Meridian Blog

Big Bill, Big Changes

On July 4th, as most Americans were attending BBQs and pool parties and gearing up for their local fireworks display (or multiple, as in my colleague’s cases), a sweeping budget reconciliation bill, otherwise known as the “One Big Beautiful Bill Act,” was signed into law by President Trump. The legislation builds on and broadens several key elements of the Tax Cuts and Jobs Act, significantly reshaping federal income tax and estate planning rules. It also advances other priorities from the Trump administration, including increased defense and border security funding, stricter Medicaid work requirements, and a higher federal debt ceiling.

The CFP Board worded it perfectly in saying that the piece of legislation has “evoked strong emotional responses on both sides” (Source – President Trump Signs Tax and Spending Cut Bill into Law | CFP Board). I couldn’t have said it better myself. However, no matter what way you lean or our opinions on the law, the new bill may have an impact on financial plans and investment portfolios, and therefore provides opportunities to prepare for an array of new tax rules.

Several of the main provisions are permanent, but it is important to note that many do expire in 2029.

Source: https://www.highlandplanning.com/learning-center-1/one-big-beautiful-bill-act-a-financial-planners-perspective

Key Tax Updates

With the bill coming in around 1,000 pages, I figured I would spare everyone the time and include highlights we feel are pertinent to our clients:

• A permanent extension of the individual tax cuts enacted under the 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire in 2025 – see below:

Source: https://facet.com/big-changes-to-your-taxes-and-savings-a-simple-guide-to-the-one-big-beautiful-bill-act/

• A permanent boost to the standard deduction to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly.
  • A $6,000 increase to the standard deduction for seniors from 2025 through 2028 with modified adjusted gross income of $75,000 or below (or $150,000 or below for couples).
• An enhanced child tax credit of $2,200 from $2,000 through 2028. Parents and guardians must earn $200,000 a year or less, or $400,000 for joint filers, to claim the full credit for each dependent. The credit is decreased by 5% for every $1,000 earned over those thresholds.
• An increase of the estate and gift tax exemption from $13.99 million to $15 million in 2026. This is per individual.
• Higher Alternative Minimum Tax: new thresholds beginning in 2026 will expand the number of taxpayers subject to the AMT. As a result, couples with income over $1 million are more likely to owe additional tax under these rules beginning in 2026.
• A temporary increase in the SALT deduction cap to $40,000 for 5 years starting in 2025, with a 1% increase per year through 2029.
• A new charitable income tax deduction for non-itemizing taxpayers, allowing deductions of up to $1,000 for single filers and $2,000 for joint filers.
• A new temporary deduction for interest on car loans, which replaces electric vehicle incentives. Taxpayers can deduct up to $10,000 in interest on a loan used to purchase a qualifying vehicle. Certain rules apply, including: the car must be purchased (not leased) between 2025 and 2028, must be for personal use, and final assembly must have occurred in the United States.
• The elimination of the IRS Direct File program.
• Exemptions for tips and overtime pay. Income thresholds apply per the above chart.
• Changes to student loan repayment programs, replacing existing student loan forgiveness with more stringent options.
• New Investment Savings for children – Beginning in July 2026, accounts can be opened for those under age 18 with a maximum contribution of $5,000 per year (with annual inflation adjustments after 2027). Contributions are not tax-deductible but have no impact on the ability to make contributions to any other type of IRA.
  • These accounts may also be funded by select third parties.
    • Employers can contribute up to $2,500 for an eligible employee or their dependent – the contribution will count towards the annual $5,000 limit but is not considered taxable income.
    • The federal government will make an initial $1,000 contribution to accounts for individuals born in 2025 through 2028.
  • General funding contributions can also be made by state, local or tribal governments or charitable organizations, based on eligibility requirements.
  • Before the child turns 18, there are limitations to what the account can be invested in. Distributions are also generally not allowed.
  • After the child turns 18, the account is treated like a Traditional IRA.
• 529 Plan Accounts: The definition of “qualified expenses” for 529 reimbursement has expanded: non-tuition expenses for elementary, secondary, religious, and private school expenses are now allowed, as are expenses for acquiring and maintaining professional credentials. Beginning in 2026, a 529 account can also be used to pay up to $20,000 of elementary or secondary tuition (up from $10,000 currently).
• Employer Educational Assistance: Employers can provide up to $5,250 of educational assistance to employees tax-free. While the inclusion of student loan payments was scheduled to expire after 2025, the bill has made that inclusion permanent. The $5,250 limit will also be adjusted for inflation after 2026.
• Expanded eligibility and new ways to use HSA funds

And that’s just the tip of the iceberg… Shew. While we aren’t certain on the long-term implications of the bill, the passing of the bill provides clarity on the tax rates and several fiscal policies, opening the doors for ongoing planning opportunities and conversations. We know many of our clients will continue to have questions about changes in legislation and both fiscal and monetary policies, and while we may not be able to predict the future, we can create a plan to withstand it.

“Foresight is not about predicting the future, it’s about minimizing surprise.” – Karl Schroeder