How the One Big Beautiful Bill Act May Influence Your Financial Decisions
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made significant changes to the federal tax code. While some provisions took effect in 2025, several important changes become effective in 2026. The law also made permanent many provisions of the 2017 Tax Cuts and Jobs Act that had been scheduled to expire.
For individuals, families, retirees and business owners, the new law provides greater certainty in some areas while creating new opportunities — and some additional complexities — for proactive tax and financial planning.
Here are some of the key changes to know for 2026 and the planning considerations that may accompany them.
Individual Tax Rates Are Now Permanent
One of the biggest questions heading into 2026 was what would happen to the individual income tax rates established under the 2017 Tax Cuts and Jobs Act.
The OBBBA made the current seven individual income tax rates — 10%, 12%, 22%, 24%, 32%, 35% and 37% — permanent.
For 2026, the tax brackets have also been adjusted for inflation. For married couples filing jointly, the 22% bracket begins at taxable income above $100,800, while the 24% bracket begins above $211,400. The top 37% rate begins above $768,700.
Planning Consideration
Greater certainty surrounding future tax rates provides an opportunity to take a more deliberate approach to multi-year tax planning. Consider evaluating the timing of Roth IRA conversions, retirement account distributions, capital gains and other taxable income based on your current and projected future tax brackets rather than focusing on a single tax year.
The Higher Standard Deduction Is Permanent
The larger standard deduction established under the 2017 tax law was also made permanent.
For 2026, the standard deduction is:
- $32,200 for married couples filing jointly
- $16,100 for single taxpayers and married taxpayers filing separately
- $24,150 for heads of household
These amounts will continue to be adjusted for inflation.
Planning Consideration
If your itemized deductions are close to the standard deduction, consider whether bunching deductible expenses into alternating tax years could be beneficial.
Charitable contributions are one area where this strategy may be particularly useful, including potentially funding several years of charitable gifts into a donor-advised fund in a single year.
Additional Deduction for Taxpayers Age 65 and Older
One of the more significant provisions for retirees is an additional deduction for individuals age 65 and older.
For 2026, qualifying taxpayers may deduct an additional $6,000 per eligible individual, or as much as $12,000 for a married couple if both spouses qualify.
This deduction is in addition to the existing additional standard deduction available to taxpayers age 65 and older and is available whether a taxpayer itemizes deductions or claims the standard deduction.
The deduction begins phasing out when modified adjusted gross income exceeds $75,000 for single taxpayers and $150,000 for married couples filing jointly.
The enhanced senior deduction is currently scheduled to remain available through 2028.
Planning Consideration
Because the deduction is subject to income limitations, retirees should consider how IRA withdrawals, Roth conversions, realized capital gains and other income could affect the amount of the deduction they receive.
Income planning should also consider Medicare. Increasing modified adjusted gross income can potentially result in higher Medicare Part B and Part D premiums due to IRMAA surcharges, so tax and Medicare planning should be coordinated.
The SALT Deduction Limit Is Significantly Higher
The federal deduction for state and local taxes, commonly referred to as the SALT deduction, had previously been capped at $10,000.
For 2026, the limit increases to $40,400 for taxpayers other than those married filing separately. The limit is reduced for taxpayers with modified adjusted gross income above $505,000, although it cannot be reduced below $10,000.
The increased SALT deduction is temporary, with the limit scheduled to return to $10,000 in 2030 under current law.
Planning Consideration
Taxpayers with significant property taxes and state income taxes should reevaluate whether they will benefit from itemizing deductions rather than taking the standard deduction.
Higher-income taxpayers should also pay particular attention to the SALT phaseout when considering the timing of income, capital gains, Roth conversions and other taxable events.
529 Plans Become More Flexible for K–12 Education — But Michigan Families Need to Be Careful
Beginning in 2026, federal law significantly expands how families can use 529 education savings plans for elementary and secondary education.
The annual amount that can be withdrawn federally tax-free for qualified K–12 expenses increases from $10,000 to $20,000 per beneficiary across all of the beneficiary's 529 plans.
The law also expands the types of K–12 expenses that qualify under federal law. In addition to tuition, qualifying expenses can include certain:
- Curriculum and curricular materials
- Books and instructional materials
- Online educational materials
- Tutoring by qualifying individuals
- Standardized testing and college-admission testing fees
- Dual-enrollment fees
- Certain educational therapies for students with disabilities
The law also expands the federal use of 529 plans for certain recognized postsecondary credentialing programs.
Important Consideration for Michigan Residents
Michigan taxpayers should be particularly careful before using 529 assets for K–12 expenses.
While these K–12 withdrawals can qualify for tax-free treatment at the federal level, Michigan does not currently provide the same tax treatment.
According to the Michigan Education Savings Program, K–12 withdrawals are subject to recapture of the Michigan income tax deduction and Michigan income tax on the earnings portion of the withdrawal.
