Tax Changes – How to Make Them Work for You

Big changes to tax law don’t happen often – usually once every several years – but when they do come, they tend to make a significant impact. The One Big Beautiful Bill Act (OBBBA) is no exception and builds on many initiatives from the Tax Cuts and Jobs Act from 2017.  

The OBBBA introduced a wide range of updates affecting businesses, individuals, estates, and trusts and will shape financial decisions for years to come. Our goal is to break down some of the most important changes and help you better understand what they could mean for your finances – and potentially for your children and future generations.

Individuals

The OBBBA makes the individual federal income tax brackets established under the Tax Cuts and Jobs Act rules permanent. The income range for each marginal rate for each bracket will continue to adjust with inflation.  

The OBBBA has also increased the K-12 expense limit for 529 accounts. Starting in January 2026, the new annual limit is now set to $20k, up from $10k each year.  

The new federal law expands the list of qualified K-12 expenses beyond just tuition. This includes curriculum materials (e.g., textbooks, workbooks, digital tools), tutoring services (must meet eligibility requirements), online education subscriptions, educational therapies for students with disabilities, and more. For post-secondary education, the OBBBA permanently amends ‘qualified higher education expenses’ by expanding the definition to include categories for credentialing expenses such as testing fees for recognized credentials, continuing education fees in addition to tuition, books, supplies, and equipment for enrollment or attendance in an accredited post-secondary education program.   These new qualified expenses provide more flexibility for families, especially those pursuing alternative education models. However, state-level treatment may vary. If you’d like to capitalize on these changes, in addition to speaking with your MSR financial planning team, we recommend consulting with your 529 plan administrator to understand how your state is responding to these changes.

A new type of educational savings account – known as a “Trump Account” – has been introduced to encourage long-term savings for children under the age of 18.  Contributions by parents, relatives, and employers are permitted, but capped at $5k annually and will adjust for inflation in 2028. The accounts are funded with a one-time government contribution of $1k for eligible children born between 2025 and 2028.  Employers may make an annual contribution of up to $2.5k and that contribution will not impact the employee’s taxable income.

Deductions & Credits

The OBBBA allows for a new $1k above-the-line deduction for individuals ($2k for MFJ) on charitable contributions for those who file with a standard deduction, but contributions to DAFs and non-operating private foundations are ineligible for the deduction.

Conversely, starting 2026, if you itemize your deductions on your federal income tax filing, charitable giving is only recognized as deductible after giving at least 0.5% of your AGI.  This new charitable giving ‘floor’ encourages taxpayers to group larger contributions into one taxable year, as small contributions will no longer provide a tax benefit.  

Enhanced Senior Deduction (Age 65 and older) – For tax years 2025 through 2028, seniors are afforded an additional $6k deduction per qualified individual, whether they itemize or not. Such a deduction is supplemental to the $2k single filers and $3.2k joint filers are currently able to deduct if they are 65 or older and they are not itemizing.  The deduction is subject to income phaseouts: $75k for single filers and $150k for joint filers.  

State & Local Tax Deduction (SALT) – previously this deduction was capped at $10,000, making it more beneficial for many taxpayers to take the standard deduction. Through 2029 the cap has been increased with many exceptions. Taxpayers in high-tax states are now able to deduct more state income or property taxes. OBBBA increases the maximum SALT deduction from $10k to $40k for taxpayers making under $500k and phases down the maximum deduction at a 30% rate for taxpayers making over $500k.

The full deduction phases out for filers with modified adjusted gross income above $500k ($250k in the case of a married individual filing separately) and reverts to $10k for incomes of $600k and above.  

Clean Vehicle Credit – Up to $7,500 was previously deductible for purchases of certain electric and hybrid vehicles.  Beginning September 30^th of this year, the OBBBA has ceased this deduction, taking away any tax incentives for an electric car purchase.  If you are in the market for a new car and considering a new EV or hybrid purchase, please consider the above deadline.

Businesses

If you are a business owner or an investor in private businesses in the US, there are a number of advantages to capitalize on. Let’s focus our efforts on a few that have garnered the most attention due their financial and economic impact.  

OBBBA has supercharged this tax mitigation strategy by expanding the exclusion cap on a permanent basis from $10m per person per issuer to $15m or 10x the cost basis, whichever is greater.  This increase aims to promote investors to take risks early in innovative US companies.  This change also provides holding period protections to partially take advantage of the capital gains tax exemption if an investor doesn’t maintain the full 5-year term.  It simultaneously increases the gross asset size from $50m to $75m to perpetuate these tax advantages when the enterprise value of a qualified small business grows.    

The TCJA increased bonus depreciation to 100% in January 2018. With the changes brought about with OBBBA, bonus depreciation – also known as ‘full expensing’ – has reallowed businesses to immediately deduct 100% of the cost of eligible assets to expense the full cost in the year placed in service instead of depreciating the cost over many years. This applies even to new or used property as long as it’s new to the business owner(s).

Estates & Trusts

One of the most anticipated changes from the OBBBA legislation has been permanent revisions to the Federal Lifetime Gift and Estate Tax Exemption amounts.  

As a reminder, the TCJA temporarily increased these exemption amounts and were meant to sunset at the end of 2025 and revert to pre-TCJA levels. In 2025, any individual can gift up to $13.99m and not pay any gift tax at the Federal level, though some states may impose their own taxes. Individuals have been watching this closely to better understand if they need to take advantage of this exemption amount before they lose the ability to maximize gifting for future generations. Since OBBBA makes this exemption increase permanent, individuals who have high value taxable estates today do not need to worry about accelerating gifting ahead of year-end. As with the TCJA, this exemption amount will continue to increase annually with inflation. In 2026, the new federal gift and estate tax exemption will be $15m per person.

Please keep in mind that these updates are most effective when reviewed alongside guidance from your tax advisor. As we enter the fourth quarter, additional IRS updates on key tax figures – covering IRAs, capital gains, and healthcare – are anticipated next month. Our team will share these details with you as they become available.  

We hope this Wealth Planning Update is helpful, and if you’d like to revisit planning with our team, please feel free to reach out.  If you think this update would benefit your colleagues, family, and friends, please feel free to share it.  If you have a friend or family member who is interested in a no-cost portfolio review, please let us know.

Thank you again for your continued vote of confidence in our work.  

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