The Tax Changes You Need to Know in the Final One Big Beautiful Bill Act
Well, it finally happened - after a close vote in the Senate and a trip back to the House, the "One Big Beautiful Bill Act" made its way to the President and is now signed into law.
It certainly is Big (~870 pages). But is it Beautiful? Well, beauty is in the eye of the beholder, as they say, and the merits of this Bill will depend on your situation.
That said, it touches on a long list of topics. Today's newsletter will focus on the tax aspects of the Bill that impact you as an optometrist.
This week's podcast episode and (likely Thursday's) newsletter will focus on the student loan aspects of the Bill - they deserve their own article.
There is a lot of meat in this newsletter. Feel free to scroll through to the provisions that matter most to you - and listen to the upcoming podcast episode of The Optometry Money Podcast as I dive in more.
And to save you some time, I put together this one-pager graphic to summarize as much as I could in one chart. Enjoy, and share with your peers!
With that, let's dive in!
Tax Changes: Things Extended With an Extra Bit of Flavoring
For the most part, the Bill extends many of the tax provisions that were set to expire at the end of this year, adding a bit of flavoring to enhance them.
There are some interesting additions as well.
As you read through this, remember that "permanent" really means it continues until a future Congress changes it.
Several important tax provisions - like the lower tax rates and the QBI deduction - were set to end and go back to old 2017 tax laws.
Now, we can plan into the future with some level of certainty, and don't have to stress about taking big actions before the end of the year.
Individual Tax Changes
✅ Lower Tax Brackets Made Permanent
What’s changing: The current lower tax brackets (12%, 22%, 24%, 32%, 35%, 37%) are now permanent, offering clarity for long-term financial planning.
This avoids the jump in tax brackets we expected after this year. We don't need to rush to add more income onto this year's tax return or delay deductions into the next year. It's great to plan around more certainty!
Effective: Tax year 2026 and beyond 🚀
✅ Higher Standard Deduction Made Permanent
What’s changing: The higher standard deduction continues, and rises to $31,500 (Married Filing Jointly) / $15,750 (Single) in 2025, with inflation adjustments in the future.
Each taxpayer gets to choose between a "Standard" deduction amount or a specific list of "Itemized" deductions, whichever is higher.
These Standard Deduction amounts were expected to decrease back to pre-2017 figures after this year.
And we get a slight bump in the deduction effective this year!
Effective: Tax year 2025! 👏
✅ New Senior Deduction
What’s changing: A special deduction of $6,000 per taxpayer age 65+ introduced. In addition to the additional standard deduction amount already received for those 65+.
This is the closest we'll see to Trump's campaign promise of "tax-free Social Security". It will have that effect for many, since the amount of Social Security that's taxed is based generally on income.
For married couples 65+, the $150k - 250k of income range becomes an important planning point. If you're nearing this age over the next 3 years, you'll need to evaluate things like starting Social Security and Roth conversions more carefully - the extra income in that range becomes more expensive by decreasing this deduction.
Phase-out: Reduced by 6% of Modified AGI (MAGI) over $75,000 Single / $150,000 Joint.
Effective: Temporary - tax years 2025-2028
✅ SALT (State and Local Tax) Cap Increased
State and Local Taxes are one of the specific expenses you can take as an Itemized Deduction. Since 2018, you could only deduct up to $10,000 of state and local taxes - a relatively low cap for ODs in high tax states like CA and NY.
What’s changing: SALT deduction cap increased to $40,000 for 2025-2029 ($20k if married filing separately), then returns back to $10,000 in 2030.
In 2026, it will be $40,600 then increase 1% through 2029.
It phases down by 30% for every dollar of "Modified" AGI (MAGI) exceeding $500,000 (indexed for inflation), but never below the usual $10,000. $250,000 if married filing separately.
The $500k - 600k of range of AGI is a huge planning point, as it starts to make that income quite expensive once you factor in the lost SALT deduction (and other deductions and increased taxes).
Since the limit and phaseouts are the same for everyone (except married filing separately), there's a bit of a marriage penalty.
Two single filers will have the same total max deduction and income phaseouts when married - they don't double for a married couple, even though the household income may double.
Effective: Temporary - Tax years 2025 - 2029
✅ Permanent Charitable Deduction for Non-Itemizers
What’s changing: If you take the Standard Deduction, you can now deduct up to $2,000 (Married Filing Jointly) / $1,000 (all others) for charitable donations.
Before, you could only deduct donations to charity/nonprofits if you had enough itemized deductions to get you over the standard deduction amount.
Since 2018, the higher standard deduction amount meant less taxpayers itemized - leading to strategies like "bunching" donations into certain tax years, often through Donor Advised Funds.
