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Significant Tax Changes from the One Big Beautiful Bill Act (OBBBA)

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1. 2017 Tax Cuts Made Permanent

Makes the 2017 Tax Cuts and Jobs Act (TCJA) tax brackets and standard deduction permanent for all taxpayers, preventing any scheduled tax increases for tax year 2026. Higher rates are now permanently removed.

2025 Tax Bracket Comparison: "Old" vs. OBBBA (Made Permanent)

Note: These are 2025 inflation-adjusted federal tax brackets. Under OBBBA, Tax Cuts and Jobs Act's (TCJA) lower rates and structure are made permanent and will continue to adjust annually for inflation.

 

Higher Standard Deduction Made Permanent - Comparison: 2024 vs. 2025 and Following

Standard Deduction by Filing Status

 

2025 Senior Tax Deduction Summary - Effective for Tax Year 2025

This table summarizes the total federal tax deduction available to senior taxpayers (age 65 and older) under OBBBA for the tax year 2025. The new $6,000 senior above-the-line deduction (up to $12,000 per couple) is in addition to the standard deduction and the traditional age-based extra deduction.

All 2025+ standard deductions are indexed for inflation. 

 

2. $2,200 Child Tax Credit - Effective for Tax Year 2025

Raises the child tax credit to $2,200 per child. The refundable portion of the credit, referred to as the Additional Child Tax Credit (ACTC), is adjusted for inflation and, for the 2025 tax year, is set at $1,700. Credit begins to phase out for taxpayers with adjusted gross income (AGI) in excess of $400,000 in the case of married taxpayers filing jointly and $200,000 for all other taxpayers. It completely phases out when the taxpayer’s modified adjusted gross income (MAGI) reaches $ 240,000 and $440,000 MFJ.

 

3. Tip Income Deduction

Creates an above-the-line deduction of tip-based earnings capped at $25,000 per individual. The deduction is phased out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ) and completely phases out when the taxpayer’s MAGI reaches $400,000 ($550,000 MFJ).Effective for 2025 through 2028.

 

4. Overtime Pay Deduction

Creates an above-the-line deduction for qualified overtime compensation. Maximum annual deduction is $12,500 ($25,000 for joint filers). The deduction is phased out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ) and completely phases out when the taxpayer’s MAGI reaches $275,000 ($550,000 MFJ). Effective for 2025 through 2028.

 

5. New Car Loan Interest Deduction

Permits up to $10,000 of interest deduction on a qualified passenger vehicle. Must be new auto loans for U.S.-assembled cars bought 2025–2028; begins to phase out for singles over $100,000 or joint filers over $200,000, and completely disappears where income exceeds $150,000 for singles and $250,000 MFJ. Above the line deduction. Car must be for personal use - not a business asset.

 

6. Temporary State and Local Tax (SALT) Cap Increase

Raises SALT deduction to $40,000 ($20,000 MFS) for households earning below $500,000 in 2025, phasing out between $500,000 and $600,000, but not below $10,000.Reverting to $10,000 in 2030.

Provision	Details
New SALT Cap (2025–2029)	Increased from $10,000 to $40,000 in 2025; rises 1% per year until 2029
Reversion (2030+)	Cap reverts to $10,000 unless extended by future legislation
Phase-Out Threshold	$500,000-$600,000 AGI (MFJ); cap reduced by 30% of excess income. $10,000 cap above $600,000.
Phase-Out Floor	Deduction cannot drop below $10,000
Married Filing Single Threshold and Cap	$250,000- $300,000 AGI threshold; $20,000 cap
Annual Inflation Adjustment	Both cap and phase-out thresholds increase 1% per year (2025–2029)
PTET Workaround	Preserved for pass-through entities with anti-abuse provisions
Effective Tax Year	Applies to tax year 2025 (filed in 2026)

 

7. Special Senior Bonus Deduction - Effective for 2025

Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional above-the-line deduction of $6,000 ($12,000 total for a married couple where both spouses qualify). This new deduction is in addition to the current traditional age-based extra deduction standard deduction for seniors under existing law. This special deduction is “in lieu” of the “No Tax on Social Security” campaign promise. Deduction is available for both itemizing and non-itemizing taxpayers. The $6,000 exemption deduction begins to phase out by 6% by the amount a taxpayer’s MAGI exceeds $75,000 ($150,000 MFJ) and varies by filing status as detailed below:

