The OBBBA: A GUIDE TO RECENT TAX CHANGES AND HOW THEY AFFECT YOU
Lucidity Ledger — Insights for the Learned Investor
August 13, 2025
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law after a contentious and drawn-out Congressional debate.¹ This is the most significant tax code change since 2017’s Tax Cuts and Jobs Act (TCJA), which is scheduled to sunset (expire) at the end of 2025. The OBBBA makes many of the provisions in the original TCJA permanent, in addition to including new provisions affecting everything from how tips get taxed to estate planning strategies.
While we admittedly haven’t read the 1000-page bill (similar to most of our Congress members), we have compiled some of the key points (both good and not-so-good) that are likely to affect our clients. To learn what the OBBBA means for you, organized by the various hats you wear in life, keep reading.
For Entrepreneurs and Business Builders
Qualified Business Income Deduction
If you're running a business through a pass-through entity—LLC, S-Corp, Partnership, or Sole Proprietorship—this legislation delivers meaningful benefits. The Section 199A deduction, which allows a 20% reduction on qualified business income, is now made permanent. Additionally, for both single and joint filers, the income limits have been raised for when this tax break begins to phase out. As a result, business owners now have more runway to take advantage of this favorable deduction.
Equipment and Investment Incentives
Bonus depreciation has returned to 100% for equipment placed in service after January 19, 2025—another change made permanent by the OBBBA. Whether you're upgrading your technology equipment or buying new machinery to keep up with demand, the ability to deduct all of your expenses in year one can provide significant cash flow benefits, as it accelerates deductions that would otherwise be spread out over several years. Another advantage is that you now have the option to take a smaller deduction (40% or 60%, rather than 100%) in year one, which adds flexibility depending on what stage of the business cycle your company is in.²
Another plus applies to companies looking to make substantial equipment purchases, as Section 179 expensing limits have increased from $1 million to $2.5 million, with the phaseout threshold rising to $4 million.
Additionally, businesses can now fully deduct research and development (R&D) expenses in the year incurred for domestic activities, with retroactive relief available for small businesses back to 2022.³
The Fine Print for Service Providers
If you're in a "Specified Service Trade or Business" (e.g., lawyers, doctors, consultants, financial advisors—anyone who is paid for their expertise rather than for selling widgets), the changes are less dramatic. You still face income-based limitations that limit your potential QBI deductions, though the expanded thresholds provide more breathing room than the old rules allowed.
For Working Professionals
The OBBBA introduces new worker-focused deductions, each lasting through 2028. The temporary nature of these provisions creates both opportunity and planning complexity, as they are set to expire after 2028 (just in time for the next election cycle).
No Tax on Tips
Up to $25,000 of qualified tip income becomes deductible for workers in traditional tipping occupations. The IRS will define qualifying roles, but expect restaurant servers, bartenders, hair stylists, nail techs, and similar service workers to benefit.⁴
No Tax on Overtime
The premium portion of overtime pay—aka, “time-and-a-half” pay—becomes deductible up to $12,500 for single filers and $25,000 for joint filers. This new deduction is a significant benefit for workers who often wondered if the extra hours spent working overtime were worth the pain of their extra take-home pay that was largely eaten away by higher payroll taxes.⁵
The Fine Print for High Earners
The above benefits phase out for single filers with Modified Adjusted Gross Income (MAGI) above $150,000 and joint filers above $300,000. Those living in high-cost areas (California, New York) may feel they were unfairly skipped over.⁶
For Those Who Are Retirement-Minded
New Benefits for Seniors
Those who are age 65 and older receive an additional $6,000 deduction through 2028 (though it also phases out at higher income levels). Combined with existing age-related standard deduction increases, single filers age 65+ are now eligible for up to $23,750 in deductions, while married couples (who are both 65+) are eligible for up to $46,700 in deductions. Joint filers with only one spouse age 65+ are eligible for deductions up to $39,100.⁷
The Fine Print for Social Security Recipients
Despite some initial confusion when the OBBBA first passed, the rules about taxation on Social Security benefits remain unchanged.⁸ While the new senior deduction provides general tax relief, it still does not directly reduce Social Security tax liability. This matters for retirees considering additional income during retirement (e.g., from Roth IRA conversions or a part-time job). In general, the more income you receive, the more taxable your Social Security benefits become.
