Breaking Down the One Big Beautiful Bill Act

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This wide-ranging legislation makes many of the 2017 tax cuts permanent. While the bill is nearly 900 pages long, here are the key changes that matter most for your financial plan.

Tax Rates Stay the Same

The current income tax brackets and rates, including the top rate of 37%, are now permanent. The Alternative Minimum Tax (AMT) exemption is also locked in, though with slightly lower phaseout thresholds. These updates provide long-term clarity for tax planning.

• Standard Deduction
  Permanently increased to $15,750 for single filers and $31,500 for joint filers, with future adjustments for inflation.
• Child Tax Credit
  Increased to $2,200 per child and indexed to inflation.
  
  
• Senior Deduction
  A new $6,000 deduction for filers age 65 and older is available from 2025 to 2028, with income-based phaseouts.
  
  
• Itemized Deductions Cap
  In 2026, tax benefits of itemized deduction are capped at 35%, even for clients in the 37% tax bracket.
  
  
  

Estate & Gift Planning

Starting in 2026, estate, gift, and generation-skipping transfer exemptions rise to $15 million per person and $30 million per couple. These limits will increase annually with inflation, offering more certainty for long-term planning.

• Trump Accounts 
  New tax-advantaged accounts for children born in 2025 or later allow up to $5,000 in annual contributions. Growth is tax-free, and withdrawals can be used for education, first homes, or emergencies.
  
  
• 529 Plans
  Beginning in 2026, 529 Plans will expand to allow up to $20,000 per year in qualified withdrawals for K–12 expenses, including books, tutoring, and online materials.

Charitable Giving Updates

You can now deduct up to 60% of your adjusted gross income when itemizing. However, beginning in 2026, itemized charitable deductions will only apply to amounts above 0.5% of your adjusted gross income. This works similarly to the current medical expense rule, which starts at 7.5%. For tax filers using the standard deduction, you will be able to claim up to a $1,000 charitable deduction per person in 2026.

• State & Local Taxes (SALT) Deduction Cap
  Temporarily increased to $40,000 through 2029, with 1% annual increases, then returns to $10,000.

• Clean Energy Credits
  Ending after 2025 for vehicles and home improvements.
  
  
• Affordable Care Act (ACA) Premium Credits
  Expanded eligibility ends in 2026.
  
  
• Qualified Business Income (QBI) Deduction
  The 20% deduction for pass-through businesses is now permanent.
  
  
  

What This Means for You

These changes offer greater clarity for your tax strategy, estate planning, and savings goals. Your Donaldson advisor is already incorporating these updates into your financial plan. If you have questions or want to explore how this affects your situation, we are here to help.

This article was featured in the Fall 2025 edition of the Rising Dividend Report.

Read more articles from this issue here.

This has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.