Filing Status	Maximum Deduction	Phaseout Range
Single	$6,000	$75,000–$175,000
Head of Household (HOH)	$6,000	$75,000–$175,000
Married Filing Jointly (One spouse 65+)	$6,000	$150,000–$250,000
Married Filing Jointly (Both spouses 65+)	$12,000	$150,000–$350,000
Married Filing Separately (MFS)	$0	N/A

 

8. "MAGA" Newborn Savings Accounts / Trump's Accounts - Effective for 2026

Taxpayers can make an election on behalf of their eligible child to have $1,000 treated as a tax payment for the taxable year. The $1,000 will be deposited into a Trump account established on behalf of the child. An eligible child, defined as a U.S. citizen child born in 2025 through 2028 for whom no previous election has been made. The account is treated in the same manner as an IRA (cannot be a ROTH IRA) with special rules, during the period when the beneficiary is under age 18.

Additional contributions to the Trump accounts can be made from parents, relatives, and other taxable entities, as well as nonprofit and government entities. Contributions to the accounts can only be made after-tax (except for employer contributions up to $2,500, which can be pre-tax) if made prior to the child turning age 18, and aggregate contributions are limited to $5,000 annually (adjusted for inflation beginning with the 2028 taxable year).

The funds from the accounts cannot be distributed prior to the calendar year in which the child turns age 18. Distributions will be taxed like any other IRA. Because the contributions made by parents and other relatives are made after-tax, these contributions would not be subject to tax when withdrawn.

No income cap specified.

 

9. Charitable Donations - Effective for 2026

Establishes a new above-the-line charitable contribution deduction of up to $1,000 for single filers and $2,000 for married couples filing jointly, available to non-itemizers making cash donations to qualified charitable organizations. No income limitation applies to this deduction, thereby broadening access and encouraging wider participation in charitable giving.

The existing rule allowing deductions for cash gifts to public charities up to 60% of AGI is made permanent. 

For itemizing taxpayers, beginning in tax year 2026, the charitable deduction will only be allowed if total contributions exceed 0.5% of the taxpayer’s AGI. This introduces a new minimum threshold for deductibility of itemized charitable contributions.

Summary of OBBBA Charitable Donation Provisions

Provision	Description	Effective Year
Above-the-Line Deduction for Non-Itemizers	Deduction of up to $1,000 (single) / $2,000 (joint) for cash donations to public charities	2026
New Floor for Itemizers	Only donations exceeding 0.5% of AGI are deductible	2026
Corporate Donation Floor	Corporations can deduct donations only above 1% of taxable income (still capped at 10%)	2026
Cap for High-Income Taxpayers	Maximum tax benefit limited to 35% for taxpayers in the 37% bracket	2026
60% AGI Limit for Cash Gifts Made Permanent	Temporary rule (cash donations to public charities deductible up to 60% of AGI) is now permanent	2026
Tax Credit for Scholarship Donations	Non-refundable credit up to $1,700 for donations to scholarship-granting organizations (non-itemizers OK)	2027

 

10.  Estate and Gift Tax Exclusion Raised to $15M Per Taxpayer - Effective for 2026 

Removes the potential 50% reduction permanently – makes the higher exemption permanent. The $15 million per individual ($30 million for married couples) exclusion will be inflation-adjusted annually and also applies to the generation-skipping transfer tax exemption.

 

11.  Capital Gains Tax Step-Up Preserved 

 Maintains the step-up in basis for inherited assets, avoiding capital gains tax at death.

 

12.  Repeal Clean Energy Credits – Effective for Tax Year 2025 

Eliminates green-energy credits (EVs, solar, wind, hydrogen, etc.), with some as early as September 30, 2025.

