the provisions no longer have a built-in expiration date. As always, Congress retains the authority to revise or tinker with the tax code at any time.

One last note. As you’ll see in a moment, some of the new tax breaks have an expiration date.

2. Starting in 2025, the standard deduction risesto $31,500 for joint filers, $23,625 for head of households, and $15,750 for single filers. As it was under the TCJA, it is adjusted for inflation each year.

3. Starting in 2026, those who take the standard deduction can deduct cash donations to a qualified charity—up to $1,000 for individuals or $2,000 for joint filers. The deduction isn’t indexed for inflation. Gifts to donor-advised funds or private non-operating foundations are excluded.

Additionally, the tax benefit of itemized charitable deductions is capped at 35%. For example, a taxpayer in the 37% bracket that donates $1,000 will receive a $350 deduction, not a $370 deduction.

Finally, for those who itemize, the bill introduces a new charitable giving threshold: only contributions exceeding 0.5% of adjusted gross income (AGI) will be deductible. Donations below this floor will no longer qualify. If, for example, a couple that itemizes has an AGI of $100,000, only donations above $500 are deductible.

4. Effective in 2026, the estate tax exemption will riseto $15 million per individual. The new threshold will not expire and is indexed to inflation.

5. The current $2,000 child tax credit is increasedto $2,200 for tax year 2025. It will now be indexed to inflation in future years. The income level at which the credit begins to phase out remains the same: $400,000 for couples filing jointly and $200,000 for single filers.

6. The OBBBA repeals or scales back several green energy tax creditsintroduced under the Inflation Reduction Act that primarily target individuals, such as credits for electric vehicles and residential energy efficiency improvements. The $7,500 tax credit for the purchase of an electric vehicle is eliminated for autos purchased after September 30, 2025.

The Residential Clean Energy Credit, popularly known as the home solar tax credit for installation of solar panels, energy-efficient windows, etc., will be eliminated for outlays made after December 31, 2025.

7. The recently signed bill makes big changes to 529 plans. Withdrawals now cover a range of additional K-12 qualified expenses, including curriculum materials, fees for nationally standardized tests, dual-enrollment fees for college courses taken in high school, tutoring or educational classes outside the home, and specialized strategies designed to support students with disabilities.

And the annual K-12 limit per-child distribution cap for K-12 expenses doubles from $10,000 to $20,000 (starting 2026).

529 funds can be used for credentialing, licensing, and continuing education programs. These include skilled trades (such as HVAC, welding, etc.) and professional licensing (such as the bar exam or CPA). Credentialing programs must meet certain criteria to be considered qualified, typically recognized under the Workforce Innovation and Opportunity Act or similar federal or state programs.

Updates, new, and temporary additions to the tax code

1. **SALT deduction:**A big change that came with the TCJA was a deduction limit of $10,000 for state and local taxes, also known as SALT. The OBBBA raises the deduction cap for state and local taxesfrom $10,000 to $40,000 for taxpayers earning less than $500,000 in 2025, with the cap increasing by 1% annually through 2029. The new cap will be phased out at $500,000.

But this is a temporary feature. Beginning in 2030, the cap will revert back to $10,000.

2. No tax on tips: Tip income will be exempt from federal income tax between 2025 and 2028. Phaseouts begin when adjusted gross income exceeds $150,000 ($300,000 for joint filers). By October 2, the IRS must publish on or before December 31, 2025 a list of occupations that “customarily and regularly” receive tips.

3. Overtime pay exemption: Overtime wages earned from 2025 through 2028 will not be taxed. The exemption is capped at $12,500 per individual (or $25,000 per couple) and begins to phase out for individuals earning over $150,000 (or $300,000 for couples).

4. **Trump Accounts:**Children born between 2025 and 2028, provided both parents are U.S. citizens and have a Social Security Number, will be automatically enrolled in a federal savings account, called “Trump Accounts,” with a one-time $1,000 deposit. These accounts allow for annual contributions of up to $5,000 (indexed for inflation).

The account grows tax-deferred until withdrawals begin—allowed starting at age 18—at which point it essentially follows the rules for an IRA.

5. Enhanced deduction for seniors: Seniors aged 65 and older will receive an additional $6,000 deduction during the 2025–2028 period. There is a $12,000 deduction for married taxpayers if both spouses are 65 or older and filing jointly. This benefit applies to standard and itemized filers but begins to phase out for individuals with modified AGIs of more than $75,000 and $150,000 for joint filers.

6. No tax on car loan interest: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the car is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify). The vehicle must have “undergone final assembly in the U.S.,” per the IRS.

These are many of the most significant changes to the tax code. If you have any questions, we’re here to help. As always, we encourage you to consult with your tax advisor to understand how these updates may affect your situation.

