Year-end Planning Discussions

What is OBBBA?

OBBBA stands for the One Big Beautiful Bill Act.

In simple terms: It’s a large federal tax and budget law that made major changes to the tax code, including rules around charitable giving, business deductions, and individual taxes. When you see references like “post-H.R. 1 (OBBBA),” it means after the changes made by that law took effect.

Why Does OBBBA Matter?

OBBBA is a major tax law that has reshaped how individuals & businesses plan for taxes.

🔑What to Know🔑

Charitable planning post-H.R. 1 (OBBBA)

• You can’t always deduct all your donations in one year.

  • Tax law limits how much of your charitable giving you can deduct based on your income. If you give more than allowed, the extra amount isn’t lost.

• Extra donations can be used later.

  • Any donation amount you can’t deduct this year can be carried forward and used as a deduction over the next five years, as long as you stay within the income limits.

• There’s a new small reduction if you itemize deductions.

  • If you itemize, your total charitable deduction is automatically reduced by 0.5% of your income (AGI).

  • Example: If your income is $500,000, then $2,500 of your donations is not deductible.

  • If you donated $10,000, only $7,500 can be deducted that year.

• That reduction doesn’t disappear—it carries forward too.

If part of your donation is disallowed because of income limits or the new 0.5% reduction, that amount can still be carried forward to future years.

Bottom line: Charitable giving is still deductible, but there’s now a small built-in reduction for people who itemize, and any unused deductions can be spread out over up to five future years.

Charitable planning post-H.R. 1 (OBBBA) Planning Ideas

• Give in bigger chunks to save more on taxes.

  • Instead of donating the same amount every year, it can make sense to donate a larger amount in one year so you can itemize deductions and get a bigger tax break.

  • Example: Give $100,000 once every five years instead of $20,000 each year.

• Even non-itemizers get a small tax break starting in 2026.

  • If you take the standard deduction, you may still deduct:

  • $1,000 per person, or

  • $2,000 for married couples

for charitable donations.

• Use special giving accounts to boost deductions

  • Donor-advised funds or private foundations let you claim a tax deduction now while spreading donations to charities over time. These are especially helpful in 2025.

• More people may benefit from itemizing now.

  • Because the state and local tax (SALT) deduction is higher, some people who didn’t itemize before may now save money by doing so.

• Step one: know whether you’ll itemize.

  • The best way to give depends on whether you’ll itemize in the year you donate—or whether combining donations into one year makes more sense.

Bottom line: When and how you donate matters. Smart timing and planning can significantly increase the tax benefit of your charitable giving.

Sec. 199A: What has Changed & Why it Matters?

• The 20% small business deduction is here to stay.

  • The tax break that lets eligible business owners deduct up to 20% of their business income is now permanent—it won’t expire after 2025.

  • Why that’s important: Business owners can plan long-term without worrying that this deduction will suddenly go away. It also works alongside other business tax rules, like equipment write-offs and interest limits.

• There’s now a guaranteed minimum deduction starting in 2026.

  • If you actively earn at least $1,000 from a qualifying business, you’ll get at least a $400 tax deduction, even if 20% would be less.

• Who can use this deduction? It applies to:

  • Individuals who own pass-through businesses (LLCs, partnerships, S-corps)

  • Trusts & estates

  • Certain investment income, including some REIT dividends & publicly traded partnership income

Bottom line: This change gives small business owners more certainty and guarantees a meaningful tax break for qualifying business income.

Maximize the QBI Deduction

• There’s an income level where the rules change.

  • In 2025, if your taxable income goes above:

    • $394,600 (married filing jointly)

    • $197,300 (single)

the IRS starts limiting how big your QBI (Qualified Business Income) deduction can be.

• Your deduction becomes tied to wages.

  • Once you pass those income levels, your QBI deduction is capped at the lower of:

    • 20% of your business income, or

    • 50% of the wages your business pays.

• Why pay matters:

  • If your business pays very little in wages (to you or employees), your QBI deduction could shrink—even if the business earns a lot.

• What the “2/7 Rule” is:

  • It’s a rule of thumb that helps decide how much salary or wages the business should pay to get the biggest possible QBI deduction. Paying too little can limit the deduction; paying the right amount can help maximize it.

    
    

Bottom line: Once your income is high enough, how much your business pays in wages directly affects how big your tax break is, and the 2/7 rule helps find the right balance.

