by Jim schmersahl and Alan Dierker
The One Big Beautiful Bill Act (OBBB) is the recently enacted major tax law change, which made several major changes under the Tax Cuts and Jobs Act (TCJA) of 2017 permanent, as well as creating new tax benefits and enhancing others. For the individual, it is important to understand and effectively utilize these provisions.
Understanding the Tax Cuts and Jobs Act (TCJA)
The TCJA was the most significant change to tax law in recent years enacting across the board tax cuts for individuals and corporations and making several notable changes to the individual and corporate tax structures. The so-called TCJA “Trump tax cuts” were largely temporary for individuals, with many of the benefits set to expire on December 31, 2025, sometimes called a sunset provision. Among these expiring provisions were reduced marginal tax rates, suspended personal exemptions, a more generous standard deduction, a strict limit on the deductibility of State and Local Taxes (SALT), and a new Qualified Business Income Deduction (QBID) among other items.
The OBBB directly addressed these issues and made them “permanent”, or at least permanent until Congress passes another tax bill. These continuing provisions include:
Permanently Reduced Tax Brackets
The now permanent tax brackets are the existing seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%, and the additional Medicare surcharge of .09% for individuals earning more than $200,000 and married couples of $250,000. The seven brackets are indexed to inflation and based on filing status.
Suspended Personal Exemptions
Personal exemptions under the TCJA were limited to zero, but were not permanently repealed. Before TCJA this was a below-the-line subtraction based on the number of people in a household. The OBBB permanently repeals this subtraction, though many states do still allow their own Personal Exemptions.
Standard Deduction Growth
Under the TCJA, the standard deduction almost doubled, drastically cutting the number of taxpayers itemizing their deductions. As of January 1, 2025, Single and Married Filing Separate taxpayers will have a $15,750 standard deduction, with Head of Household and Married Filing Jointly taxpayers being able to claim a $23,625 and $31,500 standard deduction respectively, all indexed to inflation going forward.
Limitation on Deduction of State and Local Taxes (SALT)
The TCJA limited the SALT deduction on Schedule A to $10,000 ($5,000 if claiming married filing separately). Those working or living in higher tax States were negatively affected because of this hard cap, with no opportunity to carry forward deductions to future years. As a work around, many states, including Illinois and Missouri, enacted passthrough entity tax provisions, allowing owners of passthrough entities (Partnerships and S-Corporations) to deduct those taxes as a business expense on their entity’s federal tax return.
One big positive change, and potential planning point, is this SALT limitation was increased to $40,000 for 2025 and 2026 and is indexed for inflation going forward.
Charitable Giving – Opportunities and Disadvantages
One new OBBB item, starting in 2026, allows single filers to deduct $1,000 without itemizing on Schedule A, and Married Filing Jointly taxpayers to deduct $2,000.
On the downside, starting in 2026, taxpayers who itemize may be in for an unpleasant surprise. A new floor limits cash charitable contributions to the amount they exceed 0.5% of their current year Adjusted Gross Income (AGI). To put it in perspective, if a taxpayer itemizes deductions, and gives a substantial amount to charity in the form of cash, they may only be able to deduct cash gifts over the new floor of 0.5% AGI. Clearly higher income taxpayers are at a disadvantage here, which means you may need to strategically time your end of year giving to be paid at the beginning of the next year, also known as bunching, or consider other planning methods.
Conclusion
The recent passage of the OBBB both produced more of the same for individuals and yet created planning opportunities. Understanding which changes affect your unique situation allows you to plan and make sound decisions, further reducing your tax liabilities. As always, seek tax advice from your CPA before making any big decisions.
Jim Schmersahl, CPA, is a Partner at Schmersahl Treloar & Co. He can be reached at 314.966.2727. Alan Dierker is a Tax Manager at Schmersahl Treloar. He can be reached at 314.966.2727.