As proposed under the “Big Beautiful Bill,” several substantial tax changes would significantly reshape the individual and small business tax landscape in the U.S. Below is a breakdown of the most impactful provisions, along with updates on deduction totals, income phaseouts, and key planning considerations.
1. Permanent Individual Tax Brackets
What Changed: Preserves the seven individual tax brackets enacted in 2017.
- Rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%
- Pros: Maintains lower marginal rates for most earners
- Cons: Bracket thresholds not detailed yet; inflation indexing still key
2. Extra Standard Deduction for Seniors (65+)
What Changed: Adds $4,000 per person (on top of the base standard deduction) through 2028.
- Total Standard Deduction (2025 est.):
- Single Senior: ~$17,850 + $4,000 = $21,850
- Married Seniors: ~$29,200 + $8,000 = $37,200
- Phaseout Begins: $75,000 AGI (single) / $150,000 AGI (joint)
- Pros: Significantly helps fixed-income retirees
- Cons: Phaseout limits impact higher-income retirees
3. Child Tax Credit (CTC) Expansion (Through 2028)
What Changed: Increases CTC from $2,000 to approximately. $2,500 per child (final figures pending IRS guidance)
- Pros: Enhanced support for families with children
- Cons: Still not refundable for all taxpayers
4. SALT Deduction Cap Increased
What Changed: Raises the cap on state and local tax (SALT) deductions to $40,000 for joint filers ($20,000 for married filing separately)
- Phaseout Begins: AGI over $500,000 (joint) / $250,000 (separate)
- Permanent Indexing: 1% annual increases through 2033
- Pros: Relief for taxpayers in high-tax states
- Cons: Still capped for higher-income households
5. Health Savings Account (HSA) Contribution Increase
What Changed:
- Individual Coverage: Raised to $4,300 in 2025 (up from $4,150 in 2024)
- Family Coverage: Raised to $8,550 in 2025 (up from $8,300 in 2024)
- Phaseout Begins: $75,000 (single) / $150,000 (joint)
- Pros: Expands in tax-advantaged medical savings
- Cons: Higher earners excluded
6. 529 Plan Expansion
What Changed: Qualified distributions from 529 plans now cover: Each state will have its own 529 plan rules, so please check state law.
- K–12 Tuition (Up to $10,000 per year per beneficiary, limited to tuition only at public, private, or religious elementary and secondary schools)
- Homeschooling Costs (curriculum, supplies, software, tutoring; subject to the same $10,000 per year per beneficiary limit as K–12 tuition)
- Vocational/Credentialing Programs (e.g., certificate programs, trade schools; subject to the same $10,000 per year per beneficiary limit as K–12 tuition)
- Starting in tax year 2026, this annual limit will increase to $20,000 per student.
- Pros:
- Broader education planning opportunities
- Encourages savings from early childhood
- Cons:
- Higher-income households benefit most
- Risk of overfunding accounts
7. Charitable Deduction for Non-Itemizers
What Changed: Above-the-line deduction of up to $150 single / $300 joint, even if taking the standard deduction.
- Pros: Encourages broader philanthropic participation
- Cons: Modest size limits overall impact
New Above-the-Line Deductions (2025–2028)
What Changed: Temporary deductions available to moderate-income earners:
- Tip Income Deduction
- Overtime Pay Deduction
- Auto Loan Interest Deduction: Up to $10,000
- Eligibility:
- Income Phaseout Begins at: $100,000 AGI (single) / $200,000 AGI (joint)
- Must have a valid work-eligible SSN
- Pros: Targets hourly workers and service professionals
- Cons: Short-term benefit, complex documentation likely required
7. Other Key Changes
- Estate Tax Exemption: Increased to $15 million (indexed for inflation)
- QBI Deduction: Increased to 23% for pass-through business income
- Home Mortgage Interest Deduction: Permanently capped at $750,000 (or $1M if loan originated before Dec. 15, 2017)
- Bonus Depreciation Extended: 100% bonus depreciation through 2030
- Trump Accounts for Children: Up to $5,000/year + one-time $1,000 federal deposit for qualifying children born 2025–2029
Final Thoughts
This bill offers a wide array of planning opportunities, especially for families, retirees, and small business owners. While many benefits are temporary (through 2028), others are permanent and could influence long-term strategies.
Stay tuned for updates on IRS guidance and income thresholds. Would you like a personalized analysis on how these changes may impact you? Let’s connect.
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This overview is for informational purposes only and does not constitute tax or legal advice.
