Popular Tax Strategies Found Under The One Big Beautiful Bill Act

By: Randall A. Denha, J.D., LL.M.

President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4, 2025. The OBBBA represents a significant overhaul of the U.S. tax system, making permanent many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introducing new tax benefits for individuals and businesses. While this short article will not address each aspect of the OBBBA, it will highlight a few of the popular changes that are impactful for estate planning and wealth transfer purposes.

Increased Federal Estate/Gift Tax and GST Lifetime Exemptions

The federal estate and gift tax exemption for 2025 is currently set at $13,990,000. Initially, the TCJA provisions affecting this exemption were scheduled to expire on January 1, 2026, which would have resulted in the exemption being reduced to approximately $7,000,000. Beginning in 2026, there will be a $15 million federal estate/gift tax lifetime exemption per individual and a corresponding separate $15 million federal generation-skipping transfer tax (GST) lifetime exemption per individual. For married couples, this change effectively allows up to $30,000,000 to be transferred to future generations free of estate tax. Additionally, the generation-skipping transfer (GST) tax exemption will be adjusted to match the increased estate and gift tax exemption. Further, it is important to note three points that have not changed: (i) these exemption amounts will continue to be indexed for inflation, (ii) the unused portion of a decedent’s federal estate/gift tax lifetime exemption continues to be portable to a surviving spouse, if a timely tax filing is made for that purpose, and (iii) the unused portion of a decedent’s federal GST lifetime exemption is not portable to a surviving spouse.

Finally, these exemptions are “permanent” in so far as it would take a new act of a future Congress and president to reduce the exemptions or otherwise change them. That said, given the inherent uncertainty surrounding the future composition of Congress and the White House, these exemptions could be a target for future reductions. As ever, the strategic use of your available exemptions, while they exist, can lead to significant results for your potential estate and beneficiaries.

With the current higher exemption thresholds and increased gift tax exclusions, clients now have a unique opportunity to make significant wealth transfer decisions with greater certainty and reduced tax exposure. As an estate planning attorney, I strongly encourage individuals to revisit their existing plans and consider additional strategies designed to optimize these favorable tax conditions before they potentially sunset. The increased exemptions are particularly advantageous for clients holding assets that are difficult to value, as they provide a larger cushion in the event the IRS challenges reported valuations during an audit.

Now is an ideal time to leverage the expanded gift tax exemption by making strategic gifts to family members and implementing advanced planning tools, including irrevocable trusts. By acting proactively, clients can not only utilize the higher exemption amounts but also remove both the current value and any future appreciation of these assets from their taxable estates — resulting in substantial long-term tax savings and more efficient wealth transfer to future generations.

Loss of Personal Miscellaneous Itemized Deductions for Production of Investment Income

The personal miscellaneous itemized deductions for the production of investment income that were set to return in 2026 are now gone. Expenses that individual taxpayers could once deduct (subject to certain limitations) included investment advisory fees, investment management fees, custodial fees, investment seminars and publications, tax planning, certain tax preparation costs, accounting fees related to investments, certain attorneys’ fees, and numerous other potential itemized deductions. The absence of these personal deductions has led many taxpayers to pursue more formal business structures (e.g., operating companies, family office structures, etc.) in a good faith attempt to appropriately deduct business expenses.

Trump Accounts

The OBBBA introduces “Trump accounts,” a new tax-deferred investment option for children, allowing contributions from parents, relatives, employers, and other entities. Eligible children must be U.S. citizens with a Social Security number, and contributions are capped at $5,000 annually, indexed for inflation. A pilot program provides a $1,000 federal contribution for children born between January 1, 2025, and December 31, 2028, with accounts to be automatically established by the IRS if not opened by the parents.

529 accounts

The OBBBA introduces significant changes to 529 savings accounts, expanding the scope of tax-exempt distributions. Under the new provisions, 529 plan funds can now be used for a broader range of educational expenses related to enrollment or attendance at elementary or secondary public, private, or religious schools. The expanded list of eligible expenses includes tuition, curriculum and curricular materials, books, online educational materials, tutoring, educational classes outside the home, fees for standardized tests, advanced placement exams, college admission exams, dual enrollment fees, and educational therapies for students with disabilities provided by licensed professionals. These changes apply to distributions made after the enactment date of the OBBBA.

