Wisdom Exchange–October 2025

"One Big Beautiful Bill" Act (OBBB) Update

• Signed into law on July 4, 2025

• The "One Big Beautiful Bill Act" (OBBB) makes major changes to the tax code, incentives, and rules around retirement and investing.

• Let's dive into these topics and how they may impact you or your financial planning:

  • Taxes & Deductions

  • Retirement & Investment Provisions

  • Misinterpretations About the Bill

  • Strategies to Consider

  • What to Watch & Caveats

Taxes & Deductions

• Many of the tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) that were scheduled to expire at the end of 2025 are now made permanent.

• "Senior Bonus" - Extra Deduction for Age 65+

  • Taxpayers 65 and older can claim an additional $6,000 deduction (or $12,000 for joint filers) on top of their regular standard deduction (or even if they itemize).

  • This deduction begins to phase out for individuals with adjusted gross income above $75,000 (and $150,000 for married couples)

  • Thanks to this deduction, it is estimated that ~88% of Social Security beneficiaries will pay no federal income tax on their benefits under the law (i.e. their deductions will exceed taxable Social Security)

  • Important caveat: It does not permanently eliminate tax on Social Security benefits for all. Rather, the deduction offsets income — and this provision is temporary (through 2028).

• No Tax on Tips & Overtime (Within Limits)

  • The bill exempts tips (up to $25,000) and overtime pay (up to $12,500) from federal income taxation, subject to phase-out limits.

  • The overtime provision applies only to the premium portion of the overtime pay. Meaning the extra half of "time-and-a-half" compensation The standard portion of the hourly rate during overtime hours is not included in the exemption

  • These exemptions expire (sunset) in 2028 unless extended.

• State And Local Tax (SALT) Deduction Cap Raised (Temporarily)

  • The previous $10,000 cap on state and local taxes (SALT) that a taxpayer can deduct is increased to $40,000, but with phase-outs at higher income levels. 

  • That $40,000 limit will be adjusted upward by 1% annually in 2026 through 2029.

  • Note: This higher SALT deduction is temporary and reverts back to the original $10,000 limit in 2030

• 100% Bonus Depreciation & Research And Development (R&D) Expensing

  • Businesses can continue to fully expense (immediately deduct) qualified property under 100% bonus depreciation permanently. 

  • Expenditures on research & development (R&D) within the U.S. can also be immediately expensed under the new law.

• Auto Loan Interest Deduction for U.S.-Assembled Vehicles

  • Allows individuals a deduction for auto loan interest on cars that are assembled in the U.S. between 2025 and 2028, up to $10,000 per year.

  • The deduction phases out for individuals making above $100,000 and married couples above $200,000.

  • (This is one of those “you might not expect it, but it’s there” items.)

• Excise Tax on Remittances (Foreign Transfers)

  • Beginning 2026 there is a 1% excise tax on certain electronic transfers of money from the U.S. to foreign countries (for personal, family, or household purposes)

• Expanded Dependent Care and Childcare Benefits

  • Starting in 2026 the employer-provided childcare credit (for businesses) increases from 25% to 40%, or even to 50% for smaller employers

  • The limit on Dependent Care Flexible Spending Accounts is boosted from $5,000 to $7,500 (Or $3,750 if married filing separately)

• Qualified Business Income (QBI) Deduction Enhanced

  • The 20% deduction under Section 199A for qualified business income is made permanent.

  • The thresholds for phase-in are increased: for single filers from $50,000 to $75,000, and for joint filers from $100,000 to $150,000.

• Changes to 1099 Reporting Thresholds

  • In 2026, the threshold for reporting with Form 1099-MISC and 1099-NEC is increased from $600 to $2,000

  • Rules around Form 1099-K (for payments via apps, online marketplaces, credit card processors) are now based on 200 transactions and $20,000 in payments.

