For the last several months, our team at Bartlett has been watching Congress closely, anticipating decisions that could significantly impact our clients’ financial plans. With the One Big Beautiful Bill Act being signed into law on July 4, there are several key items that we’re keeping top of mind for our clients. Five of the most relevant updates for us include:

• The extension of the Tax Cuts and Jobs Act (TCJA) income tax rates
• Senior Tax Credit
• Increase of the State and Local Tax deduction
• Increase of the estate tax exemption
• A collection of additional or changed tax credits and deductions, including the increase of the Child Tax Credit

TCJA Rates Extended Permanently

The tax rates we have become accustomed to over the past 7 years have been extended permanently. While we were cautioning clients that tax rates may be headed for an increase once the TCJA sunsets in 2026, that is no longer on the horizon. This extension provides clarity on the future of tax rates, keeps tax bills in line with our historically low income tax rates, and grants us more confidence as we model our clients’ cash flows over the coming years.

Senior Tax Credit

Taxpayers aged 65 and older will be able to take a $6,000 tax credit per person. There will be income limits ending with incomes of $175,000 for individuals and $250,000 for married couples. Taxpayers in this group receive an additional reprieve on taxes through the credit, but it’s important to monitor incomes to avoid unnecessary increases that may disqualify them from the credit. For example, it may be beneficial to break apart capital gains or Roth conversions into separate years.

Increase on the SALT Cap Deduction

Increasing the State and Local Tax (SALT) deduction was one of the more widely debated features of this bill among lawmakers. The deduction limit before this bill’s passage was $10,000 a year, but legislators from high-tax states worked hard to increase the cap so their constituents could deduct more. Beginning in tax year 2025, the cap will be raised to $40,000 and will allow all taxpayers to deduct more, but this will likely be more impactful for those in high tax rate states. For taxpayers who itemize, the increase allows individuals to deduct the state and local taxes they pay from their Adjusted Gross Income (AGI), resulting in a lower federal tax bill. The deduction will be phased out for households with a modified adjusted gross income of more than $500,000, so it may be beneficial to defer compensation to future tax years to be able to take advantage of the full deduction.

Estate Tax Exemption Increase

The TCJA raised the estate tax exemption but was set to sunset at the end of this year and revert to approximately $7,000,000. With the passage of this bill, that will rise to $15,000,000. At Bartlett, we have been working alongside clients’ estate attorneys to create a plan to take advantage of full estate exemptions before the sunset. While the higher dollar exemption remains in place, it offers individuals and families greater flexibility with their legacy planning strategies, presenting an opportunity we are mindful of as we plan ahead.

Additional Deductions and Credits

There are many additional adjustments to deductions and credits in the bill. The standard deduction that was doubled in the original TCJA will be extended through 2028. The Child Tax Credit will be raised from $2,000 to $2,200. Tips and overtime pay will be eligible to be removed from taxable income (up to a limit of $15,000 for a single taxpayer and $25,000 for joint filers, subject to an income cutoff of $150,000 and $300,000 respectively). The standard deduction will be increased by $750 for single filers and $1,500 for joint filers. These are only a few out of many additional credits and deductions enclosed in this bill, but your advisor can speak to what other changes may impact your personal tax situation.

Closing Comments

We recognize the number of changes included in the One Big Beautiful Bill Act can be overwhelming. The Bartlett team has been watching closely as the deliberations in Congress have led to this bill’s passage. As the new tax laws take effect, we remain committed to helping you achieve your financial goals and working within this new set of tax statutes. Please reach out to your Bartlett advisor with your questions about how the One Big Beautiful Bill Act could impact your financial goals. 

DISCLOSURE

This material provided by Bartlett Wealth Management (“Bartlett”) is for informational purposes only and is not intended to be a substitute for professional financial or tax advice. The “One Big Beautiful Bill Act” is complex, and its impact will vary based on individual circumstances. Bartlett Wealth Management is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Always consult with a qualified financial advisor and tax professional before making any investment or tax-related decisions.