Federal Energy Efficiency Tax Credits Overview

Item	Credit Type	Max Benefit	Expiration Date	Eligibility
Solar Panels	Residential Clean Energy	30% of the cost	12/31/2025	Yes
Battery Backup (≥3 kWh)	Residential Clean Energy	30% of the cost	12/31/2025	Yes
EV Charger*	EV Charger Installation	Up to $1,000	06/30/2026	ZIP-based
Heat Pump (HVAC)	Energy Efficiency Upgrade	Up to $2,000	12/31/2025	Yes
ENERGY STAR Refrigerator	Energy Efficiency Upgrade	Up to $600	12/31/2025	Yes
ENERGY STAR Windows	Energy Efficiency Upgrade	Up to $600	12/31/2025	Yes
Hot Water Heater (Tankless/Heat Pump)	Energy Efficiency Upgrade	$600–$2,000	12/31/2025	Yes
Solar-Integrated Roofing	Residential Clean Energy	30% of the cost	12/31/2025	If solar-integrated
Electric Oven	Not Qualified	—	N/A	No
Gas Stove	Not Qualified	—	N/A	No
Microwave	Not Qualified	—	N/A	No
Standard Roof (Shingles Only)	Not Qualified	—	N/A	No
Commercial Electric Vehicle	Commercial Clean Vehicle	Up to $40,000	09/30/2025	Business use
EV (New)	Clean Vehicle Credit	Up to $7,500	09/30/2025	If it meets income/price limits
EV (Used)	Used Clean Vehicle Credit	Up to $4,000	09/30/2025	If it meets income/price limits

*EV Charger Credit requires property to be in a qualified low-income or rural area for eligibility.

 

13.  529 Plan Expansion – Effective for 2025 

K–12 tuition withdrawal limit doubled up to $20,000 per year and expanded K–12 expenses to cover books, tutoring, test prep, online learning, and educational therapy.

Broadens scope beyond traditional college education, and 529 funds can now be used for vocational, trade, and credentialing programs. Tax-free rollovers from 529 plans to ABLE accounts are now permanently allowed.

ABLE account enhancements like Saver’s Credit and ABLE-to-Work contributions are also made permanent. No stated income cap on withdrawing funds from a 529 plan.

529 Plan Changes Summary - Most Effective 7/5/2025

Provision	Description	Effective Date	Notes
K–12 Education Limit Increase	Annual tax-free withdrawal limit raised from $10,000 to $20,000 per beneficiary	July 5, 2025	Applies to tuition at elementary & secondary schools
Expanded K–12 Expenses	Includes books, tutoring, test prep, online resources, and educational therapy	July 5, 2025	Includes students with disabilities
Post-Secondary Credentialing	529s can now fund vocational, trade, and certification programs	July 5, 2025	Includes program fees, books, supplies, and exams
529-to-ABLE Rollovers (Permanent)	Tax-free rollover to ABLE accounts is now a permanent provision	Immediately	Beneficiary must be the same or a qualified family member
Other ABLE Enhancements	Saver’s Credit and ABLE-to-Work contributions rules made permanent	Immediately	Improves long-term disability savings planning
State Tax Treatment	May vary by state — check for conformity with federal rules	Varies by state	Important for K–12 and new qualified expense categories

 

14. Health Savings Accounts (HSAs)

Permanent allowance for first-dollar telehealth coverage under high deductible health plans (HDHPs) without affecting HSA eligibility. Afforable Care Act (ACA) marketplace Bronze and Catastrophic plans now count as HDHPs for HSA eligibility. Up to $150/month (individual) or $300/month (family) in Direct Primary Care fees are now HSA-eligible.

OBBBA HSA Changes Summary

Provision	Description	Effective Date	Included in Final Bill?
Telehealth Coverage	Permanent allowance for first-dollar telehealth coverage under HDHPs without affecting HSA eligibility	Plan years starting in 2025	Yes
Bronze & Catastrophic Plans	ACA marketplace Bronze and Catastrophic plans now count as HDHPs for HSA eligibility	Jan 1, 2026	Yes
Direct Primary Care (DPC) Fees	Up to $150/month (individual) or $300/month (family) in DPC fees now HSA-eligible	Jan 1, 2026	Yes
HSA contributions after enrolling in Medicare Part A	Would have allowed contributions post-Medicare enrollment	—	No
Higher contribution limits for low-income individuals	Proposed expansion of contribution caps	—	No
Combined catch-up contributions for spouses	Would have allowed one combined catch-up for both spouses aged 55+	—	No
Fitness/gym expense reimbursement	Up to $500/year in gym or fitness fees using HSA	—	No
60-day retroactive reimbursements	Proposed coverage of medical expenses incurred before HSA opened	—	No
HSA eligibility with spousal  Flexible Spending Account (FSA) or clinic access	Would have removed disqualifications tied to spouse’s FSA or employer clinic	—	No

 

15. Mortgage Interest Deduction

 Permanently extends the TCJA’s limitation of qualified residence interest deduction for the first $750,000 in home mortgage acquisition debt.

