Tax Reform 2.0: Thoughts on the OBBBA

As you’ve probably been following in the news to some extent, and we tax professionals have now had a couple of months to digest, a new tax package was signed into law on July 4, 2025. Despite the successful efforts of Senate Democrats to officially strip the bill’s short title during the amendment process, it appears that the tax legislation will continue to be ubiquitously known as the One Big Beautiful Bill Act, or OBBBA. Just how beautiful is perhaps best left to the eye of the beholder, but it’s surely one big bill at just north of 800 pages. The following will share some thoughts on the OBBBA and what it means for the ever-changing tax landscape.

First and foremost, it was always clear that the main objective of the OBBBA was to extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. Not only did it do so, but most of the provisions were made permanent within the tax code. Meaning that they will not sunset or expire on their own; rather, they would need to be actively changed or repealed with future tax legislation. Beyond extending provisions of the TCJA, the bill includes several new provisions of its own which I’ve highlighted in part below as a resource. Further, there are major changes to clean energy credits and incentives brought forth by the Inflation Reduction Act (IRA) of 2022. But for now, no significant changes in the areas of retirement savings legislation brought forth by the SECURE Act 1.0 of 2019 and SECURE Act 2.0 of 2022.

Of course, IRS interpretations and Treasury regulations will be forthcoming. And as I write this post, I’m already seeing online buzz over the prospect of a second budget reconciliation bill partly to clean up some items within the OBBBA (as it was rushed to be completed by Independence Day), but also potentially as a SECURE Act 3.0 furthering changes to retirement savings provisions. Also to be monitored are the developments and potential implementation of President Trump’s March 25, 2025, executive order to phase-out paper check disbursements and receipts as of September 30, 2025. There’s nothing determinative yet and the AICPA has urged Treasury to delay, but it seems the days of cutting a check and mailing with a federal return/extension/estimate voucher may soon be over. Some states may follow suit. Regardless, we’ll find solutions for our clients in remitting payments electronically if so required.

Although not again attempting to convert Form 1040 to a postcard, or even the short-lived half of an 8.5”x11” page, it’s believed that the IRS intends to keep Form 1040 as trim as possible at its current 2-page format as a rollup of underlying forms and schedules. To do so, expect a new Schedule (number or letter?) to appear as a means to wrangle all of these new “below the below-the-line” deductions-- a Schedule to itemize additional below-the-line deductions but separate from itemized deductions which will continue to live on Schedule A. Isn’t this fun? Almost as much fun as when our neighbors to the east, the great state of Wisconsin, made a 1–2-year attempt at orienting its tax forms in landscape format versus the infinitely more common portrait format. It made scrolling through a tax return PDF a dizzying experience.

Speaking of state taxation, all of this new federal tax legislation leaves states with the task of legislating their own line-by-line conformity, or nonconformity for that matter. If you recall, and extra credit will be awarded if you do, but the equally great state of Minnesota took approximately 18 months to legislate a tax conformity package after the TCJA was signed in late 2017. There were instances where tax practitioners had filed 2-years of returns before receiving prescribed treatment from the combination of the Minnesota legislature and Minnesota Revenue. Fingers crossed for more timely action this go-around.

Tax legislation details and a bit of comedy aside, a note on what our tax team is doing for you. As our Director of Investments, Matt Weier, often writes about staying the course of the long-term investment and financial plan, the same holds true for your tax plan. We’ll navigate federal and state tax legislation with an eye to what’s best for the current year, but not necessarily at the expense for what’s best for a long-term or multi-year tax plan. After all, our primary objective is to minimize your lifelong tax obligations. To that end, tax planning is no longer just for tax rate brackets but for a variety of income-based thresholds and phase-out ranges, adding greater complexity to the quintessential decision points of whether to accelerate/defer either/or income/deductions. Fortunately, and as we’ve now shared with many of our clients, we have a wonderful tax planning tool at our disposal, Holistiplan, and will continue to leverage tax technology to navigate your tax plan.

If you have any questions about recent tax legislation and how it may impact your situation, please let us know. Lastly, it’s been an honor and a pleasure to serve our clients as Irwin Schaffer, and more recently under the DBA of PrairieView Tax. With the flip of the calendar to September, we look forward to serving your ongoing tax needs as Savant Tax & Consulting!

Highlights of the OBBBA:

• Permanent extension of the seven tax brackets brought forth by the TCJA- 10%, 12%, 22%, 24%, 32%, 35%, and 37%, indexed for inflation.
• 2026 will bring a double (two-year) inflation adjustment to the 10% & 12% brackets, which results in a beneficial narrowing of the 22% bracket and overall savings for taxpayers.
• Permanent extension and increased standard deduction amounts.
• Permanent termination of deduction for personal exemptions.
• New enhanced senior deduction- $6,000 per spouse, subject to phase-out.
• Charitable deductions ($1k single / $2k MFJ) for taxpayers not itemizing, similar to tax policy introduced during the height of the pandemic.
• New deductions- creates new deductions for qualified tips (up to $25,000) and overtime pay (up to $12,500 per individual), and a deduction for interest paid on loans for new vehicles with final assembly in the United States (up to $10,000).
• Permanent restoration of 100% bonus depreciation under Sec. 168(k) for qualifying property acquired and placed in service after January 19, 2025. This means businesses can immediately expense the full cost of eligible assets, stimulating investment.
• Section 179 expensing- increases the maximum deduction amount to $2.5m and the phase-out threshold to $4m, enhancing benefits for businesses making capital investments.
• Qualified Business Income (QBI) Deduction- makes the 20% QBI deduction permanent for pass-through entities, providing tax relief for eligible businesses.
• Increased State And Local Tax (SALT) itemized deduction from $10,000 to now $40,000 (with annual inflation adjustments), subject to income threshold phase-outs, temporarily through 2029 before reverting to $10,000 in 2030.
• Permanent extension of the $750,000 mortgage interest deduction limitation on acquisition indebtedness, and now includes mortgage insurance premiums (the disallowance of home equity debt interest expense is made permanent).
• Permanent limitation of casualty loss deductions to instances of federally declared and certain state declared disaster areas.
• Permanent termination of miscellaneous itemized deductions, formerly know as “2%ers” as the deduction was limited to amounts in excess of 2% of AGI floor.
• 2026 will also bring a new 0.5% of AGI floor for deductibility of itemized charitable contributions, and a reintroduction of a pre-TCJA Pease limitation of sorts effectively reducing overall itemized deductions by 2/37ths of the lesser of:
  • total itemized deductions,
  • or the amount of taxable income that surpasses where the 37% marginal bracket on ordinary income begins (all taxable income taxed above the 35% bracket).
  • This means that for high-income taxpayers, it will make good sense to accelerate deductions such as the restocking of Donor Advised Funds into 2025 vs. 2026 to get full 37% deduction vs. limitation to 35%.
• Permanent extension of enhanced child tax credit, indexed for inflation.
• Permanent extension of other dependent credit.
• Increased dependent care flexible spending account limit to $7,500.
• Enhanced/higher refundable portion of child adoption credit.
• New non-refundable tax credit for cash donations to approved Scholarship Granting Organizations (SGOs).
• 529 plan qualified expenses expanded to include more K-12 and homeschool expenses, and postsecondary exams and credential expenses.
• Trump Accounts- brand new, quasi-Roth-like accounts for long-term saving for children with eligible matches from the government (much more to come on this topic).
• Effective January 1, 2026, the federal exemption amounts for estate, gift, and GST taxes will rise to $15m per individual (up from the current $13.99m in 2025).