Planning Consideration
Before using a 529 plan for K–12 expenses, Michigan families should evaluate the federal benefit against the potential Michigan tax consequences.
Families should also consider the opportunity cost of withdrawing the funds today. Money left in a 529 plan can continue to compound tax-free when ultimately used for qualified expenses.
For families who can comfortably pay K–12 expenses from cash flow, preserving 529 assets for future college expenses may provide a greater long-term benefit.
New Rules for Charitable Giving
Charitable giving rules also change beginning in 2026.
Taxpayers who do not itemize deductions can claim a deduction for qualifying cash charitable contributions of up to $1,000 for individuals and $2,000 for married couples filing jointly.
For taxpayers who do itemize, a new limitation applies. Generally, charitable contributions are deductible only to the extent they exceed 0.5% of adjusted gross income.
Planning Consideration
The new rules make the timing and structure of charitable gifts increasingly important.
Taxpayers may want to consider bunching several years of charitable contributions into one tax year or using a donor-advised fund.
Taxpayers age 70½ or older should also evaluate qualified charitable distributions (QCDs) from IRAs. A QCD may be particularly attractive because a qualifying distribution is excluded from income rather than claimed as an itemized charitable deduction.
Donating appreciated securities rather than cash can also allow investors to support charitable organizations while potentially avoiding recognition of the embedded capital gain.
Estate and Gift Tax Exemption Increases to $15 Million
Rather than allowing the higher exemption established under the 2017 tax law to expire, the OBBBA establishes a $15 million federal estate and gift tax basic exclusion amount per individual for 2026.
The amount will be indexed for inflation going forward.
The annual federal gift tax exclusion remains $19,000 per recipient for 2026.
Planning Consideration
The higher exemption means federal estate taxes will affect fewer families, but that does not eliminate the need for estate planning.
Families should periodically review wills, trusts, beneficiary designations, powers of attorney and healthcare directives.
For families with significant wealth, the higher exemption also provides greater certainty when evaluating lifetime gifting and multigenerational wealth-transfer strategies.
Estate planning should also consider income-tax consequences, particularly the potential step-up in cost basis available for certain appreciated assets held until death. In some circumstances, retaining an appreciated asset rather than gifting it during life may produce a better overall tax result.
The Qualified Business Income Deduction Is Permanent
The Section 199A Qualified Business Income deduction, commonly referred to as the QBI deduction, was scheduled to expire after 2025. The OBBBA makes the deduction permanent.
Eligible owners of pass-through businesses may continue to deduct up to 20% of qualified business income, subject to applicable rules and limitations.
Beginning in 2026, the law also expands certain phase-in ranges and creates a minimum $400 deduction for qualifying taxpayers with at least $1,000 of qualified business income, with those amounts subject to inflation adjustments after 2026.
This can be particularly important for owners of S corporations, partnerships, LLCs and sole proprietorships.
Planning Consideration
Business owners should coordinate their business structure, compensation, retirement-plan contributions and taxable income with their tax professional.
Because eligibility and the amount of the QBI deduction can depend on taxable income, wages, business type and other factors, decisions made elsewhere in a financial plan can affect the ultimate deduction.
“No Tax on Tips” and “No Tax on Overtime”
The law introduced new temporary deductions for certain workers receiving tips or overtime compensation.
Eligible taxpayers may deduct up to $25,000 of qualified tip income, subject to income limitations and other requirements.
Workers receiving qualified overtime compensation may deduct up to $12,500, or $25,000 for married couples filing jointly, subject to applicable requirements and phaseouts.
Despite the shorthand descriptions of “no tax on tips” and “no tax on overtime,” these provisions do not mean that all tips or overtime compensation are completely exempt from every tax. They are federal income tax deductions with specific definitions, eligibility requirements and income limitations.
Both deductions are currently scheduled to remain available through 2028.
Planning Consideration
Workers who may qualify should maintain appropriate records of tips and qualifying overtime compensation and review how the deductions affect their projected federal income tax liability.
Because the deductions are temporary and subject to specific requirements, taxpayers should avoid assuming that all tip or overtime income will automatically be tax-free.
A New Deduction for Certain Car Loan Interest
The law also created a temporary deduction for interest paid on certain qualifying vehicle loans.
Eligible taxpayers may deduct up to $10,000 per year of qualifying car loan interest.
The deduction is available whether or not a taxpayer itemizes deductions. Among other requirements, the vehicle must meet specific eligibility rules, including a requirement that final assembly occur in the United States.
The deduction begins phasing out when modified adjusted gross income exceeds $100,000 for single taxpayers and $200,000 for married couples filing jointly and is currently scheduled to remain available through 2028.
Planning Consideration
If you are considering purchasing a vehicle, determine whether the vehicle and financing arrangement qualify for the deduction before assuming the interest will be deductible.