 

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Business Taxation in the OBBBA

 

1. 100% Bonus Business Depreciation Made Permanent

Allows for the immediate expensing of 100% of qualifying property costs, permanently restoring the full write-off for businesses without income limits. Applied to property acquired after January 19, 2025.

 

2. Full R&D Expensing
Permanently allows full expensing of domestic specified research or experimental
expenditures (SREs) starting with the 2025 taxable year, reversing prior amortization rules— available to all businesses, no income limitation. Small business taxpayers (i.e., those with average annual gross receipts of $31 million or less) can apply the change retroactively to taxable years beginning after December 31, 2021. In addition, all taxpayers who capitalized domestic research or experimental expenses between December 31, 2021, and January 1, 2025, may elect to accelerate the deduction of any remaining unamortized amounts over one or two years.

 

3.  Section 199A Qualified Business Income (QBI) Deduction 

Makes the 20% QBI deduction permanent and adds a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from an active trade or business, adjusted for inflation. Beginning with the 2026 taxable year, the phaseout ranges for purposes of computing the §199A deduction are increased from $50,000 ($100,000 MFJ) to $75,000 ($150,000 MFJ), which means that the size of the phaseout range is now wider.

Phaseout Ranges by Filing Status

Filing Status	2025 Threshold Amount	2025 Phaseout Ends
Married Filing Jointly	$394,600	$494,600
All Other Taxpayers	$197,300	$247,300

 

4.  Qualified Opportunity Zone (QOZ): New Series Approved – Effective for Tax Year 2027  

Permanently extends Opportunity Zones and introduces a new series of designated zones with a 5-year deferral of original gain. Enhanced tax incentives for rural QOZs. 

Qualified Opportunity Zone Changes - 2027 Onward

Category	OBBBA Changes
Permanence & New Designation Cycle	• Makes QOZ program permanent • New zone designations every 10 years (starting 2026, effective 2027–2036)
Rolling 5-Year Gain Deferral	• For investments from Jan 1, 2027 onward • Gain deferral lasts 5 years or until asset sale
Basis Step-Ups	• Standard QOFs: 10% step-up at 5 years (no more 7-year bonus) • QROFs (Rural Funds): 30% step-up at 5 years; only 50% substantial improvement required
Long-Term Hold Rules	• No capital post-acquisition gains tax after 10 years on QOZ investment - step-up to FMV for 10 to 30 years • After 30 years, step-up is fixed; future gains are taxable
Zone Eligibility Changes	• Lowered income threshold: ≤70% of area median • Eliminated contiguous tract rule • Overall zone count reduced by ~20–22%

 

5.  Qualified Small Business Stock (QSBS): Expanded Reliefs

Existing rules unchanged. For new investments made after July 4, 2025, there are new rules. Potential for partial relief after as little as three years. 

Qualified Small Business Stock (QSBS) - Two Regimes

Feature	Pre-OBBB (Before July 4, 2025)	Post-OBBB (On or After July 4, 2025)
Holding Period Requirement	≥ 5 years for 100% gain exclusion	≥ 3 yrs → 50%, ≥ 4 yrs → 75%, ≥ 5 yrs → 100%
Exclusion Cap	$10M or 10× basis (whichever is greater)	$15M or 10× basis (indexed from 2027)
Issuer Gross Asset Limit	≤ $50M	≤ $75M (indexed from 2027)
Applies To	Stock issued before July 4, 2025	Only to stock issued on or after July 4, 2025
Other QSBS Rules (e.g., entity type, active business)	Unchanged	Unchanged

 

6.  Section 179 Expensing

Raises the maximum Section 179 expensing limit to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million, both of which will be adjusted annually for inflation. 