Sources:

Tax Foundation: “One Big Beautiful Bill Act” Tax Policies: Details and Analysis

USAFacts: What’s in the “One Big Beautiful Bill”?

IRS: One Big Beautiful Bill Act: Tax deductions for working Americans and seniors

Thomson Reuters: The pass through entity

Charles Schwab: Congress Approves Massive Tax and Spending Bill

Fidelity: One Big Beautiful Bill (OBBB): Impact on Charitable Giving

Ameriprise: The One Big Beautiful Bill: What you need to know

LPL Financial: Use It or Lose It: Sunset of the Federal Estate Tax Exemption

Kiplinger: Here's How the Child Tax Credit 2025 Amount Is Increasing Under Trump

Saving for College: How the Big Beautiful Bill Impacts Education Savings: 529 Plans, ABLE Accounts, and Trump Accounts

How the One Big Beautiful Bill Act Will Reshape 529 Plans

Tariff news is ‘less bad’

Less bad—that’s a simplified though admittedly rough way to describe the trade and tariff landscape and its broader impact on stocks.

This sharp rise in tariffs reflects a major shift in U.S. trade policy that’s aimed at addressing trade imbalances and encouraging domestic production. It may also have significant implications for inflation, supply chains, and global trade dynamics.

In general, the European Union and Japan have agreed to a 15% tariff on the exports of their goods into the United States. Yet, investors reacted favorably. It’s hard to imagine such a response if that deal had been inked just a few months ago.

But that’s below Liberation Day tariffs of 20% on the EU (and one-time threat of 50%) and 24% on Japan.

In other words, it’s “less bad” than what was originally announced, and investors are breathing sighs of relief.

Key Index Returns

*Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: June 30, 2025–July 31, 2025
YTD returns: December 31, 2024–July 31, 2025
*in U.S. dollars

Still, the 15% rate will likely function as a floor—one that, for most countries, probably won’t go lower (the UK negotiated a 10% rate). And notably, no agreement with China has been reached yet. Details on investments in the U.S. from trading partners made headlines, but details are light.

When the dust finally settles, the tax on imports may rise to a level not seen since the 1930s.

So, who’s going to pay for it? Federal Reserve Chief Jerome Powell spelled it out at his June press conference:

“The pass-through of tariffs to consumer price inflation is a whole process that’s very uncertain. As you know, there are many parties in that chain: There’s the manufacturer, the exporter, the importer, the retailer, and the consumer, and each one of those is going to be trying not to be the one to pay for the tariff,” he said.

“But together, they will all pay for it together—or maybe one party will pay it all. But that process is very hard to predict, and we haven’t been through a situation like this,” he added.

So far, tariff inflation, with a few exceptions, has been slow to appear in retail prices.

As The Wall Street Journal reported near the end of July, “Trump’s Tariffs Are Being Picked Up by Corporate America--Neither consumers nor foreign countries are assuming much of the tariff burden, at least not yet.”

But that’s corporate America. Small importers may not have the luxury of picking up the tab.

Stock markets flying high again

After a swift sell-off in early April, the market rallied, and the S&P 500 Index and the tech-heavy Nasdaq Composite notched several new highs in July, per MarketWatch data.

That’s not a signal the sharp increase in levies will seriously dent economic growth or significantly add to inflation. Investors have either become desensitized to the president’s proclamations, or they may be slowly warming to the idea that recent agreements are “less bad” than original announcements.

Additionally, fears of a destructive all-out trade war have receded.

And here is one more thought. Tariffs are generating a significant amount of revenue, but that revenue hasn’t been factored into models like those used for the OBBB Act. Additionally, tariffs don’t appear to be reflected in bond market expectations, given the potential to slow the Treasuries appetite for debt.

In many respects, tariffs aren’t being treated the same way as tax increases or spending cuts. It’s as if they’re being viewed as a low-value way to reduce the deficit. Perhaps an unfavorable court ruling could sweep some or many away. That said, there is talk of rebates being financed by incoming tariff revenue.

As we enter August and September—a period that has traditionally been marked with uncertainty—the catalysts for new highs include

• The AI story remains intact,
• Longer-term bond yields have remained relatively stable,
• The Fed has not dismissed the idea that rate cuts this year may eventually materialize,
• Corporate profits are rising,
• The economy continues to expand, and
• Businesses seem to have weathered the initial shock of the April tariff announcement.

I trust you have found this review informative and helpful. If you have any questions, concerns, or would simply like to have a conversation, please reach out to me or any member of our team.

Thank you for choosing us as your financial advisor. We are truly honored by your trust and remain committed to serving you with integrity and care.