Tax Bill Considerations

By the slimmest of margins, the Trump Administration’s tax and spending bill (popularly known as the “Big Beautiful Bill”) passed both chambers of Congress and was signed into law on the 4^th of July.  What does the bill contain and what does it mean for your taxes? We have identified several key provisions of the bill which may be of interest to you and your family. 

Main Provisions of Tax Cuts and Jobs Act Are Extended

A core component of the bill is that the current income tax brackets (10%, 12%, 22%, 24%, 32%, 35% and 37%) are permanently extended for all earned income, and the standard deduction ($15,000 for single filers, $30,000 for joint filers) is extended and slightly raised through 2028. Moreover, the bill creates an additional $6,000 standard deduction for Americans 65 and older from 2025 through 2028. The additional standard deduction would decrease for those earning more than $75,000 a year, or $150,000 for couples. 

Tax Deductions for Tips and Overtime Pay

The bill creates distinctive tax advantages for tipped employees and those working overtime hours. The tips deduction is available from 2025 through 2028. The deduction is capped at $25,000 and decreases for earners making more than $150,000 a year ($300,000 for married couples). Likewise, the deduction for overtime pay is available from 2025 through 2028. The deduction is capped at $12,500 for individuals ($25,000 for married couples) and decreases for those making more than $150,000 ($300,000 for married couples). 

State and Local Taxes (“SALT”) Deduction

In what proved to be a primary point of contention during congressional debate on the bill, the cap on deductions for state and local taxes has now been raised to $40,000. The size of that cap decreases for earners making more than $500,000 per year. The bill reinstates the $10,000 cap in the year 2030. Taxpayers in states with high property and income taxes could be beneficially impacted by the increased deduction limit. 

Estate Tax

The estate tax exemption will permanently be set at $15 million ($30 million for married couples) in 2026 with yearly inflation adjustments. The practical result of this is that any taxpayer who dies with a gross estate under these thresholds will owe no estate tax at death. By comparison, the estate tax threshold was set to retreat to approximately $7 million in 2025, or approximately $14 million for married couples. 

MAGA Children Accounts, or “Trump Accounts”

A rather unique component of the bill is the establishment of a program intended to benefit qualified newly born children or children under age 8. Children born between January 1, 2025, and December 31, 2028, will be eligible to have an IRA-type account opened in their name funded with $1,000 seed money from the federal government. Going forward, parents can then contribute up to $5,000 in after-tax money per year. The account will be invested in a diversified fund tracking a U.S. stock index. Eligible expenses at age 18 include education, first-time home purchases, and small business loan/expenses and will be taxed at capital gains rates. Non-qualified distributions will face ordinary income tax rates and a 10% penalty if taken before age 30. 

Miscellaneous Items

• Charitable Contribution Deduction. Allows taxpayers taking the standard deduction to deduct an additional $1,000 ($2,000 for married couples) starting in 2026. This provision is permanent. 
• Reforms to 529 Education Savings Plans. Allows tax-free withdrawals for a wider range of educational expenses than previously permitted. 
• Child Tax Credit. Increases the amount of the nonrefundable child tax credit to $2,200 per child beginning in 2025 and indexes the credit amount for inflation. Also makes permanent the $1,700 refundable child tax credit and indexes it for inflation going forward.

Our Private Wealth team is happy to meet and discuss tax issues and what these legislative changes may mean for you and your family. Please don’t hesitate to contact us if we can be of assistance.