• Expanded Health Savings Accounts (HSAs)

  • Allows an additional contribution (above current limits) for individuals whose income is below certain thresholds

    • For self-only coverage, an extra $4,300

    • For family coverage, an extra $8,550

    • In effect, that would "double" the current limits (for those who qualify under the income criteria)

    • The enhanced amounts phase out for individuals making more than $75,0000 (and joint filers over $150,000)

  • Allows individuals who enroll in bronze-level or catastrophic health plans on the ACA exchange to contribute to HSAs (something that was restricted before)

Retirement & Investment Provisions

• Retirement plan tax incentives preserved

  • Does not change the existing tax incentives for retirement savings (e.g. 401(k), IRAs) or impose new limits

  • It does not cap the exclusion for employer-sponsored health insurance benefits

• No negative impact on retirement accounts

• "Trump Accounts" - MAGA-Style Investment Accounts for Children

  • Creates special accounts for children born between 2025 and 2028 with an initial seed of $1,000.

  • Parents and employers can contribute, with a cap of $5,000 a year

• Private foundations & endowment investment rules changed

  • Changes how net investment income is taxed for provate foundations: it introduces a tiered rate structure (from 1.39% up to 10% depending on asset size) for taxable years after the enactment.

  • For large college endowments, new limits and tax regimes apply

Misinterpretations About the Bill

• Elimination of Social Security Tax for Everyone or No Tax On Social Security

  • While the bill does provide an extra deduction for seniors that means many Social Security recipients won’t owe taxes on their benefits, it does not universally eliminate taxation of Social Security. Nor does it eliminate the withholding of Social Security tax on wages earned. Higher-income retirees may still pay tax on some or all of their benefits.

• No Tax on Part-Time Job Wages, All Overtime, or All Tips

  • Some people believe part-time income is now tax-free. That’s not correct. Wages from a part-time or second job are still fully taxable. The only income that received limited exemptions were tips (up to $25,000) and overtime pay (up to $12,500) — and even those have limitations and income phase-outs, while also set to expire in 2028

• Permanent Higher SALT Deduction

  • The increase in the State and Local Tax (SALT) deduction cap is temporary and will sunset unless extended. It’s not a permanent change.

• Automatic Boosts to Retirement Accounts

  • Retirement plans (401(k)s, IRAs, etc.) were left unchanged — the bill doesn’t add new contributions, matching, or automatic increases. You still need to contribute as before.

• Across-the-Board Lower Taxes Forever

  • While many provisions are permanent (like bonus depreciation and QBI deduction), several popular items — like no tax on tips/overtime and the Senior Bonus Deduction — are temporary through 2028. Planning ahead is important so you’re not caught off guard if/when they expire.

Strategies to Consider

• Reassess withdrawal strategies in retirement. With new deductions for seniors and changes in taxation, the timing and amount of distributions might benefit from reoptimization.

• Review charitable giving plans. The bill reintroduces a $2,000 (or $1,000 single) “above-the-line” charitable deduction for those who don’t itemize.

• Maximize SALT or state tax planning while favorable. If you live in a high-tax state, the temporary higher cap may allow you to claim more deductions in the favorable years.

• Evaluate business investment decisions. Because bonus depreciation and R&D expensing are favorable, new capital investments might be more attractive under this law.

• Track phase-outs and sunset dates. Many of the more generous deductions (e.g. overtime/tips exemption, senior bonus) are not permanent and expire around 2028.

• Coordinate tax planning across income sources. If you have wages, business income, retirement income, etc., the interplay of deductions, phaseouts, and thresholds matters more than ever.

What to Watch & Caveats

• These changes are complex, with many phase-outs, income thresholds, and sunset provisions.

• Some benefits appear generous, but only for specific income bands or for limited years (e.g. 2025–2028).

• The law reduces revenue significantly over the next decade, which may create pressure for future tax changes or adjustments

• Always verify whether a provision applies to you (or your business), as many benefits are income-limited or phase out.

• Because many of the changes impact future years, it’s critical to model forward and consider how your financial picture might evolve.