Wealth Planning Commentary – July 21, 2025

Tactical Tax Planning: Navigating the OBBBA's Key Provisions in the Near Term 

It’s critical to remember that while the OBBBA introduced a plethora of new tax changes, many of its most impactful provisions, particularly those offering significant deductions, are temporary. They are set to expire, predominantly by 2028 or 2029. This limited window underscores the urgency of proactive planning. As we've emphasized, many of the tax breaks under the OBBBA phase out as your Adjusted Gross Income (AGI) climbs, meaning how much income you show on paper—and when—can critically determine your eligibility. 

For the next few years, while these provisions are available, we strongly recommend a more collaborative approach with your accountant. The precise timing and recognition of income and deductions will be paramount. 

Strategic Maneuvering Around the SALT Cap 

Let's begin with the State and Local Tax (SALT) deduction cap, a topic of perennial interest for many of our clients. Under the OBBBA, a unique "tax bomb" scenario emerges for those with Modified Adjusted Gross Income (MAGI). Ideally, you’ll want to keep your MAGI either below $500,000 or strategically above $600,000. For married couples filing jointly, falling into that income band between these two figures can result in a significant loss of the SALT deduction, effectively pushing your marginal tax rate higher than your stated federal income tax bracket. We refer to this as a "tax bomb" because it can disproportionately impact your effective tax rate. This new SALT cap is effective for this current tax year, so immediate action is warranted. 

Optimizing Charitable Giving 

For itemized charitable deductions, the OBBBA, effective next year (2026), introduces a new Adjusted Gross Income (AGI) floor of 0.5%. This means your charitable donations will only be recognized for tax benefit if they exceed 0.5% of your income. While this threshold seems reasonably achievable for many, you may consider bunching several years of donations into one tax year to ensure you clear this floor and maximize your deduction benefit. 

Furthermore, for wealthy clients with high income, the OBBBA also imposes a "handicap" on itemized deductions once your taxable income surpasses $750,000 for married couples filing jointly. To simplify, beyond this threshold, the effectiveness of your charitable deduction will be reduced from what would effectively be 37% to a 35% reduction. This change also takes effect for tax year 2026. Therefore, for those planning substantial charitable contributions, we highly recommend accelerating larger donations to the current tax year, if feasible, to capture the full benefit before the new limitation takes effect. Be mindful that any charitable deductions carried forward to future years will be subject to this new "deduction handicap." 

Maximizing the New Temporary Senior Deduction 

A significant new temporary benefit that could benefit many of our clients, and their parents, is the latest senior tax deduction of $6,000 per individual. This deduction commences this year (2025) and is available through 2028. While it's particularly impactful for middle and lower-income seniors, its phase-out thresholds—beginning at $150,000 and fully phased out at $250,000 for married couples filing jointly—mean that even clients with wealth in the $2-5 million range could potentially still qualify, depending on their income. Importantly, this $6,000 is in addition to the existing senior deduction and the standard deduction. 

Your Tactical Checklist for the Near Term 

Given these pivotal changes, here are our key recommendations for your tactical planning: 

• For Clients Over 65 with Modest Income: We encourage you to meet with your accountant. By carefully managing their AGI, we can help ensure you qualify for the new $6,000 senior deduction. While investment strategy may need slight adjustments, remember our guiding principle: never let the tax tail wag the performance dog. 

• For Wealthy Clients with Significant Charitable Giving: Accelerate larger donations to this tax year to avoid the 2026 deduction handicap. However, be judicious and avoid exceeding the standard AGI limits for the five-year carry-forward, as any carried-forward donations will be subject to the new limitations. 

• For Clients Aiming for Maximum SALT Deductions: Strategically manage your MAGI. If possible, aim to keep your income below the $500,000 threshold to fully benefit from the SALT deduction and avoid the "tax bomb." 

• Time Income Wisely: This remains a foundational pillar of tax planning. If you have flexibility, such as with Roth conversions or the ability to defer income, carefully evaluate the timing of these actions to optimize your AGI in any given year. 
  
  

The OBBBA presents both opportunities and complexities that require vigilant, year-round planning. Please reach out to your Wealth Manager with any questions about these new income tax benefits and how they can be leveraged for your unique financial situation.