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With the new Federal Tax Bill known as OBBBA signed into law on July 4th, I wanted to inform you of how the bill may impact your finances from a strictly tax perspective.  There are many important changes you need to know for your financial wellbeing! Some of the  most significant changes include elimination of energy improvement credits, new senior tax credit. Additionally, those of you  enrolled in the Affordable Care Act for health insurance are negatively impacted. The bill has various effective dates for the provisions, as noted below.  

Common overriding themes   

1. Tax rules associated with the 2017 Tax Cuts and Jobs Act are  mostly made permanent, including the current tax brackets and  Qualified Business Income deduction (20% deduction for self-employed folks)  

2. Unfortunately, the tax code has gotten even more complex and complicated.   

3. The IRS, cut by 25%, will struggle with implementation of these changes. Expecting next filing season to be rocky, the IRS commissioner has warned that tax season will not open until Feb 15, 2026.  

4. Payroll processing firms and payroll departments will be challenged by the new Overtime  and Tip reporting requirements.  

5. I urge caution about this summary regarding the 900-page bill.  I have read portions of the bill and attended a few training sessions and plan to become more fluent on the nuances. This is not a complete list, just the most important changes. 

Trump Accounts (effective January 1, 2025) – This regards a savings account for babies that turns into an IRA when they turn 18. The US Government will deposit $1,000 into each account when conditions are met. Babies born after December 31, 2024 will qualify. The IRS needs to establish regulations for these accounts, which will not be released until sometime in 2026, likely that second half of next year. This item has some of the most uncertainty as to how it will work.  If you have a newborn, keep close tabs on this. Work with your financial advisor or brokerage firm.   The new law creates a new type of investment account which allows individuals to contribute $5,000 annually to an account similar to an individual retirement account for a child. These accounts are effective January 1, 2026 we are waiting for more guidance, especially when the child turns 18.   

Charitable Deduction for non-itemizers (effective January 1, 2026)  For cash donations only, in 2026 you will be able to deduct $1,000 if single, or $2,000 for joint filers if you do not itemize. If you are not a large  contributor to qualified tax deductible organizations, consider combining your donations for 2025 and 2026 to maximize your 2026 deduction. 

State and Local Taxes (effective January 1, 2025)  The major change regards the cap on the State and Local  tax deduction, which is raised from $10,000 to $40,000. This change impacts  those with significant real estate and state taxes. The change will mean more of you will itemize your deductions, versus taking the standard deduction. This means you should track medical expenses, real estate taxes, mortgage interest and cash and non-cash donations. For non-cash donations, you should arrive at a fair value of the dollar amount donated (versus telling us you gave 2 bags of clothes). For perspective, single taxpayers get standard deduction of $15,000 and joint filers get $30,000. If you earn more than $500,000, the deduction phases out. Over $600,000 the cap is back to $10,000. So income changes (year-end bonus, retirement, withdrawal, etc.) for those in this window can mean a big difference in your tax bill. This was a temporary change. While 2029 is a long way off relative to taxes, the cap returns to $10,000 for everyone in 2029. 

You may hear about something called a PTET, this is where S Corps or Partnerships can deduct state and local taxes. Pennsylvania has not adopted PTET rules, unlike many other states  

Child Tax Credit (effective January 1, 2025)  This will be increased to $2,200 with an inflation increase for future years. It equates to $1,700 for those with no net tax.   

Gamblers beware! (Effective January 1, 2026)   Although it’s uncertain how this got into the bill, but effective 2026, you can only claim 90% of your losses up to your gambling winnings. So if you are a professional gambler and you had net losses for the year, you will still end up with 10% gambling income. There is a fix already floating  within Congress  regarding this anomaly. 

Individuals on Affordable Care Act Beware! Effective December 31, 2025)   Major changes are effective in 2026. The clause that allowed more individuals to qualify for ACA (in PA it’s referred to as “Penne”) has been restored to the original rules. That clause specifies that you cannot spend more than 8.5% of your income on health care.  However, the percentage is MUCH lower now. Furthermore, the number of people qualifying for health insurance under ACA will drop significantly. The Cliff returns!  If your income exceeds a certain amount (by a dollar), you must pay back your entire credit. There was a limit on how much you had to pay back, but that limit has been removed.  Important advice - estimate your income low when signing up or renewing your Penne. If you end up with higher income, you could have a higher tax bill. Talk with me before  signing up for Penne for tax year 2026. If you are near cutoffs, I  recommend NOT taking Advance Premium Credit. Wait to reconcile with the IRS to see if you qualify. 

