On July 4th, President Trump signed the "One Big Beautiful Bill Act" into law. This legislation makes permanent many of the tax cuts from 2017 that were set to expire.
It also introduces several new provisions that will affect your tax planning strategy.
The big picture is that your tax rates are now permanent.
Without this change, rates would have increased substantially starting in 2026. The top rate stays at 37% instead of jumping to 39.6%. This gives us much more certainty when planning your long-term tax strategy.
It’s a 900 page law, so there is a lot here! But let me walk you through what we consider to be the five most important changes for higher-income families, professionals, and corporate executives.
1. the State and Local TAx deduction is increasing from $10,000 to $40,000 starting this year.
The state and local tax deduction jumps from $10,000 to $40,000 starting this year. This change runs through 2029, then drops back to $10,000. The $40,000 limit grows by 1% each year.
There's a catch. If your adjusted gross income exceeds $500,000, the deduction starts phasing out. It's completely gone at $600,000 in income.
As an example, let’s imagine a family in California. Let’s call them the Johnson family. They earn $450,000 and pay $35,000 in state and local taxes. Under the old law, they could only deduct $10,000. Now they can deduct the full $35,000, saving them about $6,250 in federal taxes this year.
But consider another hypothetical family, let’s say the Smith family. They are earning $550,000 with the same $35,000 in state taxes. Their deduction gets reduced to $25,000 because of the phaseout, saving them $3,750 instead of the full $6,250.
2. Two Major Changes to Charitable deductions
Starting in 2026, two major changes affect charitable giving.
The good news: You can deduct $1,000 in charitable contributions ($2,000 if married) even if you take the standard deduction. Most people will benefit from this since they don't itemize.
The challenging news: If you do itemize, you can't deduct the first 0.50% of your adjusted gross income in charitable contributions. For a couple with $300,000 in income, the first $1,500 of charitable gifts won't be deductible.
Here’s an example. The Davis family earns $400,000 and typically gives $8,000 to charity annually. Under the new rules, they can't deduct the first $2,000 (0.50% of $400,000), so only $6,000 is deductible. This costs them about $1,480 in additional taxes.
But if they "bunch" their giving and donate $16,000 every other year instead, they get $14,000 deductible in the giving year and can take the standard deduction in the off year. This strategy can help offset the new limitation.
This change affects higher-income families who typically itemize. You might want to consider "bunching" your charitable giving to exceed this new floor.
3. the exemption for the estate and gift tax.
Starting in 2026, the estate and gift tax exemption increases to $15 million per person. That's up from about $14 million today. For married couples, you can transfer $30 million during your lifetime or at death without federal estate taxes.
This exemption was scheduled to drop to about $7 million per person at the end of 2025. Instead, it's going up and staying there permanently.
For business owners, this change is particularly valuable. You can now gift $15 million worth of business interests to your children during your lifetime, potentially removing future growth from your taxable estate.
If you've been considering wealth transfer strategies, this gives you more room to work with.
4. senior deductions for those 65 and older.
Starting this year, each taxpayer 65 and older gets an additional $6,000 deduction. This applies whether you itemize or take the standard deduction.
The deduction phases out if your income is too high. For single filers, it starts phasing out at $75,000 and is gone at about $175,000. For married couples, the phaseout starts at $150,000 and ends around $250,000.
Let’s say you had Robert, age 67, who's single with $100,000 in income. His deduction gets reduced to $4,500 because he's $25,000 over the phaseout threshold ($25,000 × 6% = $1,500 reduction). This still saves him about $1,080 in taxes.
For married couples where both spouses are 65 or older, the potential savings are doubled. A couple with $175,000 in income would get a $9,000 deduction (reduced from $12,000 due to phaseout), saving them about $2,160 in taxes.
This provision expires January 1, 2029, so it's temporary relief.
5. executives or other professionals who have stock options and RSUs
Let’s start with ISOs or incentive stock options and AMT, or the alternative minimum tax.
The higher SALT deduction could actually make it more likely that you'll trigger the Alternative Minimum Tax (AMT) when exercising incentive stock options. This happens because SALT deductions are added back to your income when calculating AMT.
Let’s say Sarah, a tech executive, plans to exercise ISOs with a $150,000 spread. Previously, with only $10,000 in SALT deductions, she might have stayed under the AMT threshold. Now, with $35,000 in SALT deductions, she's more likely to trigger AMT, potentially reducing the number of ISOs she should exercise.
There are more AMT changes coming in 2026.
Starting next year, the AMT becomes more aggressive for higher earners. The exemption phases out faster and at lower income levels. For married couples, the phaseout starts at $1 million instead of the current higher threshold.
With the SALT deduction phaseout starting at $500,000 and AMT changes coming in 2026, timing your stock option exercises and RSU sales becomes critical. A large vesting or exercise that pushes you over $500,000 could cost you part of your SALT deduction.
For those in startups or pre-IPO companies, the QSBS, or Qualified Small Business Stock, rules got more favorable. The gross asset test increased to $75 million, and the capital gains exclusion rose to $15 million. The holding period requirements also became more flexible:
- 100% exclusion for shares held five years
- 75% exclusion for shares held four years
- 50% exclusion for shares held three years
Example: If your startup company qualifies and you exercise stock options, holding the shares for just three years could exclude 50% of your capital gains from federal taxes.
Charitable deductions & Impacts to equity compensation
The new 0.50% AGI floor on charitable deductions is big. If you typically donate company stock to charity, you might want to bunch these donations to exceed the floor in years when you have large stock option exercises or RSU vesting.
Other Key Tax Changes:
Beyond the major changes I've outlined, several other provisions deserve your attention:
Tips and overtime: Workers can deduct up to $25,000 in tips and $12,500 in overtime pay ($25,000 for married couples). These deductions phase out for higher earners but could benefit your adult children or employees.
Trump Savings Accounts for Children: Parents can now contribute up to $5,000 annually to special retirement accounts for children under 18. No tax deduction is allowed, but growth is tax-deferred until age 18. We can talk about where this fits into your overall savings strategy.
529 Plan Expansion: Starting in 2026, 529 plans can cover elementary and high school expenses, not just college. This expands their usefulness for families with younger children.
Dependent Care Benefits: The Dependent Care FSA limit increases from $5,000 to $7,500. Starting in 2026, you can claim 50% of qualified expenses instead of 35%.
Energy Credits Ending: Most energy credits expire by the end of 2025. This includes credits for electric vehicles, solar panels, and home efficiency improvements. If you've been considering these purchases, act soon.
Business Provisions: The 20% business income deduction is now permanent with higher income thresholds. 100% bonus depreciation is permanent for equipment purchased after January 19, 2025. Research and development expenses can be immediately deducted starting this year.
What this means for you:
These changes merit a review of your current strategy.
Some of you will benefit immediately. Others may need to adjust their approach to maximize the new opportunities.
In our next planning session, we will be talking with clients about how these changes impact your specific situation.
But please don’t wait if you have questions!
The permanent nature of many of these changes gives us planning certainty we haven't had in years. But the temporary provisions create time-sensitive opportunities we don't want to miss.
Thank you for your attention. I'm happy to answer any questions you have about how these changes might affect your tax situation.
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This material is intended for educational purposes only. You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. Nothing contained in the material constitutes a recommendation for purchase or sale of any security, investment advisory services or tax advice. The information and opinions expressed in the linked articles are from third parties, and while they are deemed reliable, we cannot guarantee their accuracy.