 

7.  Corporate Charitable Contribution Deduction

Establishes a floor of 1% of taxable income to deduct charitable contributions, up to a ceiling of 10% of taxable income. Effective after December 31, 2025. 

If you have any questions about these updates, please contact BakerAvenue.

Top Tax Provisions from the 'One Big Beautiful Bill'

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1. 2017 Tax Cuts Made Permanent

Makes the 2017 Tax Cuts and Jobs Act (TCJA) tax brackets and standard deduction permanent for all taxpayers, preventing any scheduled tax increases for tax year 2026.

Higher rates, now permanently removed, versus TCJA Lower Tax Rates in operation since 2017:

• Bracket 1 - 10.0% vs. 10.0%
• Bracket 2 - 15.0% vs. 12.0%
• Bracket 3 - 25.0% vs. 22.0%
• Bracket 4 - 28.0% vs. 24.0%
• Bracket 5 - 33.0% vs. 32.0% 
• Bracket 6 - 35.0% vs. 35.0%
• Bracket 7 - 39.6% vs. 37.0%

 

Higher Standard Deduction Made Permanent - Comparison: 2024 vs. 2025 and Following

Standard Deduction by Filing Status

Senior Bonus Deduction (Age 65+)

Note: Senior bonus deduction begins phasing out at $75,000 (single) and $150,000 (joint), and is fully phased out at approximately $175,000 and $250,000, respectively.

All 2025+ standard deductions are indexed for inflation.

 

2. $2,200 Child Tax Credit

Raises the child tax credit to $2,200 per child, fully refundable and inflation-adjusted. Phases out for single filers over $200,000 and joint filers over $400,000.

 

3. Tip Income Deduction

Allows deduction of tip-based earnings for workers with income under $150,000, capped at $25,000 per year, valid through 2028.

 

4. Overtime Pay Deduction

Creates a deduction for overtime earnings for individuals earning under $150,000, capped similarly to tips, valid through 2028.

 

5. New Car Loan Interest Deduction

Permits up to $10,000 of interest deduction on new auto loans for U.S.-assembled cars bought 2025-2028; phases out for singles over $100k or joint filers over $200k.

 

6. Temporary SALT Cap Increase

Raises SALT deduction to $40,000 ($20,000 MFS) for households earning <$500,000 in 2025, phasing down above $500,000. Reverting to $10,000 in 2030.

 

7. Special Bonus Deduction

Allows a special $6,000 deduction for taxpayers aged 65+, phasing out for MAGI over $75k (single) and $150k (joint), valid through 2028. This special deduction is "in lieu" of the "No Tax on Social Security" campaign promise.

 

8. "MAGA" Newborn Savings Accounts

Allows one-time $1,000 tax-exempt contribution for each newborn into a designated savings account; annual contribution limit $5,000. No income cap specified.

 

9. Above-the-Line Charitable Deduction

Introduces $2,000 ($1,000 single) deduction for non-itemizers; no income limit specified, encouraging broader charitable giving. Effective for tax year 2026 and following.

 

10. 100% Bonus Business Depreciation Made Permanent

Allows immediate expensing of 100% qualifying property costs, permanently restoring full write-off for businesses without income limits.

 

11. Full R&D Expensing

Permits immediate expensing for domestic R&D costs, reversing prior amortization rules -- available to all businesses; no cap cited.

 

12. The 20% Pass-Through Deduction (§199A) Made Permanent

Keeps 20% QBI deduction.

 

13. Estate and Gift Tax Exclusion Raised to $15M Per Taxpayer Effective 2026

Removes potential 50% reduction permanently -- makes higher exemption permanent and indexed for inflation going forward.

 

14. Opportunity Zones for Capital Gains Deferral - New Series Approved

Permanently extends Opportunity Zones and introduces a new series of designated zones with deferral of original gain through 2033. Enhanced incentives for rural Zones. Further details to be issued.

 

15. Capital Gains Tax Step-Up Preserved

Maintains the step-up in basis for inherited assets, avoiding capital gains tax at death.

 

16. Repeal Clean Energy Credit

Eliminates green-energy credits (EVs, solar, wind, hydrogen, etc.), some as early as September 30, 2025.