Additionally, the OBBBA increases the annual limit for 529 account distributions specifically for K-12 expenses from $10,000 to $20,000. This increased limitation is effective for tax years beginning after December 31, 2025. Furthermore, the OBBBA allows 529 savings plan tax-exempt distributions to cover “qualified postsecondary credentialing expenses,” which include tuition, fees, books, supplies, and equipment required for enrollment in recognized postsecondary credential programs (educational skill-based programs in preparation for specific careers or further academic study). These programs must be listed under specific state or federal guidelines or be accredited by recognized institutions. The changes regarding postsecondary credentialing expenses apply to distributions made after the enactment date.

State and local tax (SALT) Deduction Cap

The OBBBA retroactively increases the SALT deduction cap from $10,000 to $40,000 for 2025. However, the deduction phases out for taxpayers with a modified adjusted gross income (MAGI) over a certain threshold. Under OBBBA, the MAGI threshold is $500,000 in 2025. Further increases are scheduled for subsequent years under OBBBA for both the SALT deduction cap and the MAGI phase out threshold.

For higher-income taxpayers, in tax years before January 1, 2030, the cap is reduced by 30% of the excess of the taxpayer’s MAGI over the threshold amount. The deduction, however, will not be reduced below $10,000.

The individual SALT deduction cap will revert to $10,000 beginning in 2030.

Increased Qualified Small Business Stock Benefits

Previously, Section 1202 Qualified Small Business Stock (QSBS) permitted noncorporate taxpayers that held QSBS for more than five years to potentially exclude all or a portion of the gain realized on the sale or exchange of such QSBS. This exclusion was generally limited to $10 million, or ten times the aggregate adjusted basis of the QSBS issued by the corporation and sold by the taxpayer during the year. “Qualified Small Business Stock” is defined as stock in a C Corporation, acquired at original issue for money, property, or services (not stock). The issuing corporation must be a “Qualified Small Business” and must meet an active business test for substantially all of the taxpayer’s holding period. Through the use of certain non-grantor trusts, the benefit of the foregoing limitations could potentially be multiplied through a process known as “stacking.”

Section 1202 QSBS has been significantly improved through three main amendments under the OBBBA:

1. Change in Holding Period: Prior to the OBBBA, a taxpayer had to hold QSBS for more than five years to obtain Section 1202 benefits. There are now three different holding periods that provide taxpayer benefits:
   1. 50 percent exclusion for QSBS held for at least three years but less than four years;
   2. 75 percent exclusion for QSBS held for at least four years but less than five years; and,
   3. 100 percent exclusion for QSBS held for at least five years (the existing benefit).
2. Change in the Per-Taxpayer (Issuer) Gain Exclusion Limitation: This limitation was raised from $10 million to $15 million per Taxpayer, representing a 50 percent increase in exclusion.
3. Change in Aggregate Gross Assets Threshold: This limitation was increased from $50 million to $75 million, potentially permitting QSBS to be issued for a longer period of time.

Moving forward, the Per-Taxpayer Gain Exclusion and Aggregate Gross Assets Threshold will be adjusted for inflation starting in 2027, which will further increase the planning opportunities for appropriately structured and maintained Section 1202 stock. Founders of new startups should carefully consider the most beneficial choice of entity and tax status. The expansion of the qualified small business stock exclusion is a factor to consider that may make C Corporation tax status advantageous for certain founders expecting a sale after at least three years.

Changes to Charitable Income Tax Deductions If you are a taxpayer in the top 37 percent income tax bracket who itemizes on your personal income tax return, you might consider accelerating significant charitable gifts into the 2025 tax year. Effective January 1, 2026, the OBBBA imposes a maximum deduction for itemized charitable deductions at 35 percent—down from 37 percent under current law—even for those taxpayers who are in the 37 percent bracket. Additionally, beginning in 2026, individuals who itemize will not receive a charitable deduction until aggregate charitable contributions exceed 0.5 percent of Adjusted Gross Income (AGI). So, if an individual has $1,000,000 of AGI, the first $5,000 of contributions to charity will not qualify for a deduction. All contributions to charity over and above that floor will be eligible for a charitable deduction subject to the other applicable limitations.