Big Bill, Big Changes: How the OBBBA Impacts You

Back in July, Congress passed the One Big Beautiful Bill Act (OBBBA) — a wide-ranging piece of legislation that introduces significant updates to the tax code, education savings, estate planning, and more. The changes it brings are substantial and could have a meaningful impact on your financial strategy. At Woodward Financial Advisors, we’ve been combing through the fine print, digging into the 800+ pages to understand how these updates will affect our clients. From new deductions and expanded savings options to estate tax adjustments and charitable giving rules, there’s a lot to unpack.

Here are some of the key highlights and what they could mean for your financial plan:

Tax Brackets: Permanent Rates and Inflation Adjustments

The seven Federal income tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) are now permanent, eliminating the sunset provision from the 2017 Tax Cuts and Jobs Act.

Starting in 2026, the 10% and 12% brackets will receive an extra inflation adjustment, meaning slightly higher income thresholds — a few hundred to a couple thousand dollars more, depending on filing status.

While the tax cut is modest, it offers some relief for middle-income households. Importantly, the gap between ordinary income and capital gains brackets is widening, which means we’ll be paying close attention to the timing of Roth conversions and capital gain harvesting.

Standard Deduction: Bigger Breaks for All, Bonus for Seniors

Beginning in 2026, the standard deduction increases to:

· $15,750 (Single)

· $23,625 (Head of Household)

· $31,500 (Married Filing Jointly)

And for seniors age 65 and older, there’s a new temporary extra deduction from 2025–2028:

· $6,000 per person

· $12,000 per couple (if both are 65 or older)

This phases out for incomes above $75,000 (Single) and $150,000 (Married Filing Jointly), making timing important for retirees.

This change continues the Tax Cuts and Jobs Act’s shift away from personal exemptions toward a larger standard deduction.

529 Education Savings: Expanded Uses and Higher Limits

OBBBA significantly broadens the scope of qualified expenses for 529 plans:

· K–12 expenses now include: textbooks, curriculum, tutoring, testing fees, AP/college entrance exams, and educational therapy for students with disabilities.

· Postsecondary expenses now include: industry-recognized credentials, licensing and certification programs, apprenticeships, and even CFP exam and continuing education costs.

Additionally, starting in 2026, the annual limit for K–12 expenses increase from $10,000 to $20,000, giving families more room to use these funds for a broader range of educational needs.

Qualified Business Income Deduction (QBI): A Win for Small Business Owners

The 20% Qualified Business Income (QBI) deduction is now permanent, with a few enhancements:

· Slightly higher phaseout thresholds for high earners.

· A new $400 minimum deduction for anyone earning at least $1,000 in active business income, starting in 2026.

Estate and Gift Taxes: Increased Exemptions for Wealth Transfer

Starting in 2026, the estate tax exemption rises to:

· $15 million per person

· $30 million per couple

These amounts will adjust for inflation over time.

Charitable Giving and Deductions: New Rules for Donors

OBBBA introduces several changes:

· For taxpayers in the 37% bracket, itemized deductions are now capped so their effective value doesn’t exceed 35%.

· Starting in 2026, charitable contributions must exceed 0.5% of adjusted gross income (AGI) to be deductible.

· A new charitable deduction for non-itemizers allows up to $1,000 (Single) / $2,000 (Married Filing Jointly) in cash donations to be deducted without itemizing.

Auto Loan Interest: A Rare Personal Deduction Opportunity

From 2025–2028, taxpayers can deduct up to $10,000 in interest paid on personal auto loans, but only for new vehicles assembled in the United States. Income phaseouts begin at:

· $100,000 (Single)

· $200,000 (Married Filing Jointly)

This is a rare opportunity to deduct personal interest, which is typically not allowed under current tax law.

Child Tax Credit and Trump Accounts: New Benefits for Families

· The Child Tax Credit increases to $2,200 per child, indexed for inflation.

· Parents who open a Trump Account for children born between January 1, 2025, and December 31, 2028 will receive a $1,000 federal deposit. These accounts allow tax-deferred growth and tax-free withdrawals for education, first-time home purchases, or starting a business.

State and Local Tax Deduction Cap (SALT): Increases to Watch

· The SALT deduction cap increases to $40,000 for filers earning less than $500,000 in 2025, with a 1 percent annual increase through 2029. It reverts to $10,000 in 2030 unless extended.

Additional Deductions for Workers: Relief for Tips and Overtime Pay

OBBBA introduces new deductions for certain types of income:

· Up to $25,000 deduction for qualified tips

· Up to $12,500 (Single) / $25,000 (Married Filing Jointly) deduction for qualified overtime pay

These deductions are available from 2025–2028 and phase out at $150,000 (Single) / $300,000 (Married Filing Jointly). They apply to both itemizers and non-itemizers, offering broader access to tax relief.

What This Means for You

If you're working and building your savings:

· Use the larger standard deduction to reduce taxable income

· Take advantage of expanded 529 plans

· Benefit from new deductions for tips and overtime pay (if applicable)

If you're retired or nearing retirement:

· Use the temporary senior deduction for couples age 65 and older

· Higher estate tax exemptions provide more flexibility for wealth transfer planning

If you're a high-income earner:

· Benefit from permanent business income deductions and increased estate tax exemptions

· Watch for new limits on itemized deductions and changes to charitable giving rules

So what’s the bottom line? The One Big Beautiful Bill Act brings a wide range of changes that will make tax planning more nuanced. The timing of deductions, gifts, conversions, and income will play a bigger role in shaping your financial strategy. But with change comes opportunity. If you're wondering how

these updates might affect your situation or how to take advantage of them, reach out to your team at Woodward. We're here to help you navigate the changes and make the most of what’s ahead!