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The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing. Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.
Winners and Losers of the OBBBA
Hi. This is Chris Beale with New England Capital. Can you stand one more Blog about the tax and spending bill recently passed known as the One Big Beautiful Bill Act (OBBBA)?
This 887 page, sprawling bill narrowly passed both houses of congress. It has many components and affects every taxpayer, which is why several of us at New England Capital have covered different pieces in previous blogs.
Being such a large bill there’s plenty to like and dislike for all of us. I will attempt to cover some positive aspects as well as expose some potential pitfalls.
The positive word about the law is Certainty. Prior to its passage, it was extremely difficult for us to plan for you. We now have clarity with not just income taxes, but with estate taxes, business and corporate taxes as well as rules around education accounts and more. This was one of the most difficult years to provide sound guidance to you. Now that we know the rules we can better see the opportunities and threats as we develop and design your financial plan.
So, who wins under the OBBBA? Remember this is not a comprehensive list by any stretch.
First, all taxpayers who faced higher income tax rates that were in place prior to the passage of the Tax Cuts and Jobs Act of 2017. Now the current tax brackets no longer have an expiration date and are permanent. Well, permanent in the sense that it would take another act of congress to change the law. The highest income earners will continue to experience a 37% marginal rate.
High net worth individuals and families will benefit from the permanent and increased lifetime gift and estate tax exemption of $15 million this year, and will be indexed for inflation here after.
Residents of high tax states (like Connecticut) could benefit from a significant increase in the State and Local Tax deduction, also known as the SALT deduction. The deduction increases from $10,000 to $40,000 but will phase out for higher income earners.
Families with children will see expanded benefits. The child tax credit increases by $200 to $2200. “Trump Accounts” have as been created allowing $5000 contributions for children born in 2025 through 2028. Rules here a some what complicated so call us for more information.
Seniors aged 65 and older benefit from a $6000 deduction, which when combined with the existing standard deduction can mean a $23,750 deduction for individuals and $47,700 for couples married filing jointly. This is subject to income limits and will phase out in 2029.
Workers earning tips and overtime will get a break. The law exempts the first $25,000 of tip income. This could have limited benefits as about one third of tipped workers have income low enough that they don’t file federal income tax returns. $12,500 in overtime wages can be deducted, but again this is subject to income limits, and tips and overtime features also expire in 2029.
I won’t cover the education opportunities nor the car loan deductions since they have been covered in previous blogs by Matt Carrares and Chris Lee.
Corporations are winners with the law making the 21% top tax bracket permanent, avoiding reverting to a top bracket of 35% if the OBBBA didn’t pass. The fossil fuel industry benefited from provisions in the law.
So, who lost in this law? Again, this isn’t designed to be a comprehensive list.
People relying on social safety nets could receive less benefits. Medicaid and SNAP recipients face new restrictions. Pre-enrollment verification of income, immigration status, health coverage, residence and family size will be required prior to getting benefits.
Abled bodied adults will be required to prove they work, are engaged in community service, or are receiving training of at least 80 hours per month to maintain their Medicaid eligibility.
The Act also ends a tax credit boost for the Affordable Care Act, making health insurance more expensive for many low-income Americans.
Some immigrants may no longer qualify for assistance. Some refugees, asylum seekers, and victims of trafficking may not qualify for assistance.
Private universities with large endowments face a steep tax hike ranging from 1.4% up to 8%. This could potentially impact research funding and student financial aid.
My kids. Future generations could be saddled with the burden of paying an increased National Debt. The act is estimated to increase budget deficits by $3.25 trillion between 2025-2034 according to the non-partisan Congressional Budget Office. Even with $1.5 trillion in gross spending cuts this means an increase of an additional $5 trillion on top of our existing budget deficit of $37 trillion each of us owes now. I’d like to say that our elected officials in Congress and the White House spend our money like drunken sailors. But that insults drunken sailors, because even a drunken sailor knows to stop spending when he runs out of money.
As you can see, the OBBBA provides long term tax relief for some, but imposes additional cost on others. Whenever the tax landscape changes, it’s a good time to review and to understand how you may be affected and what, if any, changes you should consider.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.com. Please Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.