Planning Checkpoints for 2025–2026

Income Thresholds by Filing Status

Filing Status	Income for Full Deduction	Phaseout Begins	Deduction Eliminated (SSTB Only)
Single	$197,300	$197,300	$247,300
Married Filing Jointly (MFJ)	$394,600	$394,600	$494,600
Head of Household (HOH)	$197,300	$197,300	$247,300
Married Filing Separately (MFS)	$197,300	$197,300	$247,300

5 Important Takeaways:

1. Time your income and deductions

Goal: Keep your taxable income lower in high-tax years.

• Defer income: If you can, push income into next year (delay bonuses, invoices, or distributions)

• Accelerate deductions: Pull expenses into this year (pay business costs, state taxes, charitable gifts sooner)

• Why it matters: Staying below or toward the lower end of a phaseout range preserves deductions, credits, and lower tax rates that disappear as income rises. Make income show up later, and deductions show up sooner—when it helps you most.

  
  

2. Use entity-level SALT (PTET) if available

Goal: Get around the $10,000 SALT deduction cap.

• If you own a pass-through business (S-corp or partnership), many states allow the business—not you personally—to pay state income tax.

• This is called PTET (Pass-Through Entity Tax).

• The business deducts the tax before income hits your return, instead of you being stuck with the Schedule A cap.

Why it matters: You preserve a full federal deduction that would otherwise be limited or lost.

3. Max out retirement plans strategically

Goal: Shelter large amounts of income from current taxes.

• 401(k): Max employee + employer contributions.

• Cash balance plan (if applicable): Allows much larger tax-deductible contributions, especially for higher earners.

• Often used together for business owners.

Why it matters: This can defer hundreds of thousands of dollars from current taxation while still benefiting you personally.

4. Don’t forget HSAs

Goal: Triple tax advantage.

• Contributions are deductible.

• Growth is tax-free.

• Withdrawals for medical expenses are tax-free.

  
  

Why it matters: An HSA is one of the best tax shelters available—treat it like a stealth retirement account.

5. Be smart about charitable giving

Goal: Get more tax benefit from gifts you already want to make.

• Bunching: Combine multiple years of donations into one year to exceed the standard deduction and actually get a tax benefit.

• QCDs (Qualified Charitable Distributions): If over 70½, donate directly from an IRA to satisfy RMDs without increasing taxable income.

Why it matters: You give the same amount, but the IRS takes less.

🔑 Manage when income hits, where deductions happen & how savings and giving are structured—so more of your money stays working for you instead of going to taxes.

Individual Provisions — SALT Cap Overhaul

SALT Deduction Cap Overview:

Item	Details
Old Law	State and local tax (SALT) deduction capped at $10,000 for all taxpayers
New Cap Amounts	$40,000 in 2025 $40,400 in 2026 Increases by 1% annually through 2029
Reversion	SALT deduction cap returns to $10,000 in 2030
Income Phase-Down	SALT cap reduced to $10,000 for taxpayers with MAGI over $500,000
Phase-Down Rate	Reduction equal to 30% of MAGI in excess of $500,000
AMT Limitation	SALT deductions are not allowed for taxpayers subject to AMT
🔑 Key Takeaway	Higher SALT caps do not benefit taxpayers subject to AMT

PTET (Pass-Through Entity Tax) — In Simple Terms

• Business owners can choose to have state income taxes paid by the business, instead of paying them personally.

• The business deducts the tax as an expense, which lowers the business’s taxable income.

• The owner then gets a credit on their state tax return for the taxes the business already paid.

• In some states, the tax is fully handled at the business level, and the owner doesn’t have to report that income on their state return at all.

  
  

Why this matters: It helps business owners get a full federal tax deduction that would otherwise be limited or lost.

Business Provisions

Bonus Depreciation

• Businesses can immediately deduct 100% of the cost of qualifying equipment and assets.

• Applies to assets placed in service after January 19, 2025.

• This rule is permanent (not scheduled to phase out).

Why this matters: You get the tax benefit upfront instead of spreading it out over many years.

Section 179 Expensing

• Businesses can expense up to $2.5 million of qualifying purchases right away.

• The deduction begins to phase out once total purchases exceed $4 million.

Why this matters: Smaller and mid-sized businesses can fully write off major investments quickly.

🔑 These rules let businesses recover costs faster, taxable income sooner & improve cash flow.