For those that do itemize deductions, the law creates a floor for the deduction. You can only deduction your donations that exceed 0.5% of your Adjusted Gross Income.
For example, if your AGI is $250,000 and you donate $5,000 - the first $1,250 of your donations are not deductible.
Is that $1,250 lost? No, the donations that land in the 0.5% floor are able to be carried forward 5 years only in years that you donate more than the floor. If you're always under 0.5%, then you don't carry it forward.
This can make bunching of charitable donations even more important!
Effective: 2026 Tax year and Beyond
✅ Enhanced Child Tax Credit - Permanent
What’s changing: Child tax credit permanently increased to max $2,200 per "qualifying" child under 17, and will be increased for inflation.
This was previously $2,000 per child, not indexed to inflation, and was set to decrease after this year.
The current higher income phaseouts will continue as well. It begin to phase out once Modified AGI hits:
- $400,000 - married filing jointly
- $200,000 - single, or married filing separately
Effective: Tax year 2025 onward!
✅ Expanded Dependent Care Credit
What’s changing: Maximum credit for dependent care expenses permanently from 35% to 50% of qualifying expenses.
This credit helps when both parents are working and pay for qualified dependent care expenses.
This has AGI phaseouts, and will eventually decrease down to the current 20% minimum.
Effective: Tax year 2026 onward
✅ Higher Dependent Care FSA Limits
What’s changing: Dependent Care Flexible Spending Account limits increased permanently to $7,500 annually (from $5,000). Married filing separately cuts this in half for each spouse.
Be sure to check those contribution amounts for the next tax year!
Effective: Tax year 2026 onward
✅ New Car Loan Interest Deduction
What’s changing: Interest on personal car loans deductible up to $10,000 per year.
It's phased out as your Modified AGI exceeds $200,000 for joint filers ($100,000 all others), ending once you get to $250,000 ($150,000).
There are several limitations to this, such as:
- Lease financing doesn't count
- Must be a NEW car
- Final assembly has to happen in the US
$10k of annual interest is a pretty expensive car - a $200k car at 5% interest over 5 years would cost ~$9,200 of interest in the first year!
Effective: For cars purchased from 2025-2028.
✅ Temporary New Deduction for Overtime
What’s changing: Workers earning "qualified" overtime can deduct up to $25,000 of overtime pay annually if married filing joint ($0 if filing separately, $12,500 for all others).
It begins to phase out as income exceeds $300,000 for joint filers, $150,000 for others. There's a similar deduction for tips.
I expect to see this separated out on W2s and 1099s for the 2025 tax year.
Effective: Temporary - Tax years 2025-2028
✅ Estate and Gift Tax Exemption Amounts Made Permanent
What’s changing: The very high estate tax exemption amounts are made permanent - $15 million per person, or $30 million per couple in 2026 and increased for inflation after.
These were expected to decrease back to lower levels - nearly cut in half. It's good to see more certainty moving forward (until Congress changes it again).
With this made permanent estate planning continues to be primarily about:
- Ensuring your assets, affairs, and minor children are handled according to your wishes at death and incapacity
- Avoiding probate where it makes sense
- Providing flexibility
- Income tax planning where it makes sense
Effective: Tax years 2026 and beyond!
✅ ACA Health Insurance Premium Tax Credits Income Cliff Returns
The ACA premium tax credits help to subsidize the costs of health insurance - especially for those new to practice ownership and entering retirement.
Historically, there was a hard income cliff - once your income (MAGI) was over 400% of the federal poverty level for your family size, you lost all the credit. Even if by a dollar. Yikes!
From 2021-2025, the hard cliff was removed and replaced with a more gradual phaseout, allowing you to keep more of the credit at higher income levels.
The OBBBA was silent on this issue - it didn't extend the gradual phaseout.
So, in 2026, the hard cliff is returning. Since this is effectively an increased tax (lower tax credit), it's an important planning point for those close to the phaseout.
Business Tax Changes
✅ Permanent QBI (Qualified Business Income) Deduction
What’s changing: The 20% QBI Deduction is made permanent!
This was going to go away after this tax year, and fortunately the deduction for "pass through" entities (sole proprietors, partnerships, S corporations) continues on.
In addition, starting 2026, the phase-out range of taxable income (before the deduction) is 50% wider. Meaning, you'll get to keep more of the deduction at higher income levels.
Though, at some point of taxable income, "specified service" businesses like optometrists (and financial planners) will phase out of the deduction entirely.
As an example of what this looks like for 2025:
Effective: Tax year 2026 onward!
✅ Permanent 100% Bonus Depreciation
What’s changing: 100% Bonus Depreciation (full expensing) for eligible property is now permanent.