For Families & Future-Planners
Enhanced Child Benefit
The Child Tax Credit increases from $2,000 to $2,200 per child, with inflation adjustments beginning in 2026. While not a dramatic increase, every bit helps while child-rearing costs continue to rise.
529 Plan Expansions
Educational savings plans (aka 529 plans) have become more flexible, now covering more K-12 expenses such as tutoring, testing fees, curriculum materials, and educational therapy for students with disabilities. Reimbursement for these new expenses applies to any distributions taken after July 4, 2025. Starting in 2026, the annual K-12 expense limit increases from $10,000 to $20,000. The new 529 rules also allow for 529 funds to cover post-secondary credentialing expenses (such as obtaining a CFP® certification).
Trump Accounts: A New Retirement Savings Tool for Kids
For kids under 18, the OBBBA creates early-start retirement accounts called "Trump Accounts". Parents and others may contribute up to a combined $5,000 annually, with the government providing an additional $1,000 seed money for children born from January 1, 2025, to December 31, 2028. Unlike a traditional IRA or Roth IRA, there is no earned income requirement for contributions to Trump Accounts—making them an attractive type of retirement account that will have decades of growth by the time the child reaches retirement age. If you’re considering opening one, note that there are specific rules for what types of investments are allowed in a Trump Account.
The Fine Print for Trump Accounts
Overall, these new retirement accounts should encourage families to start saving early for their kids, which most agree is a plus. However, one drawback is that they are adding more complexity to already-complicated tax laws. And, since this is a brand-new program, details will likely change as the kinks are worked out.
For High-Net-Worth Households
Auto Loan Interest Deduction
Interest on loans for new, U.S.-assembled vehicles becomes deductible up to $10,000 annually, though there are vehicle restrictions (no RVs, ATVs, trailers, or used cars will qualify). As a result, your daily commute (or joyride) just received a nice tax subsidy if you plan to finance a new car purchase.
Estate Planning Relief
The federal estate tax exemption now rises to $15 million per person ($30 million per married couple) starting in 2026, providing additional estate planning flexibility. Those who have been aggressively gifting assets in advance of the expected TCJA sunset at the end of 2025 may now have less urgency with their transfer strategies.
SALT Relief Returns
The state and local tax (SALT) deduction cap increases from $10,000 to $40,000 through 2029—welcome news for residents of high-tax states (hello again, Californians and New Yorkers).⁹ However, this higher limit phases out with MAGI exceeding $250,000 for single filers and $500,000 for joint filers.
The Fine Print for Charitable Giving
Beginning in 2026, charitable contributions below 0.5% of adjusted gross income will not generate deductions. For example, for someone making $200,000 annually, the first $1,000 of charitable giving loses its deductibility. Additionally, high earners in the 37% Federal tax bracket will see their itemized deductions capped at 35% of their value, reducing the tax benefit of these deductions.
The Fine Print for Alternative Minimum Tax Changes
The AMT becomes more aggressive in 2026. If you are fortunate to work for a company that rewards you with stock options, take note: those with unexercised incentive stock options (ISOs) or other AMT triggers should consider timing strategies for 2025, as it may make more sense to exercise the ISOs this year before the harsher AMT rules come into effect in 2026.
Some Concerning Elements of the OBBBA (More Fine Print)
Healthcare Coverage Implications
The new legislation reduces Medicaid and SNAP funding by approximately $1 trillion over ten years; it’s unknown how many millions of Americans will be negatively affected. Additionally, new work requirements for Medicaid eligibility are likely to impact coverage for vulnerable populations. These changes have real-life financial planning implications for families with special needs or eldercare responsibilities.¹⁰
Fiscal Impact
The Congressional Budget Office projects $3.4 trillion in additional debt over the next decade. The added debt could pressure interest rates higher, affecting things like mortgage, credit card, and auto loan payments for borrowers, and bond portfolio performance for investors.¹¹
Environmental Credit Rollbacks
Recent years have provided several tax credits for people making green purchases. However, the landscape has changed since the passing of the OBBBA. Electric vehicle credits will end after September 30, 2025, and the Bill eliminates various other clean energy incentives after December 31, 2025. If you’ve been considering making green upgrades within your household, the clock is ticking for those purchases to remain tax-advantaged.¹²
Strategic Considerations for 2025
Immediate Planning Opportunities (Use It or Lose It!)
