The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces sweeping changes to the US tax landscape, including income, estate, and gift taxes. These changes create significant new planning opportunities and considerations for individuals and families. The following overview highlights key provisions of the Act and outlines strategic planning techniques to help navigate this evolving landscape.
1. Expanded Estate and Gift Tax Exemptions
The federal estate and gift tax exemption increases to $13.99 million per individual (or $27.98 million per married couple) beginning in 2025.
These higher limits offer significant wealth transfer opportunities for high-net-worth families during their lifetimes or at their death without triggering federal estate or gift taxes. As a result, income tax planning, including strategies aimed at maximizing step up in basis, may take on a greater importance. This expansion enhances the effectiveness of lifetime gifting strategies and other estate planning tools, supporting the preservation of generational wealth and reducing future tax.
2. Preservation of the TCJA Income Tax Brackets and Increased Standard Deduction
OBBBA locks in the Tax Cuts and Jobs Act (TCJA) income tax bracket structure, making its favorable tax rates permanent.
2025 Federal Income Tax Brackets
2025 Standard Deduction Amount
3. Section 199A Deduction Made Permanent
The 20% deduction for Qualified Business Income (QBI) is here to stay, benefiting small business owners, sole proprietors, and pass-through entities. For small business owners, this means that up to 20% of their qualified business income may be deducted from their federal income tax. This deduction is especially valuable because it applies in addition to the standard business expense deductions and effectively lowers their taxable income and reduces overall tax liability.
4. Charitable Giving Incentives
AGI Limit Maintained: Cash gifts to public charities remain deductible up to 60% of AGI, with a new 0.5% floor.
Non-Itemizer Deduction: Non-itemizers can now deduct up to $1,000 (single) or $2,000 (married filing jointly) for cash donations to qualified charities.
OBBBA introduces tax advantaged children’s savings accounts, designed to promote early financial literacy and educational savings. Contributions of up to $5,000 per year will grow tax-free and may be used for qualified education expenses or rolled into retirement accounts upon reaching adulthood. Parents of children born between January 1, 2025 and December 31, 2028 may be eligible for $1,000 of federal seed money to start the account.
These measures provide immediate tax relief but are temporary in nature and may be subject to AGI Phaseouts:
SALT Deduction Cap Increased: From $10,000 to $40,000.
Senior Tax Deduction: Individuals 65+ can claim an additional $6,000 standard deduction.
Deductible Car Loan Interest: Up to $10,000 of personal vehicle loan interest.
No Federal Tax on Tips or Overtime: Income from tips up to $25,000 and overtime up to $12,500 ($25,000 for joint filers) may be exempt from federal income tax, boosting hourly workers’ take-home pay.
Review Estate Planning Documents
Reevaluate your existing Will and/or Trusts to ensure alignment with the new tax landscape.
With the increased federal estate and gift tax exemptions, fewer individuals may need to engage in complex estate tax planning, making Revocable Trusts a more attractive and practical tool. While a revocable trust does not mitigate estate taxes or provide creditor protection, it remains a highly effective vehicle for managing assets during life and simplifying estate administration after death. Some of the key benefits include: seamless transition of assets to beneficiaries; continuity of asset management if the creator becomes incapacitated; probate avoidance and simplicity of estate administration; and, creator retains control over the assets and allows for flexibility including the ability to amend or revoke the trust at any time.
Income tax planning is likely to take on greater importance, with particular emphasis on basis step-up strategies and thoughtful gift planning. These tools can play a critical role in optimizing tax outcomes, preserving wealth, and enhancing the overall effectiveness of an estate plan.
Consider incorporating Decanting provisions, Powers of Appointment or Trust Protectors to add flexibility and adaptability to your estate plan. This will offer flexible livable solutions that allow your fiduciary to deal with future changes in the law or family situations and better fit the needs of your beneficiaries.
Irrevocable Trusts serve a variety of strategic purposes, including protecting assets from creditors and mitigating federal and state estate taxes - particularly for individuals still impacted by current federal and state exemption thresholds. These trusts are essential for preserving wealth across generations and ensuring tax-efficient asset transfer. Common examples include:
Credit Shelter Trust (CST): Created at death to shelter assets from estate tax, allowing efficient wealth transfer.
Spousal Lifetime Access Trust (SLAT): Enables one spouse to gift assets to a trust benefiting the other, preserving access while removing assets from the taxable estate.
Disclaimer Trust: Allows a surviving spouse to disclaim inherited assets, redirecting them into a trust for tax-efficient planning.
Lifetime Gifting Strategies
Annual Exclusion Gifts: In 2025, individuals may gift up to $19,000 per recipient without triggering gift tax or reporting requirements. Married couples may gift up to $38,000 per recipient, though reporting is required.
Strategic Gifting: Strategic gifting can effectively reduce the size of your taxable estate while providing meaningful benefits to heirs. In addition to estate tax advantages, strategic gifts may also serve as a valuable tool in income tax planning, particularly when coordinated with basis management and timing considerations.
State Estate and Inheritance Tax Considerations
New York’s estate tax exemption remains at $7,160,000, significantly lower than the federal exemption. Portability is not available, meaning unused exemption cannot be transferred between spouses.
Pennsylvania does not impose a state estate tax but does levy an inheritance tax, which varies based on the relationship to the decedent.
Florida does not impose a state estate tax or state income tax.
As individuals and families navigate these changes, thoughtful planning and professional guidance will be essential to maximize benefits and mitigate risks. Whether you're reviewing your estate plan, exploring gifting strategies, or evaluating trust options, now is the time to act.
Contact us for more information on how these provisions may impact your financial future and to discuss personalized planning strategies tailored to your goals.
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