 

17. 529 Plan Expansion

Permits 529 withdrawals for K-12 tuition, apprenticeships, homeschool; no stated income cap.

 

If you have any questions about these updates, please contact BakerAvenue.

Important Disaster Relief Information from the IRS

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Hurricane Beryl & Wildfire Relief

Due to various hazardous fires and storms caused by Hurricane Beryl across the country, the IRS has announced Disaster Relief: The due date for 2023 tax returns has been extended to February 3, 2025. The due date for 2024 estimated payments is extended to February 3, 2025.

• 2023 filing relief (not payment) for fire and severe storm for those affected by  Hurricane Beryl in the entire states of LA, VT, Puerto Rico, The Virgin Islands, and specific counties AZ, CT, IL, KY, MN, MO, MT, NY, PA, SD, TX, WA - Due February 3, 2025
• 2024 estimated payment relief for fire and severe storm for those affected by Hurricane Beryl in the entire states of LA, VT, Puerto Rico, The Virgin Islands, and specific counties AZ, CT, IL, KY, MN, MO, MT, NY, PA, SD, TX, WA - Due February 3, 2025

Please check the following website for specific filing and payment information: IRS reminder to disaster area taxpayers with extensions: All or parts of 14 states, 2 territories need to file 2023 returns by Feb. 3; others have until May 1

 

Hurricane Helene and Milton Relief

Due to the hazardous hurricanes that hit the Southeast regions: Alabama, Georgia, North Carolina, South Carolina, and Florida, the IRS has announced Hurricane Relief: The due date for 2023 and 2024 tax returns has been extended to May 1, 2025.

• 2023 relief for return filing (not payment) for the entire states AL, FL, GA, NC, SC - Due May 1, 2025
• 2024 relief entire states of AL, FL, GA, NC, SC - Return & Payment - Due May 1, 2025

Please check the following website for specific filing and payment information: IRS reminder to disaster area taxpayers with extensions: All or parts of 14 states, 2 territories need to file 2023 returns by Feb. 3; others have until May 1

 

Israel/Gaza Terrorist US Citizen Relief

Due to the terrorist attacks in Israel, the IRS has announced relief to affected individuals and businesses: The due date for 2023 and 2024 tax returns has been extended to September 30, 2025.

• 2023 relief for return filing and payment for anyone affected by conflict in Israel, Gaza, or West Bank - Due September 30, 2025
• 2024 relief for return filing and payment for anyone affected by conflict in Israel, Gaza, or West Bank - Due September 30, 2025

Please check the following website for specific filing and payment information: IRS announces new relief for taxpayers affected by terrorist attacks in Israel: 2023 and 2024 returns and payments are now due Sept. 30, 2025; other relief available

 

California - Los Angeles Wildfires (Los Angeles County) Relief

Due to the hazardous wildfires throughout Los Angeles County, the IRS has announced Wildfire Relief: The due date for 2023 and 2024 tax returns has been extended to October 15, 2025.

• 2024 relief for filing and paying individual, S Corp, Non Profits and Payroll returns, tax due and estimated payments - Due date is now October 15, 2025
• 2024 relief for IRA and health savings accounts contributions - Due date is now October 15, 2025

Please check the following website for specific filing and payment information: IRS: California wildfire victims qualify for tax relief; various deadlines postponed to Oct. 15

If you have any questions about these tax updates, please contact BakerAvenue.

Essential Deadlines for Retirement, Charitable Contributions, and More

As 2024 comes to a close, taking a strategic approach to your finances can make a significant difference. Effective year-end tax planning isn't just about reducing your tax bill; it's about setting up a strong financial foundation for the future. Here are the key deadlines and strategies to consider, especially for retirement accounts, charitable contributions, and general wealth management.