Bonus deduction for Age 65 Plus (effective January 1, 2025)  Social Security is still taxable. However, effective 2025, there is a new deduction for those 65 or over. As long as your adjusted gross income is below $150,000 if married or $75,000 if single, you get a full $6,000 per person deduction. The only factors are age and income. If you exceed the income thresholds, the deduction slowly phases out.  For those  who fully qualify for this deduction I believe best course of action as to verifying tax withholdings is at this upcoming tax time.   

No Tax on Tips (effective January 1, 2025)  The changes include Deduction from AGI of up to $25,000 ($12,500 if single) for qualified tips. Qualified tips mean the individual must be in an industry where tips are commonplace AND the tip must be voluntary (e.g., pre-determined tip of large table at restaurant does not count). The IRS is to issue a list of qualified occupations. Still taxable for social security and Medicare. Phases out at AGI of $150K for single filers and $300K for married filing jointly filers.  I expect some modifications to W2 for this provision. 

No tax on Overtime (effective January 1, 2025)  Deduction of up to $25,000 ($12,500 if single) for overtime reported per FSLA, Sec 7. If you earn over $150,000 (single) or $300,000 (married), you do not qualify for the deduction. Be advised that this deduction gets somewhat complicated. You get a deduction for the OT portion of the hours worked over 40 hours work. Therefore, where you are paid time and a half, if you are paid $30/hour, your deduction will be the $15/hour paid for OT, not the entire $45. There are some questions regarding double–time pay. We are waiting for the IRS for more guidance. The OT will be reported on your W2 in 2026. For 2025, tax preparers are expecting employers to issue a statement showing overtime paid. OT is still fully taxable for Social Security, Medicare, State and local taxes. 

No tax on auto loan interest (effective January 1, 2025)  Implements up to a$10,000 deduction for auto loan interest for vehicles with final assembly in the United States, with an income limit ($100K if single, $200K if married). Expiration is December 31, 2028.  Similar to mortgage interest, we expect there will be a document produced by the auto loan industry showing the amount of interest paid during the year.  Loan must be for personal use must be a NEW vehicle. You must also provide the VIN to qualify for the deduction. 

End Tax Credit for qualified new EVs (30D) (effective September 30, 2025)  After September 30, 2025, purchasers of a qualified new electric vehicle can no longer claim the credit of up to $7,500. If you had plans to purchase EV, get it now! 

Estate Tax exemption expansion (effective January 1, 2026)  The Estate Tax exemption is expanded to $15 million ($30 million for couples). 

End credit for homeowners to weatherize and improve efficiency of their homes (25C); (effective December 31, 2025)  Homeowners will no longer be able to claim a credit of up to $3,200 after December 31, 2025 for efficiency upgrades, including weatherization and energy efficient improvements such as window insulation and heating, ventilation, and air conditioning (HVAC) upgrades. If you have plans for an energy-efficient upgrade, have it completed by  December 31. 

New limits on student loans for graduate borrowers (effective January 1, 2026) Introduction of new limits on loans for graduate students is set at $20,500 per year ($100,000 lifetime) for master’s degrees and $50,000 per year ($200,000 lifetime) for professional degrees. These limits are not inclusive of undergraduate borrowing. 

BUSINESS TAX CHANGES 

Entity decision:  The entity of choice for small business owners is no longer simple. With changes in rules for small business stock, if you expect to grow and sell your business as investment, versus using the business to supply income, S Corporation is no longer the entity of choice. The C Corporation would be the entity of choice IF you are pursuing a grow/sell strategy. You should speak with me and a business attorney before  future entity decisions. 

Bonus Depreciation: 100% depreciation for equipment placed into service effective January 19, 2025 is made permanent. 

R&D: full expensing for Research and Development is made effective Jan 1, 2025. 

1099 Limit: Effective Jan 1, 2026, the limit for issuing a 1099 will be $1,000. Going forward, that amount will be indexed for inflation. 

1099K limit: All the rhetoric surrounding 1099ks is over! Effective 2025, the threshold for 1099K being issued is back to former limits ($20,000 or 200 transactions). There was a threat that the limit would be $600 and would impact your personal Venmo and Paypal accounts.