The New Tax Law: What My Clients Need to Know

Congress passed sweeping tax legislation that will significantly impact how much you pay in taxes over the next several years. If you're a high earner or or high net worth individual, some of these changes will help your bottom line, while others are less helpful. Let me break down what matters most for your situation.

The Good News: Provisions That Will Help You

SALT Cap Relief (Finally!)

This is probably the biggest win for my California clients. The state and local tax (SALT) deduction cap is temporarily increasing from $10,000 to $40,000 starting in 2025, with inflation adjustments through 2029.

Here's how it works: Starting with your 2025 taxes, the cap will be $40,000, then increase by 1% annually through 2029. After that, it drops back to $10,000 in 2030. There's a phasedown if your modified adjusted gross income exceeds $500,000 (also inflation-adjusted), but even then, your SALT deduction can never go below $10,000.

For my California and New York clients paying $20,000+ in state income taxes plus hefty property taxes, this change alone could save thousands annually. And importantly, the bill doesn't limit the passthrough entity tax workarounds many business owners have been using, so those strategies remain viable.

Doubling of the Estate Tax Exemption has been Permanently Extended

The estate tax exemption is permanently increasing to $15 million per person ($30 million for married couples) starting in 2026, indexed for inflation thereafter. This eliminates the fear that the estate tax exemption would revert to the lower levels at the end of this year.

100% Bonus Depreciation Returns

For businesses making certain capital purchases, owners may now deduct the full value of that capital investment in the first year instead of spreading it out over time.

Business Income Deduction Becomes Permanent

The Section 199A qualified business income deduction is now permanent at 20%. For my self-employed and 1099 clients, this continues to provide significant tax savings.

The main income thresholds for QBI limitations remain the same (around $192,000 for singles and $384,000 for married couples in 2024), but the bill makes a technical improvement to how the wage and property limitations are phased in within those ranges. This change primarily helps businesses that are subject to the wage/property tests by making the transition smoother.

There's also a new minimum deduction of $400 for taxpayers with at least $1,000 of qualifying business income from active participation.

Qualified Small Business Stock Gets Better

If you are an entrepreneur or angel investor, the Section 1202 exclusion for qualified small business stock is getting more generous. For stock acquired after the bill's enactment and held for at least four years, the exclusion increases from 50% to 75%. Hold it for five years or more, and you get 100% exclusion – meaning potentially tax-free gains on qualifying investments.

Alternative Minimum Tax Relief

The higher AMT exemption amounts from the Tax Cuts and Jobs Act are now permanent. However, there's a catch – they're increasing the phaseout rate from 25% to 50% once you exceed the thresholds ($500,000 for singles, $1 million for married couples).

The Not-So-Good News: Provisions That Might Impact You

Itemized Deductions Face New Limits

While the old Pease limitation on itemized deductions is permanently eliminated, it's being replaced with a new limitation. Your itemized deductions will be reduced by 2/37 of the lesser of your total itemized deductions or the amount of your taxable income that exceeds the start of the 37% tax bracket.

The effect is that if you are in the 37% tax bracket, your marginal tax rate is 37% but your deductions will only be reducing your tax bill as though you were in the 35% bracket.

This tax rate impacts earners making $609,351 for single filers or $731,201 for married couples filing jointly.

Charitable Giving Gets More Complicated

For those who itemize, there's now a 0.5% floor on charitable contribution deductions. This means you can only deduct charitable contributions that exceed 0.5% of your AGI. For example, if your AGI is $500,000, only charitable contributions above $2,500 would be deductible - effectively eliminating the tax benefit for smaller gifts.

However, there's a silver lining for some – non-itemizers can now deduct up to $1,000 (singles) or $2,000 (married filing jointly) for charitable contributions.

Mortgage Interest Deduction Stays Limited

The $750,000 limit on mortgage interest deductions is now permanent, along with the exclusion of home equity interest. This isn't good news – it makes permanent a cap that didn't exist before 2017, when you could deduct interest on up to $1 million in mortgage debt. And unlike many other provisions, this cap isn't indexed for inflation, meaning it becomes more restrictive over time as home prices rise.

Clean Energy Credits Are Going Away

If you've been taking advantage of electric vehicle credits, solar credits, or other clean energy incentives, most of these are being terminated between 2025 and 2028. The residential clean energy credit ends after 2025, and the clean vehicle credit terminates for vehicles acquired after September 30, 2025.

Other Notable Changes

Standard Deduction Increases

The standard deduction is permanently increased to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married filing jointly, with inflation adjustments going forward. This is retroactive to 2025.

New Savings Accounts for Kids

The bill creates a new type of IRA for children under 18, with a $5,000 annual contribution limit. There's a $1,000 tax credit for opening accounts for children born between 2025 and 2028.

529 Plans Get More Flexible

529 plans can now be used for additional categories of elementary and secondary school expenses. In addition, it doubles the annual withdrawal limit for K-12 education spending from $10,000 per year to $20,000 per year.

Higher 1099 Reporting Threshold

The threshold for 1099 reporting increases from $600 to $2,000, reducing paperwork for small contractor jobs.

What This Means for Your Planning

The temporary nature of many provisions (especially the SALT cap increase) creates opportunities for tax planning. If you're in a high-tax state, you'll want to maximize the benefit of that higher SALT cap while it lasts from 2025-2029. However, it’s possible the cap will be extended again in 2029.

For retirees, the permanent estate tax exemption increase simplifies estate planning significantly. Many clients who were worried about estate taxes can now optimize other aspects of their wealth transfer strategies.

The changes to itemized deductions and charitable giving rules will require us to run new calculations to optimize your tax situation. What worked in previous years might not be the best strategy going forward.

Next Steps

We’ll continue to monitor changes and news as the dust settles from the passage of this bill. For my clients, we will do an October Review to identify any critical steps to maximize your after-tax income.