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Retirement Accounts

December 31, 2024

• Fully Utilize Employer Retirement Plans 
  Max out your tax-deductible 401(k) contributions of $23,000 if under 50, $30,500 if over 50.
• Mega Backdoor Roth Contributions Using Your Company 401(k) Assuming that fully tax-deductible contributions have been maximized, consider making post-tax contributions to your 401(k) account and immediately converting those post-tax contributions to a Roth IRA account where they will grow tax-free forever and won’t be subject to Required Minimum Distributions (RMDs). The 401(k) plan must allow post-tax contributions to carry out the Mega Backdoor Roth strategy. The maximum contribution (pre- and post-tax) to a 401(k) for 2024 is $69,000 and $76,500 (if over 50). These maximums consider all pre-tax (deductible) employee contributions, employer match, and employee post-tax (non-deductible) contributions to the plan. 
• Convert Traditional IRA Accounts to Roth IRAs 
  Convert Traditional IRAs to Roth IRAs accounts where they can grow tax-free indefinitely, as no Required Minimum Distributions (RMDs) are required for Roth IRA accounts. Roth conversions work best in years with lower total income. Unlimited amounts can be converted to Roth under this strategy; however, the conversion is considered a taxable event at ordinary income rates.
• Required Minimum Distributions 
  Unless it is the first RMD, which can be taken up until April 1st of the following year.
  For inherited IRAs, where the original account holder died after 12/31/2019, there is no requirement to take an RMD under the 10-year rule for 2024 due to a special waiver being granted by the IRS.  Where the account holder died before 2020, there is no waiver on 2024 RMDs.

April 15, 2025

• Traditional IRA contributions
  Where the taxpayer or the taxpayer’s spouse are covered by a qualified plan with an employer, the deductibility of the contribution may be limited or lost entirely. The deduction for the contribution starts to be limited at modest income levels ($77,000 for 2024 if single, $123,000 if MFJ).  Where a plan at work covers neither of the spouses, contributions can be made on a fully deductible basis, regardless of income.
• Contribute to Your Spouse 
  For those filing joint returns, there is no earned income requirement for IRA contributions made by a nonworking spouse if the earned income of the couple exceeds the combined IRA contribution amount. Such contributions are also subject to income limits when deductibility is assessed.
• Fund Roth IRA Accounts

Contributions can be made up to $7,000 for 2024 from earned income (with a $1,000 catch-up contribution if over 50 years old). Roth contributions are subject to income limits ($161,000 if filing single for 2024 and $240,000 for MFJ). Due to the income restrictions, direct Roth contributions may only be relevant for younger, lower-earning taxpayers.

• “Backdoor” Roth IRA Conversion 
  Consider a backdoor Roth Conversion where income exceeds the direct Roth contribution limits. Make contributions to a Traditional IRA on a post-tax (non-deductible) basis, then convert that Traditional IRA contribution to a Roth IRA. Because of the Aggregation Rule, this strategy is not appropriate for those clients with existing pre-tax IRA accounts, such as rollovers.

Charitable Contributions

December 31, 2024

• Contribute highly appreciated assets (stocks) 
  Contribute to charity to avoid paying capital gains and receive tax deductions. Such contributions also remove assets from the taxable estate.  The tax deduction will be equal to the Market Value of the stocks, even if there is a very low or no tax basis. The tax deduction may be limited to 30% of adjusted gross income (AGI); however, any unused deduction in the year may be carried forward for five years.
• Contribute cash to a public charity or DAF
  For 2024, up to 60% of AGI can be deducted if paid in cash to a public charity.
• Make use of Qualified Charitable Distributions (QCDs) 
  Due to the large Standard Deduction ($32,300 for MFJ 2024) if both spouses are over 65 years old, charitable donations claimed as itemized deductions are often not tax effective.  In these circumstances, it is more beneficial to make a yearly QCD from an IRA to a public charity if you are over 70.5 years old. Such QCDs count towards meeting your RMDs for the year and transfer highly taxed ordinary income to the charity without creating taxable income for you. There is a limit of $105,000 per year for a QCD per tax return.
• Consider Bunching of Donations 
  Often a donation delivers no tax benefit if the client does not naturally itemize deductions.  Bunching several years of donations together can lead to itemized deductions that exceed the standard deduction in the bunched year and obtain at least partial deductions for the client.

Other Year-End Planning 

December 31, 2024 

• Harvest unrealized capital losses 
  Stock with an unrealized loss can be sold, creating a tax loss that can be banked or used to offset realized taxable gains. Net short-term losses can offset Net long-term gains and vice versa.  This is especially relevant for non-BakerAvenue managed accounts where no active management is in place.  Such strategies need to consider the Wash Sale rules.
• Use the Annual Gift Tax Exclusion amount 
  $18,000 per individual recipient of a gift in 2024.  Married couples can gift the same recipient $18,000 each.  An unlimited number of recipients.
• Consider taking taxable IRA Distributions in years up to RMD age 
  May be relevant for those clients with large, deferred balances where the first RMD may automatically be in a very high tax bracket.

