How the One Big Beautiful Bill Act could affect your taxes – and more
Despite a cascade of news covering the recent tax legislation commonly referred to as the One Big Beautiful Bill (OBBBA), signed into law this past July, “there has been a lot of information about it that’s misleading,” says Mitchell Drossman, head of National Wealth Strategies (NWS) in the Chief Investment Office of Merrill and Bank of America Private Bank. For one thing, “it doesn’t necessarily provide a tax cut to a wide range of wealthy people when comparing current tax rules to upcoming OBBBA changes.”
As a recent Tax Alert from NWS points out: “A high-income wage earner (earning $1 million or more) will likely see a modest tax increase” due to new limitations on charitable deductions and other itemized deductions. Meanwhile, owners of high-income businesses could benefit significantly from expanded pro-growth business changes such as accelerated depreciation deductions.
So, what do you need to know as you’re preparing for your 2025 taxes? Here are three factors to consider that aren’t receiving a great deal of play in the financial media.
Changes to the SALT deduction could add up to a “marriage penalty.”
Getting a lot of attention: the law increases the deduction for state and local taxes (SALT) from $10,000 to $40,000 annually. However, that higher amount is the same for both single and joint filers—greatly reducing the potential benefit to taxpayers who marry and file together. What’s more, it begins to phase down at specified income levels starting at $500,000/year, eventually returning to the $10,000 cap for both individuals and couples. And you’re only potentially eligible for a SALT deduction if you itemize on your tax return, which few taxpayers do.
There’s good news for your legacy planning.
Many people were planning to front-load their gifting to the next generation in anticipation of the potential expiration, at the end of 2025, of the historically high gift, estate and generation-skipping tax exemptions established by the 2017 Tax Cuts and Jobs Act. No need to worry about beating that deadline now – the new legislation locks in the exemptions permanently. For 2026, the federal estate tax exemption is $15 million per individual ($30 million for couples), significantly more than the estimated $7.2 million (adjusted for inflation) it would have been without OBBB changes.
You’ll be hearing more about non-grantor trusts – but they’re not for everyone.
These trusts are getting a ton of attention in the legal community in the wake of the OBBB’s passage. The quick distinction between a grantor and non-grantor trust: in the former, the trust’s creator is taxed on the trust’s income whether or not the trust makes a distribution. With a non-grantor trust, the trust itself is treated as a separate taxpayer for federal income tax purposes. The OBBB changes to rules around SALT deductions, charitable contributions and qualified business income are making non-grantor trusts look a lot more attractive from an income tax perspective in certain instances.
But unless you’re planning to put a significant amount into the trust, and willing to handle the upfront cost of creating it and its ongoing expenses, there may be more hype than substance to these trusts – especially because the increased SALT deduction cap is set to expire after 2029.
To determine how to make the most of these and other provisions within the OBBB, reach out to your advisor.