The potential tax deduction should be viewed as one component of the purchase decision rather than a reason on its own to finance a vehicle.
Changes for Families
Families should also be aware of several other provisions.
The Child Tax Credit was increased to $2,200 per qualifying child beginning in 2025, with the amount indexed for inflation after 2025. Income limitations and eligibility requirements continue to apply.
Beginning in 2026, the Child and Dependent Care Credit also becomes more generous for many qualifying families. The maximum credit rate increases from 35% to 50% of qualifying expenses, with revised income-based phaseouts. The amount of expenses that can be considered remains $3,000 for one qualifying individual or $6,000 for two or more.
The law also created Trump Accounts, a new tax-advantaged retirement account for eligible children. A one-time $1,000 federal pilot contribution is available for qualifying U.S. citizen children born from January 1, 2025, through December 31, 2028, for whom the required election is made. Contributions to Trump Accounts began July 4, 2026.
Planning Consideration
Families now have more tax-advantaged savings choices, but each account serves a different purpose.
Parents and grandparents should consider Trump Accounts, 529 plans, custodial accounts and other savings strategies together rather than evaluating each in isolation.
The appropriate strategy will depend on the child's age, the family's education funding goals, available cash flow, expected use of the funds, investment time horizon and desired level of flexibility.
Bringing It All Together
Tax legislation is important, but the real value comes from understanding how the rules apply to your individual financial situation.
The 2026 changes create potential planning opportunities involving Roth conversions, retirement distributions, charitable giving, capital gains, 529 plans, business income, estate planning and family savings strategies.
Just as importantly, these decisions interact with one another.
For example, a Roth conversion can affect not only your federal income tax bracket but also Medicare premiums and income-based deductions. A charitable contribution can affect your itemized deductions while potentially helping manage capital gains. A 529 withdrawal may qualify for tax-free treatment federally but have different consequences for a Michigan taxpayer.
The Bottom Line: From Tax Changes to Planning Opportunities
The One Big Beautiful Bill Act provides greater certainty around many provisions that had been scheduled to expire after 2025 while also creating new deductions and planning opportunities. But greater flexibility does not necessarily make tax planning simpler.
The most important question isn't simply, “What changed?” It is, “What should I consider doing differently because of the change?”
At Vision Capital Partners, proactive tax planning is already an important part of the financial planning we do with our clients. Throughout the year, we evaluate opportunities and tradeoffs involving Roth conversions, retirement distributions, capital gains, charitable giving, Medicare premiums, education funding, estate planning and other financial decisions. Our goal is to look beyond an individual tax year and understand how today's decisions may affect a client's broader financial plan over time.
As the 2026 tax changes take effect, we will continue working with our clients and their tax professionals to identify planning opportunities based on their individual circumstances and long-term goals.
Not Yet a Client?
If these changes have you wondering whether there are opportunities within your own financial plan, we invite you to start a conversation with us.
Schedule an introductory conversation with Vision Capital Partners to learn more about our financial planning and investment management process and how we can help you make informed decisions about your financial future.
This information is provided for educational purposes only and is not intended as tax or legal advice. Tax laws are complex and subject to change. You should consult with your tax and legal professionals regarding your individual circumstances.
Sources
- Internal Revenue Service, Working Families Tax Cuts — IRS resource center for provisions enacted under the One Big Beautiful Bill Act.
- Internal Revenue Service, 2026 Tax Inflation Adjustments — 2026 tax brackets, standard deduction, estate and gift tax exclusion amounts and other inflation-adjusted provisions.
- Internal Revenue Service, Revenue Procedure 2025-32 — detailed 2026 inflation adjustments and implementation of provisions including individual tax rates, QBI and the estate tax exclusion.
- Internal Revenue Service, Working Families Tax Cuts — Individuals and Workers — senior deduction, tip income, overtime compensation and car loan interest provisions.
- Internal Revenue Service, Publication 505, Tax Withholding and Estimated Tax (2026) — charitable contribution deduction for non-itemizers, 0.5% charitable deduction floor for itemizers and Child and Dependent Care Credit changes.
- Internal Revenue Service, Topic No. 313, Qualified Tuition Programs (529 Plans) — federal rules governing qualified 529 distributions, including the $20,000 annual K–12 limit beginning in 2026.
- Internal Revenue Service, Child Tax Credit — current Child Tax Credit amounts, eligibility requirements and income limitations.
- Internal Revenue Service and U.S. Department of the Treasury, Trump Accounts Guidance — eligibility, contribution rules and the $1,000 federal pilot contribution.
- Michigan Education Savings Program, 529 Plan Benefits and Program Disclosures — federal K–12 529 uses and Michigan-specific tax treatment, including Michigan deduction recapture and state income tax treatment of earnings on K–12 withdrawals.