The "One Big, Beautiful Bill Act" (OBBBA) introduces a mix of permanent and temporary tax changes that could significantly impact your financial strategy. This legislation is more than just a political headline; it's a transformative law affecting individuals across various income levels, ages, and professions. Understanding its nuances can help you navigate potential changes to your financial planning.

Income Tax, Deductions & Credits

You may benefit from the permanently lower income tax brackets initially set by the TCJA, with adjusted thresholds offering relief. The continuation of a higher standard deduction, now adjusted annually for inflation, provides further tax-saving opportunities.

Changes to the Child Tax Credit come with both refundable and nonrefundable options, subject to income-based phaseouts. Additionally, if you have a car loan, you may qualify for a new $10,000 interest deduction if your vehicle is assembled in the U.S.

A temporary tax break on up to $25,000 in tip income is also available, with the eligible occupations to be announced. Those residing in high-tax states might find relief with the increased SALT deduction cap set at $40,000, though high earners should be mindful of phaseouts.

Wealth Transfer, Investment & Retiree Provisions

If you're a senior, you could be eligible for a temporary $6,000 “Senior Bonus” deduction based on your income. The estate, gift, and generation-skipping transfer tax exemptions have been permanently increased to $15 million.

Investors may appreciate the inflation-adjusted capital gains brackets, which can help keep you in lower tax ranges. Also, the permanent relief from the Alternative Minimum Tax (AMT) is reassuring, although it's crucial to be aware of the quicker phaseouts for higher-income earners.

Other Noteworthy Changes

The act brings significant Medicaid changes, including $1 trillion in funding cuts. New work or volunteer requirements and tighter eligibility rules could affect coverage. For children, "Trump Accounts" are a new option, offering tax-advantaged growth and specific contribution limits.

Be aware that clean energy and EV tax credits are phasing out soon, so consider acting quickly if you're planning a purchase or home upgrade.

The OBBBA affects a wide range of taxpayers, from low-income families to wealthy investors and retirees. Rather than waiting until tax season, start evaluating your tax strategy now, especially considering both the permanent and temporary provisions. Consult with a financial advisor or tax professional to tailor the guidance to your specific needs.

Mike

About the Author:

Mike Mickels is the President and Chief Compliance Officer of CochranMickels Retirement Specialists, LLC, and an avid sporting clay competitor. Our firm provides personalized planning and investment services to individuals approaching and in retirement. Disclaimer: This content is intended solely for informational purposes. CochranMickels Retirement Specialists, LLC and its representatives are only authorized to offer advisory services where properly licensed or exempt from licensure. Investing carries risks, including potential loss of principal capital. Our firm does not endorse external links, nor is it responsible for third-party content