Big Tax Bill Just Passed—Here’s What You Need to Know
Will Nordt, CFP®
Congress just passed a sweeping tax-and-spending package that locks in key provisions of the 2017 tax cuts and introduces several new deductions that could reshape your planning strategy. While this legislation doesn’t completely overhaul the tax code, it offers both opportunities and challenges for high-income families, retirees, business owners, and younger professionals.
Below is a breakdown of the most important changes and what they could mean for your financial plan:
1. 2017 Tax Cuts Made Permanent
- Federal tax brackets (10%-37%) will remain in place, avoiding the previously scheduled 2026 tax hike.
- The near-doubling of the standard deduction is now permanent.
- These changes continue to support strategies like Roth conversions, stock option exercises, and bracket management.
2. SALT Deduction Expanded
- Beginning in 2025, the state and local tax (SALT) deduction increases from $10,000 to $40,000 per return, but only for households earning under $500,000.
- For those above that threshold, the deduction gradually phases back down to $10,000.
- This expanded deduction expires after 2029, making early planning essential.
3. Boost to the Standard Deduction (2026)
- In 2026, the standard deduction increases to:
- $15,750 for single filers
- $31,500 for joint filers
- Indexed to inflation moving forward.
4. Improved Child Tax Credit
- The Child Tax Credit increases to $2,200 per child in 2025 and will adjust annually for inflation.
5. Estate and Gift Tax Exemption Set at $15 Million
- The exemption is now locked in at $15 million per person, indexed for inflation.
- This avoids the prior sunset scheduled for 2026 and provides clarity for wealth transfer and legacy planning.
- If you’ve been waiting to make large gifts, this change gives you more time, but proactive planning is still wise.
6. Key Changes for Business Owners
- The 20% Qualified Business Income (QBI) deduction remains intact, with expanded income phaseouts.
- Alternative Minimum Tax (AMT) thresholds are adjusted to reduce unintended impact on business owners.
- Beginning January 20, 2025, businesses can permanently expense 100% of qualified asset purchases using bonus depreciation.
7. Student Loan Overhaul (2026)
- From July 1, 2026, current income-driven repayment plans will be replaced by:
- A fixed 10-25 year plan, or
- A new 30-year Repayment Assistance Plan based on AGI.
- The Grad PLUS program will end, and borrowing limits will apply:
- Graduate students: $20,500/year, up to $100,000 total
- Professional students: $50,000/year, up to $200,000 total
- Parent PLUS loans: $20,000/year, $65,000 lifetime cap per student, with no income-driven repayment option for new loans after July 2026.
8. Charitable Giving Rules Tighten
- Starting in 2026, itemizers will face a 0.5% of MAGI limit on total charitable deductions (e.g., $1,500 of deductions disallowed for $300,000 MAGI).
- It may make sense to accelerate major donations into 2025.
- Also starting in 2026: non-itemizers can deduct up to $1,000 (single) or $2,000 (joint) for charitable contributions.
9. Extra Deduction for Retirees
- From 2026, individuals age 65+ can claim an additional $6,000 deduction per person if income is below:
- $75,000 (single)
- $150,000 (joint)
- This is in addition to the existing senior deduction.
10. New Worker Deductions
- Tip Income Deduction: Up to $25,000 if income is below $150,000 (single) or $300,000 (joint).
- Overtime Deduction: Up to $12,500 (single) or $25,000 (joint) for qualifying overtime.
- Additional guidance will clarify who qualifies.
11. Auto Loan Interest Deduction Returns
- Starting in 2025, individuals can deduct up to $10,000 of interest on loans for U.S.-assembled personal vehicles.
- Applies to loans originated after December 31, 2024.
- Phases out at incomes above $100,000 (single) or $200,000 (joint).
12. 529 Plan Expansion in 2026
- Tax-free withdrawals from 529 plans will expand to cover:
- More K–12 education costs
- Job training, professional certifications, and licenses
- This significantly broadens the utility of 529 plans beyond college funding.
13. New: Individual Trust Accounts for Children
- A new savings account for children includes a one-time $1,000 deposit from the federal government for U.S. citizens born between 2025 and 2028.
- Annual contributions (after-tax) are capped at $5,000.
- Investment options include diversified U.S. index funds.
- Withdrawals are restricted until age 18:
- Half can be withdrawn between ages 18–25.
- Remainder must be distributed at age 31.
- Qualified withdrawals taxed at long-term capital gains rates; others are taxed as ordinary income and may face a 10% penalty if under age 30.
What This Means for You
These changes create new planning windows and potential tax-saving opportunities—but also introduce added complexity, particularly for high-income earners and business owners. From charitable giving and estate strategies to deduction timing and education planning, your financial plan should evolve alongside the new law.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Cetera Advisor Networks LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business.