Our featured article of the month, Reference Guide on the OBBBA, summarizes the benefits of the act to individuals and businesses. The focus of the summary surrounds personal taxation and benefits for seniors while also providing details on benefits for business owners and college savings accounts. The reference guide is not an exhaustive list of all of the details listed within the act, however it represents the pertinent information needed for individual taxpayers and investors as well as small business owners.
This legislation locks in lower income tax rates and a higher standard deduction, ensuring long-term tax relief for individuals and families. It also boosts deductions for state and local taxes, tips, overtime pay, and even interest on loans for U.S.-made vehicles, giving a financial lift to workers, homeowners, and car buyers. Seniors get extra support with a new deduction to ease the burden of Social Security taxes, while parents benefit from an enhanced child tax credit and innovative tax-deferred savings accounts for newborns, known as Trump Accounts.
Beyond immediate tax breaks, the Act encourages generosity by reinstating charitable deductions for non-itemizers and tweaking rules to make giving easier for all. While some benefits, like those for tips and overtime, are temporary, the overall impact is clear: more disposable income for middle- and working-class families, tailored support for seniors, and incentives for economic choices like buying American-made cars. Whether you’re raising a family, working overtime, or planning for retirement, this bill offers something to help you thrive, though its advantages may vary based on your income and where you live.
In a move to preserve key elements of the 2017 Tax Cuts
and Jobs Act (TCJA), as well as introduce new tax policies,
lawmakers passed a new piece of legislation: the One Big
Beautiful Bill Act, which was signed into law by President
Trump on Friday, July 4, 2025.
Provisions of the bill either permanently or temporarily
extend aspects of the tax code that affect individuals,
businesses, and estates.
Permanent extension of certain TCJA provisions:
Individual federal income tax rates: Permanently extends, with inflation adjustments, starting in 2026.1
Standard deductions: Makes permanent the increased standard deduction and annually adjusts it for inflation. Starting in tax year 2025, the standard deduction is increased to $15,750 for individual filers/$31,500 for joint filers, $23,625 for head of household.
Cap on itemized deductions: Limits the value of itemized deductions to 35%. In most cases, individual taxpayers will get the full value of their itemized deductions, except for those in the highest individual income tax bracket (37%).
SALT (state and local taxes) deduction: Increases the cap from $10,000 to $40,000, and increases 1% each year through 2029, phasing out at $500,000 modified adjusted gross income (MAGI) before returning to $10,000.
Alternative minimum tax (AMT): Permanently extends the increased individual AMT exemption amounts and reverts the exemption phaseout thresholds to 2018 levels ($500,000 single/$1 million joint filers), indexed for inflation thereafter.
Child tax credit: Permanently extends the increased child tax credit. The nonrefundable child tax credit is increased to $2,200 per child beginning in tax year 2025 and indexed for inflation.
Creation of permanent charitable deduction: For taxable years after 2025, non-itemizers can claim a deduction of up to $1,000 for single filers/$2,000 for married filing jointly for certain charitable contributions.
For Seniors
Enhanced standard deduction for seniors: Temporarily adds a $6,000 deduction for each qualified individual senior through 2028. The senior deduction begins to phase out when the taxpayer’s MAGI exceeds $75,000 for single/$150,000 for joint filers. A qualified individual is a taxpayer who is 65 or older.
For high net worth & ultra-high net Individuals
Increased estate tax exemption: Permanently extends the estate and lifetime gift tax exemption. The exemption amount is raised to $15 million single/$30 million joint filers starting in 2026 and indexed for inflation.
Introduction of floor on charitable contributions: A new
0.5% floor on charitable contributions for taxpayers who
elect to itemize for taxable years after December 31, 2025.
The amount of an individual’s charitable contributions for a taxable year is reduced by 0.5% of the taxpayer’s contribution base for the taxable year.
For business owners
Enhanced qualified business income (QBI) pass-through
deduction (Section 199A): Makes permanent the 20% deduction.
Families planning for education
Introduction of child savings accounts: The new tax bill introduces a new tax-advantaged child savings account option named “Trump accounts,” which can be opened for any child under the age of 18, starting in 2026. It also creates a pilot program that enables the federal government to contribute $1,000 per eligible child born between 2025 and 2028. For newborns, accounts may be opened by either parents or guardians. The child must be a U.S. citizen to be eligible for an account.
Notable provisions include:
-Effective starting in 2026.
-No contributions will be allowed until 12 months after
the date of enactment.
-No withdrawals are allowed before the child reaches the
age of 18.
-Individual contributions are not tax-deductible; contributions by certain entities are allowed and may be tax-deductible.
-When the child reaches age 18, the account is essentially
converted into a traditional IRA.
529 use expansion: Expands the use of 529 plans to include post-secondary credentialing expenses such as certifications, licenses, and other professional qualifications. Additionally, the amount of tuition and related expenses at an elementary or secondary public, private, or religious school that is treated as a qualified higher education expense is now increased from $10,000 to $20,000, starting in 2026.
ABLE accounts changes: Permanently extends increased contribution limits and provides an additional year of inflation adjustment for the limit base amount. The saver’s credit is increased by an additional $100 starting in 2027. The new law also permanently allows designated beneficiaries who make qualified contributions to achieving a better life experience (ABLE) accounts to qualify for the
saver’s credit and permanently allows tax-free rollovers from 529 qualified tuition programs into qualified ABLE programs.
Other noteworthy provisions
No tax on tips: Creates a new deduction for qualified tips received during the year available through 2028. This is available to itemizers and non-itemizers. However, this excludes highly compensated individuals and those defined under Section 199A. The deduction is capped at $25,000 and phased out at MAGI levels above $150,000 for single filers and $300,000 for those married filing jointly.
No tax on overtime: Creates a deduction for qualified overtime compensation received during the year. The deduction applies to overtime that exceeds the employee’s regular rate and is available through 2028. The deduction amount is capped at $12,500 for single filers and $25,000 for those married filing jointly and phased out at MAGI levels above $150,000 and $300,000, respectively.
1 Additional one-time inflation adjustment in 2026 for 10%
and 12% tax brackets.
2 This tax bill has extended current tax brackets indefinitely; however, Congress can always change tax law, including provisions that have been made permanent.
3 State tax treatment of withdrawals for K–42 tuition
expenses, apprenticeship program expenses, and student
loan repayments is determined by the state(s) where the
taxpayer files state income tax. Please consult with a tax
advisor for further guidance.
4 Newly enacted U.S. tax law: Investor considerations I Vanguard.
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Neither Vanguard nor its financial advisors provide tax and/or legal advice. This information is general and educational in nature and should not be considered tax and/or legal advice. Any tax-related information discussed herein is based on tax laws, regulations, judicial opinions and other guidance that are complex and subject to change. Additional tax rules not discussed herein may also be applicable to your situation. Vanguard makes no warranties with regard to such information or the results obtained by its use, and disclaims any liability arising out of your use of, or any tax positions taken in reliance on, such information. We recommend you consult a tax and/or legal advisor about your individual situation.