by Amanda O'Brien | Accounting News, News, Newsletter, Tax, Tax Planning, Tax Planning - Individual
President Trump’s One Big Beautiful Bill (OBBB) introduced several tax changes designed to boost take-home pay and simplify the tax code. Some major adjustments include nontaxable income, gift limits, estate tax exemption, and overtime deductions. Here’s a look at these changes and how they could affect your taxes.
Nontaxable Income
Nontaxable income is income that is excluded from federal taxation by the IRS. Some examples include child support, alimony, workers’ compensation, financial gifts, disaster relief payments, and Roth IRA contributions (not gains). In an effort to simplify tax filings and increase take-home pay for workers, the OBBB broadens the scope of what is treated as “nontaxable” for certain types of income, specifically tips and qualified overtime.
Overtime Pay
Before the OBBB, overtime pay was fully taxable. It was counted as part of a worker’s regular wages for federal income tax. The OBBB implemented a deduction of up to $12,500 ($25,000 for joint filers) in overtime pay. This lowers taxable income for hourly and shift workers. However, this deduction is only valid from 2025 through 2028.
The deduction phases out above $150,000 MAGI (modified adjusted gross income) for single filers and $300,000 for joint filers.
Tip Income
Under the OBBB, eligible workers can deduct up to $25,000 annually from taxable income for “qualified tips.” To qualify, tips must be paid via cash, check, debit or credit card, or electronic payments through an app. Again, this is valid from 2025 through 2028, and tips are still subject to Social Security and Medicare taxes.
It’s important to point out that automatic gratuities, such as those added to large parties, are not considered voluntary, so they won’t qualify for the deduction.
Gift Limits
The annual federal gift tax exclusion increased from $18,000 to $19,000 per individual, meaning a financial gift up to that amount won’t trigger taxes or filing requirements for the benefactor or the recipient.
Estate Tax Exemption
The federal estate tax exemption is the amount that can be passed to heirs without federal estate tax. Beginning in 2026, this amount is increasing from $13.99 million to $15 million per person. This means that married couples can shield up to $30 million from federal estate tax. This exemption is permanent and is tied to inflation, so the limit will rise over time, giving families the ability to pass on more wealth tax-free.
With the OBBB legislation, lawmakers set out to make the tax code simpler and more worker-friendly, with more income treated as nontaxable or deductible, higher gift and estate tax thresholds for family wealth transfers, and some relief for overtime earners and tip workers. It’s not a total overhaul, but these changes could lead to a less painful tax season for some taxpayers.
by Stephen Reed | Accounting News, News, Newsletter, Tax, Tax Planning
After Donald Trump’s win in November, taxpayers are wondering how a second Trump term could reshape U.S. tax policy. Trump’s first term saw sweeping changes under the Tax Cuts and Jobs Act (TCJA) of 2017. With key provisions of that legislation set to expire in 2025, Trump’s proposals offer a glimpse of his tax priorities. From significant individual tax cuts to business-friendly policies, here’s what you need to know.
The Expiration of the 2017 Tax Cuts
The TCJA lowered tax rates across the board, nearly doubling the standard deduction—which eliminated the need for itemized deductions—and capping the state and local tax (SALT) deduction at $10,000. These changes contributed to lower tax bills for many Americans. However, the individual tax cuts were temporary and are set to expire at the end of 2025 unless Congress acts to extend them.
If re-elected, Trump has indicated that extending or making these provisions permanent would be a top priority. Without an extension, taxpayers could see higher marginal tax rates, a reduced standard deduction, and the return of personal exemptions.
Removing the $10,000 SALT Deduction Cap
The SALT deduction, which allows taxpayers to deduct state and local taxes on their federal tax returns, became a testy issue after the TCJA imposed a $10,000 cap. This change particularly affected residents in high-tax states like New York, California, and New Jersey.
Trump has proposed removing the cap, a move that would benefit taxpayers in those states while potentially increasing the federal deficit. Critics argue that eliminating the cap would disproportionately benefit higher-income households, but supporters see it as a necessary adjustment to provide relief to middle- and upper-income earners in high-tax areas. Steven Moore, a senior economic advisor to Trump, recently floated the idea of doubling the cap to $20,000 as a potential compromise.
Eliminating Taxes on Social Security and Tip Income
Currently, up to 85% of Social Security benefits can be taxable, depending on your income level. Trump’s tax plan consists of eliminating these taxes, which would provide retirees with additional financial security. Trump has also floated the idea of eliminating taxes on tips, which would increase take-home pay and simplify tax compliance for hospitality and service industry workers. However, this proposal has sparked discussion over the potential impact on tax revenue and fairness in the tax code.
Reducing the Corporate Tax Rate
The TCJA decreased the corporate tax rate from 35% to 21%, which rendered the U.S. more competitive globally. Trump has suggested lowering the rate even more, potentially to 15%. Those in favor of this plan say that it could spur economic growth and encourage domestic investment, while critics are concerned about increasing the federal deficit.
Trump’s Tariffs
Trump has been clear on his stance on tariffs. During his first term, Trump imposed tariffs on various goods, particularly from China. Tariffs are not taxes in the traditional sense, but they can indirectly affect taxpayers by increasing the cost of goods and services. Businesses often pass these costs onto consumers, so households, particularly those in middle- and lower-income brackets, could feel the strain of tariffs.