This is a cousin of the Section 179 deduction, which is commonly used when practices depreciate equipment and want to accelerate that into the current tax year. Sec 179, itself, got a boost in the Bill. They are similar, with differences in the types of property/assets that qualify.
It was introduced as part of the 2017 Tax Cuts and Jobs Act. You were allowed to accelerate 100% of depreciation for the cost of "qualified" property, rather than depreciate it over the regular schedule (5, 7, 15 years, etc.).
The percentage eventually began to decline by 20% each year - in 2025, it was set to be 40%.
Now, for "qualified" property you buy and "place in service" after January 19th, 2025 qualifies for 100% bonus depreciation.
This is particularly useful for ODs that will purchase (or purchased) rental properties after January 19th - especially commercial properties that the practice operates in.
With investment properties, you can consider cost segregation studies for your property - essentially separating the "stuff" inside the building that can be depreciated on shorter schedules than the usual 27.5- or 39-year schedules. Then, bonus depreciation can be used to accelerate the depreciation for the "stuff" that qualifies into the current tax year.
Of course, this is a major tax planning decision that should be talked through with your tax and financial advisor.
Effective: Property acquired and "placed in service" after January 19, 2025 and beyond!
✅ Pass-Through Entity Tax (PTET) Credit Lives On!
Due to the $10k SALT cap, states created a way for owners of S corporations and partnerships to deduct state taxes. Essentially, the business itself pays the state tax on behalf of the owners, and the tax is a deductible business expenses. Then, the owners get a corresponding credit on their personal tax returns, so the tax isn't paid twice. Each state has their own rules.
The proposed versions of the Bill were shown to eliminate this, but the final Bill leaves this method untouched. Assuming states continue to allow this, this is a tool your tax pro can continue to suggest when working around SALT cap limitations.
Other Enhancements
✅ More 529 Plan Qualifying Expenses
What’s changing: Expands the uses of 529 plan dollars to include:
- Expanded expenses connected to elementary or secondary school
- Credentialing and CE expenses!
The CE expenses are especially interesting, as some states will also provide a tax deduction or credit for 529 plan contributions.
Perhaps some opportunities to (within the legal bounds) open a 529 plan for yourself, contribute for the state tax benefit, and then withdraw for eligible/qualifying CE costs.
Effective: Distributions from 529s made after the Act was passed (sorry for the CE early birds!).
✅ Bronze Plans Now HSA Eligible!
What’s changing: All Bronze and "Catastrophic" plans sold on the ACA exchange now qualify as HSA-eligible plans!
Before, the Bronze plan needed to meet the minimum deductible and maximum out-of-pocket max to be a "high deductible plan" that was eligible for HSA contributions.
Effective: Tax Year 2026 and beyond!
✅ New Trump Accounts
What’s changing: The Act creates a new type of accounts for minors under 18 - Trump accounts.
The accounts will essentially be Traditional IRAs for the benefit of your child. The rules are essentially:
- No deduction for contributions until after age 18 (sorry parents)
- No earned income needed
- Capped at $5,000/year with future inflation adjustments (doesn't impact other IRA contribution limits)
- Must be indexed mutual funds and ETFs, tracking only in the S&P 500 index or another US broad market index, with expenses 0.10% or less
- Can't be opened for a year after the Bill passes
- Can only contribute up to the year the child turns 18
- Can only withdraw once the child turns 18
From there, the tax rules of withdrawals generally mirror those of Traditional IRAs. Your contributions are likely after-tax basis in the account - so it'll be important to keep track of them!
There's a provision that allows businesses to contribute to these plans up to $2,500 through a documented plan - a deduction for the business, and not income to the employee! Perhaps a new potential employee benefit for practices to consider.
There will be a pilot program coming up for kids born in the years 2025-2028 that will be funded by $1,000 a tax credit. So, there's a bit of free money there!
One observation - what's the benefit of these accounts over a Custodial Roth IRA in your kids' names?
The Trump accounts have no earned income requirement. Also, businesses can contribute to the accounts.
But, Custodial Roth IRAs have a higher annual contribution limit and the account grows tax-free (assuming the rules are followed).
If the kid has earned income, I'd consider whether the Roth IRA contribution makes sense as the starting point.
Effective: Likely 2026 tax year
The Bottom Line
Phew! 😮💨 That was a lot!
If you made it this far, double high five to you!
I'll be talking through these provisions more in this week's podcast - stay tuned! I'll also be sending out a newsletter specifically on the student loan aspects of the Bill - that deserves its own article.
In the meantime, reach out if you have any questions by scheduling a no-pressure Intro call with the link below.
Chat with your tax pros and financial advisors to see how it all impacts you - and remember, nothing needs to be done right now.
Relax, enjoy summer, and have a great week.