New Tax Law Opens the Door to Tax-Saving Opportunities
The recently passed One Big Beautiful Bill Act of 2025 unlocks a mix of permanent tax rate certainty, estate and gift tax preservation, and adjusted deductions. With all the changes in the bill, it places a premium on tax planning. Here are several tax planning moves to consider with the changes now in place.
Consider the higher SALT deduction. The amount of state and local taxes (SALT) you can deduct is now capped at $40,000 through 2029. Because this cap is scheduled to return to $10,000 in 2030, consider bunching state tax payments (and other itemized deductions such as charitable contributions) into one year to take advantage of this temporary higher threshold. Further, if you have a small business that is a flow thru entity (taxed on your personal tax return), conduct a planning exercise to see the impact of this change.
Review expanded 529 plan benefits. The annual tax-free withdrawal limit for K-12 tuition is doubled to $20,000 per student beginning in 2026. In addition, eligible expenses now go far beyond tuition. You can now use 529 funds for books, online learning materials, tutoring, homeschooling costs, and educational therapies for children with disabilities. By contributing strategically and timing withdrawals, families can fund a wider range of educational needs while keeping growth and withdrawals tax-free.
Understand the new charitable contribution rules. Starting in 2026, charitable deductions only apply to the portion of your donations that exceeds 0.5% of your income. For example, if you earn $100,000 and give $20,000 to charity, the first $500 (0.5% of your income) isn’t deductible. You can deduct the remaining $19,500 if you itemize your deductions. The new law also reintroduces above-the-line charitable donations beginning in 2026 of $1,000 ($2,000 joint filers) whether you itemize deductions or take the standard deduction. So take a pencil to your charitable giving to account for these changes.
Fine-tune your step-up basis strategy. With the higher estate tax exemption now permanent, many families now won’t face federal estate taxes. This news makes crafting step-up in basis strategies far more important. Consider focusing on how to structure your assets to minimize capital gains taxes by maximizing the step-up basis after you pass away, which can erase unrealized gains for your heirs. Strategies like holding appreciated assets until death, carefully timing asset sales, and using trusts designed for basis management can deliver longer-term tax savings.
Keep an eye on state tax changes. Many states conform, either fully or partially, to the Internal Revenue Code, but they don’t always update their rules immediately or in the same way. Some states may adopt the new bill's provisions, while others may reject or modify them to protect revenue or align with local policy goals. These differences can directly affect your tax planning, as the interaction between federal and state rules can impact the value of your deductions and the timing of income.
Reevaluate your estimated taxes. If you’re self-employed or own a business, consider reviewing your estimated tax liability for 2025. With the new tax law increasing many deductions, you may owe less tax than you originally projected. Adjusting your third and fourth quarter estimates can free up cash flow, prevent overpayments, and ensure your money isn’t sitting with the IRS interest-free.
Now is the time to revisit your 2025 tax plan with new rules and expanded deductions now in play. Please call if you have any questions about your specific tax planning approach.