Understanding the One Big Beautiful Bill: What It Means for You

The passage of the One Big Beautiful Bill Act (OBBBA) affects nearly everyone who files taxes, so it’s important to understand the key changes. The bill included many tax provision tweaks, but we will focus on the major provisions that affect 2025 tax planning.

Social Security

Social Security taxation is the main concern for most people. The law does not exempt taxes on Social Security, so Social Security will continue to be included in income. Instead, there is a new “senior bonus deduction”, which may help offset most of that tax.  

If you are aged 65 or older by the end of 2025, you may qualify for this deduction—even if you haven’t started receiving Social Security benefits. If you are filing Single, you get a $6,000 deduction from your income, and if you are filing Married Filing Jointly (MFJ), it’s a $12,000 deduction. The deduction begins to phase out when income exceeds $75,000 for Single filers and $150,000 for Married Filing Jointly (MFJ). Once you reach $175,000 for Single and $250,000 for MFJ, the deduction is reduced to zero. The deduction’s final approved year is 2028.

529 Education Plans

529 Education Plans now have enhanced qualified expenses, including:

• K-12 Expansion: Now includes books, fees, and standardized testing—not just tuition.
• K-12 Limit Increased: $10,000 to $20,000 per beneficiary (annually).
• Homeschool Win: Eligible expenses now qualify under the $20,000 cap.
• New Credential Coverage: Includes select trade certifications and professional designations.

Because some states do not conform to the federal rules on K-12 529 expenses, check with your advisor to understand how this affects you.

Charitable Giving

Charitable giving benefits are changing under the new tax law, impacting everything from modest donations to major gifts. At Sound Stewardship, we encourage generosity regardless of the tax benefits, but we love helping our clients to strategically plan their heart-driven giving to maximize the tax savings. Beginning in 2026 if you don’t itemize, you can now deduct up to $1,000 (single) or $2,000 (MFJ) in cash gifts to charity.

If you typically itemize your deductions, then 2026 will introduce some new limitations. First, you can only deduct the portion of your charitable gifts that exceeds 0.50% of your income, dubbed the “0.50% Adjusted Gross Income (AGI) floor”. That means if your AGI is $100,000, your first $500 in giving won’t count toward a deduction—you’ll only deduct anything above that. Additionally, itemizers in the 37% tax bracket face further limitations on their deductions. Due to these new provisions, your financial advisor may suggest accelerating your planned 2026 giving into 2025, or, if you are over 70.5 years old, possibly taking advantage of Qualified Charitable Distributions from your IRA.

Trump Accounts

Starting in 2026, a new type of federally backed savings account will become available for children. While currently being coined “Trump Accounts”, the official name has not yet been finalized. Here’s what we know so far:

• Eligibility: Children born between January 1, 2025, and December 31, 2028.
• Initial Federal Contribution: The government will contribute $1,000 per eligible child, automatically deposited into the account once it is established.
• Employer Contributions: Employers may also be allowed to contribute to these accounts on behalf of employees’ children—though this will depend on future guidance and employer participation.
• Availability: These accounts cannot be opened until 2026, so no action is needed yet for families with 2025 newborns.
• Account Details: The IRS and Treasury Department are expected to release more details on how the accounts will function, including:
  • Investment options
  • Whether the account grows tax-free or tax-deferred
  • What funds can be used for
  • How withdrawals are taxed or penalized

Overtime, Tips, Child Tax Credits, and More

There are a few other noteworthy items. There are new deductions for tips and overtime pay, which are both allowed from 2025 through 2028. These have their own deduction caps and are subject to income limitations. The standard deduction increased for everyone, and the child tax credits increased from $2,000 to $2,200 per child. If you are a business owner, you can now fully expense certain expenses (like research and development) all in the first year, versus needing to amortize over time. There are also a few specific Qualified Business Income Deduction changes to dig into with us or your tax planner.

Our tax software is already updated for the new law, so let us help you run the numbers and make confident decisions. Schedule a meeting with a Sound Stewardship advisor today!

*’Income‘ may refer to Modified Adjusted Gross Income or Adjusted Gross Income. Be sure to confirm with your financial planner or tax professional for specifics.

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