Charitable Giving Strategy Consider accelerating charitable donations in 2025 before the adjusted gross income floor takes effect.
Clean Energy Timing Complete planned solar, EV, or efficiency upgrades before tax credits expire. To be eligible to claim the tax credits before they're gone, be sure to make electric vehicle purchases before September 30, 2025, and make any energy-efficient home and residential clean energy improvements before December 31, 2025.
Equipment Planning Business owners should evaluate when to spend money on expensive purchases to maximize the bonus depreciation tax benefits.
AMT Exposure If you’ve been awarded company stock options and are approaching higher income thresholds, you’ll want to review your incentive stock option (ISO) strategies to see if it makes sense to exercise them in 2025, before the new AMT rules come into effect next year.
2026 Preparation
Deduction Optimization The new rules may impact your optimal deduction strategy, influencing whether it will be better for you to itemize deductions or take the standard deduction when you file your taxes.
Takeaway
The new OBBBA has multiple moving parts that create both opportunities and risks, depending on your circumstances. Several benefits will favor business owners and higher-income households. At the same time, many of the costs will be spread across the broader population via increased national debt and reduced social programs.
As always, tax law changes create planning opportunities as well as potential pitfalls. The key lies in understanding which provisions apply to your situation and adjusting your strategy accordingly. Many of the key provisions of the OBBBA will expire after 2028, and we expect that Congress will likely revisit these as we approach the next election cycle.
At Lucidity, we will continue to monitor how these changes develop while we work alongside each of our clients and our clients’ tax advisors to optimize strategies under the new rules. While we can't predict what Congress will do next, we can certainly prepare for the probabilities and position for the possibilities.
¹ Nothing says "patriotic" like a massive tax overhaul delivered with fireworks on Independence Day.
³ Small businesses with average annual gross receipts of $31 million or less can claim retroactive relief—potentially generating refunds for prior year expenses.
⁴ Here’s a good summary of how the OBBBA applies to income from tips: https://www.kiplinger.com/taxes/no-tax-on-tips-bill-approved. Here’s a link to the actual six-page Bill: ‘‘No Tax on Tips Act’’
⁵ Here’s a good summary of who qualifies for overtime pay: https://www.nolo.com/legal-encyclopedia/overtime-pay-rights-employee-30142.html
⁶ As of August 2025, the average rent for a 1-bedroom, 1-bath apartment in New York City is $4,500/month, or $54,000/year. A single tax filer making $150,000/year pre-tax will take home $105,000 after accounting for Federal and New York State income tax. Paying the average rent (not even “fancy apartment” rent) on a 1-bedroom shoebox in NYC will cost this worker over 51% of her take-home pay—and that’s not counting any additional paycheck deductions, like health insurance premiums or 401(k) contributions. In this scenario, money is tight. Our single working professional making $150,000/year in NYC is likely living paycheck-to-paycheck.
⁷ Confused yet? The OBBBA does not simplify our tax code; instead, it appears to introduce additional complexity to an already complex ruleset.
⁸ https://fortune.com/2025/07/07/social-security-incorrect-email-taxes-benefits/
⁹ This is like the tax equivalent of paying full price for a hotel room and then getting charged a "resort fee" at checkout. If you feel like you’ve been paying taxes on your taxes, you’re not alone.
This commentary is only general information and should not be construed as investment, tax, or legal advice. You should consult your own investment, tax, and legal advisors before engaging in any transaction. Past performance of any market results is no assurance of future performance. The information presented within has been obtained from sources believed to be reliable but is not guaranteed.
Do you have questions about applying these ideas to your unique situation or about anything else related to money, investments, or financial education? We are happy to help get you on track! Contact us for a complimentary, no-obligation conversation.