Not surprisingly, the most common question I’m getting lately is some form of: how does this new One Big Beautiful Bill Act affect the tax planning decisions I should be making?
My very short answer is: for most people, it doesn’t — at least not dramatically.
The law made quite a lot of changes. (This article on Kitces.com from Ben Henry-Moreland is the most thorough walk through I’ve seen yet of the various provisions and how they work. I’d enthusiastically encourage you to read it.)
By far the biggest change though is also the simplest: it made the current tax bracket rates and the current standard deduction permanent (whereas previously the rates were scheduled to revert to their “old” higher levels in 2026, and the standard deduction was scheduled to revert to its “old” lower level in 2026).
That’s a significant change, affecting basically all US taxpayers. It means that, relative to a scenario in which this law wasn’t passed, you’re now going to be paying less taxes.
But it’s not a big change to any tax planning decisions. Maybe you had been planning on the 22% bracket becoming a 25% bracket again, and the 24% bracket becoming a 27% bracket again. But in most tax planning decisions, there’s so much uncertainty involved that it’s very unlikely that any decision that definitely did make sense with it being a 25% bracket next year now definitely does not make sense with it being a 22% bracket. They’re different, but they’re not that different.
Senior Deduction
There’s also the new senior deduction ($6,000 per person age 65+). You have very little ability to exert control over your age, so there’s no tax planning opportunity in that sense. The deduction phases out (from $6,000 per person to $0 per person) as your MAGI goes from $75,000 to $175,000 if single or $150,000 to $250,000 if married filing jointly. So this has the effect of increasing your marginal tax rate through that phaseout range (because each $1,000 of income also causes you to lose $60 or $120 of deduction).
But again, it’s just not a huge thing. For a single person in the 22% bracket, their marginal tax rate in the phaseout range becomes 22% x 1.06 = 23.32%. For a married couple filing jointly in the 22% bracket, their marginal tax rate in the phaseout range becomes 22% x 1.12 = 24.64%. For a single person in the 24% bracket, their marginal tax rate in the phaseout range becomes 24% x 1.06 = 25.44%. For a married couple filing jointly in the 24% bracket, their marginal tax rate in the phaseout range becomes 24% x 1.12 = 26.88%. In other words, the biggest total difference is a bump of 2.88% to the marginal tax rate. That’s definitely something that should be included in your tax planning math, but the likelihood that something that did make sense a month ago suddenly doesn’t make sense now due to this deduction isn’t super high.
Deduction for State and Local Taxes
The deduction for state and local taxes used to be limited to $10,000 per year, and now it’s limited to $40,000. But that $30,000 increase phases out as your MAGI goes from $500,000 ($250,000 if married filing separately) to $600,000. That’s a big deal. Definitely a big enough thing to potentially affect a person’s tax planning. But of course most people aren’t affected, because most people’s income does not exceed $500,000.
Charitable Contributions
The law creates a new $1,000 deduction for charitable contributions ($2,000 if married filing jointly) that you can claim even if you use the standard deduction rather than itemizing. For some people, that may be the incentive they need to go ahead and make some donations.
On the other hand, for people planning to claim a larger charitable contribution deduction via itemizing, the new law actually reduces the deduction you can claim, by 0.5% of your adjusted gross income.
Neither of these changes the most tax-efficient methods for donating to charity (namely: by qualified charitable distribution if you’re at least age 70.5 and by donating appreciated investments if you aren’t yet age 70.5).
Deductions for Overtime Pay and Tips
There are new deductions for overtime pay (up to $12,500 or $25,000 if married filing jointly) and for tips (up to $25,000 regardless of filing status). These could be a big deal for people with these types of income. But again, the deduction itself doesn’t really change tax planning — it just means you’ll be paying less tax than you would if it weren’t for the deduction.
What could change a household’s tax planning is that both of these deductions phase out as your MAGI exceeds $150,000 if single or $300,000 if married filing jointly. Though most people who are paid hourly and/or who are paid tips do not have income levels in the phaseout ranges. So again we have a situation where for some people, yes, it will be a big deal and affect their tax planning decisions. But for most people, it’s a non-issue.
Do Your Research
There are many more changes made by the new law, in addition to what’s mentioned above. And it’s worth taking your time to research those changes to see which ones apply to you, and to think through how they might affect any decisions you need to make. (Again, I’d enthusiastically encourage you to read this article on Kitces.com from Ben Henry-Moreland for a thorough write-up.) I think most (not all!) people will find though that the summary is something along the lines of: you’ll be paying less tax than you would otherwise, but there’s no need to dramatically change which types of retirement accounts you contribute to, which accounts you spend from, whether you’re doing Roth conversions, or any of the other most common tax planning decisions.
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