By The Galecki Financial Management Team
This past Independence Day, the One Big Beautiful Bill Act (OBBBA) was signed into law. We have had a few weeks to digest this new bill. There is a lot packed into this law. It will take more than one article to review all the changes. Today we want to focus on changes that may impact individuals and families the most this year.
The One Big Beautiful Bill Act makes the 2017 Tax Cuts and Jobs Act (TCJA) permanent. TCJA was set to expire at the end of 2025. When we say our tax law is now permanent, we mean it is permanent until/if another bill is passed through Congress.
As Fee-Only advisors, we’re focused on how the One Big Beautiful Bill Act might impact the rest of the 2025 calendar year for our clients. This bill did change our tax law retroactively to January 1, 2025. Here’s what you need to know.
Major Tax Deductions Taking Effect Now
Deductions for Tips
Professionals in the service industry who earn money from gratuities are getting a tax break. Workers can now deduct as much as $25,000 of qualified tip income. This is effective for tax years 2025-2028.
The tip deduction phases out if the filer has a modified adjusted gross income (MAGI) of $150,000 for individuals or $300,000 for couples filing jointly.
Deductions for Overtime Compensation
Another new deduction for tax years 2025-2028 is “No Tax on Overtime.” The overtime pay is defined as the difference between your normal pay rate and the extra paid for overtime work. For example, if you clock in overtime hours at 1.5 times your regular salary, you can deduct the 0.5 extra from your taxable income. The overtime must meet the Fair Labor Standards Act (FLSA).
Again, individuals with more than $150,000 and couples with more than $300,000 in MAGI don’t qualify for this deduction.
Auto Loan Interest Deduction
If you buy a new vehicle assembled in the U.S., you may be able to deduct up to $10,000 in loan interest. The provision applies to loans made after December 31, 2024. There is a website that offers a VIN Decoder to identify a vehicle’s plant of assembly.
As it stands, this deduction is also slated to expire in 2028.
Changes to State and Local Tax Deductions
The One Big Beautiful Bill Act temporarily increases deduction limits for state and local taxes (SALT), from $10,000 to $40,000. Taxpayers who itemize their deductions (especially those in states with high taxes) stand to reap the most from this increase. The benefit phases out for individuals who earn $500,000 or more.
This part of the legislation is also temporary. The cap increases by 1% every year through 2029. In 2030, the deduction cap returns to $10,000.
Because of the annual increase and the scheduled reversion of the cap, a forward-looking financial plan is vitally important. State provisions vary, so it helps to have an advisor who knows the local tax codes.
Family-Centric and Senior Provisions
The One Big Beautiful Bill Act also features some changes that pertain to seniors and families with children.
For families, the Child Tax Credit (CTC) is permanently increased to $2,200 for each qualified child. If you owe income tax, the credit directly reduces your tax balance. The refundable portion of the CTC limit was also permanently raised to $1,700. Adoption credits are now partly refundable up to $5,000.
Between now and 2028, families can also take advantage of tax-advantaged accounts (known as “Trump Accounts”) with a one-time $1,000 contribution from the federal government for children born during that period. Much more to come on Trump Accounts once more information is released.
Finally, qualified seniors get a temporary deduction of $6,000 per individual and $12,000 per couple. Available from 2025 to 2028, this provision phases out for seniors earning over $75,000 (singles) or $150,000 (couples). The deduction is unavailable to individuals earning more than $175,000 or $250,000 for couples filing jointly.
This Enhanced Senior Deduction was commonly mislabeled as “No Tax on Social Security Income.” Social Security income is still taxable, but this additional deduction is now available for some seniors whose income is less than the thresholds stated above. This deduction may help more taxpayers not recognize taxes on their Social Security income, but the income must still be reported on your tax return each year.
Get Help Understanding The One Big Beautiful Bill Act
The knowledgeable Fee-Only advisors at Galecki Financial Management can walk you through how the “Big Beautiful Bill” might affect your financial outlook. We provide thorough financial planning services with a listening ear. Get in touch today to learn more.
To schedule a meeting, call (260) 436-8525 or email [email protected].
About Galecki Financial Management
At Galecki Financial Management, we help individuals and families confidently pursue their financial goals. We’re anything but a business-as-usual wealth management firm. We’re different. Friendly. Casual. And really good listeners. Indeed, that’s a big part of what makes us different. Everything we do is based on what we hear from you, because our experienced team of professionals specializes in comprehensive financial planning, cash flow analysis, IRA rollovers, financial services, money management, estate planning, retirement planning, and advising. We help you identify your short- and long-term goals, and then we work together to pursue them. Lastly, and most importantly, we’re Fee-Only, meaning we’re only compensated for our time. Our only incentive is to help you succeed.