Tactical Use of Margin Account Near Year-End
Use margin accounts to meet short-term cash requirements rather than sell appreciated stock or take a taxable distribution just before the year's end.

If you have any questions about this tax update, please contact BakerAvenue.

Important Tax Update for the Southeast

The deadline for filing 2023 and 2024 taxes, including tax payments, estimated payments, and return submissions, has been extended to May 1, 2025. Additionally, funds received from FEMA or other government entities are typically not included in gross income.

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Hurricane Helene and Milton: States Affected

Due to the hazardous hurricanes that have hit the Southeast Regions: Alabama, Georgia, North Carolina, South Carolina, and Florida, the IRS has announced Hurricane relief: The due date for 2023 and 2024 tax returns has been extended to May 1, 2025.

• 2023 returns must have had a valid extension filed
• Tax payments in these states are extended until May 1, 2025
• 2024 Q4 estimated payments due January 15, 2024 are now due May 1, 2025
• 2025 Q1 estimated payments due April 15, 2025, are now due May 1, 2025

For details, view the IRS releases:

• IR-2024-264, October 11, 2024: IRS provides Hurricane Milton relief; May 1 deadline now applies to individuals and businesses in all of Florida; many businesses qualify for deposit penalty relief
• IR-2024-253, October 1, 2024: IRS provides relief for Helene; various deadlines postponed to May 1, 2025; part or all of 7 states qualify

If you have any questions about this tax update, please contact BakerAvenue.

Utilizing the Net Unrealized Appreciation Strategy for Tax Savings

Important Tax Update for California Residents

As of June 2023: As previously announced (see below), most California residents do not have to file their 2022 tax returns or pay the tax due until October 16th, 2023, due to the storm relief.  

 

However, we are seeing an increasing number of notices issued by the IRS stating that 2022 taxes are due shortly after clients have filed their 2022 tax returns. In other words, the IRS system is not recognizing the extended due date for tax payments and is auto-generating tax due notices for taxpayers who have filed their returns.

 

We have confirmed directly with the IRS that these notices for 2022 are being auto-generated and may be ignored. The payment due date remains October 16th, 2023, regardless of whether a taxpayer has filed their 2022 tax returns or not.

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Due to the hazardous storms that have hit California in recent weeks, the IRS has  announced that most California residents will have until October 16, 2023, to file various individual and business tax returns and to make tax payments. Tax Day, initially scheduled for April 18th this year, is therefore pushed to October 16, 2023.

Frequently Asked Questions About the 1031 Exchange and DSTs

The 1031 exchange offers one of the most strategic planning tools available to real estate investors. A properly executed 1031 exchange can defer taxes, create a sustainable stream of income, and potentially offer estate and liquidity advantages. We can help you strategically maximize the benefits of a 1031 exchange by setting up a Delaware Statutory Trust (DST). With a DST, you can be a part owner of real estate assets by purchasing fractional units and gaining the same benefits as large institutional real estate investors -- without the management hassles.

What to Expect With Your Inherited IRA

When it comes to inherited IRAs, there are certain withdrawal rules that are important to understand, and the IRS has recently clarified their position in Notice 2023-54. The 10-Year Rule was put into place with the Secure Act of 2019, stating that certain heirs must deplete their inherited retirement accounts within a ten-year period. In this article, we discuss to whom the 10-Year Rule applies, how Notice 2023-54 affects the 10-Year Rule, and other factors to be aware of as they relate to required minimum distributions (RMDs) on inherited IRAs.

How to Take Advantage of Tax-Loss Harvesting

Tax-loss harvesting is both simple and complex. On the surface, it is as simple as sell your losers and take the tax write-off. But it can also get complex, requiring an appreciation of market volatility, correlation between different stocks, and the trickier parts of the tax code as it relates to Wash Sales. In this article, we take a look at these different areas and examine those situations where proactive tax-loss harvesting can be particularly powerful.