One, Big, Beautiful Podcast About 2025 Tax Policy
By the time it works through Congress to President Trump's desk, The One, Big, Beautiful Bill will probably have a few different details, and a different name. But the version of the bill that recently passed in the House gives us a fair indication of where tax policy could be headed for the next few years.
On today's show, we discuss the current version of the 2025 tax bill, potential changes that Congress might make, and potential ways this bill could affect your financial plan.
1. 2017 Revisited
In a very broad sense, the 2025 tax bill is a complement to the 2017 Tax Cuts and Jobs Act. Many of the earlier bill's provisions are set to expire at the end of this year, so much of the debate in Congress is around making extensions and adjustments.
For starters, the 2025 bill proposes to make permanent the seven tax brackets that were established in 2017. The Tax Cuts and Jobs Act also reduced tax rates, including bringing the top bracket down from 39.6% to 37%.
Since Congress eliminated the personal deduction in 2017 and doubled the standard deduction, it is estimated that around 95% of taxpayers don't itemize anymore. Congress is looking to make these changes permanent as well, while also increasing the standard deduction by $1,000 for single filers and $2,000 for joint filers until 2028, plus a $4,000 increase for seniors over age 65. These bonus deductions would phase out based on your adjusted gross income, but they would also be available to folks who itemize during this four-year window.
The 2025 bill also proposes making the $2,000-per-child child tax credit permanent, with a $500 per-child bonus through 2028.
2. From the Campaign to Congress
Eliminating taxes on tips, overtime work, and Social Security were hot topics on the 2024 campaign trail.
As it stands right now, the 2025 tax bill won't change how Social Security is taxed. That's probably for the best. Most states have eliminated or started to phase out their Social Security taxes, easing some financial burden for seniors. And as debates about the solvency of the Social Security trust fund continue, cutting off a major source of revenue for the fund without more thorough long-term planning might have had some negative consequences.
Back in May, in a rare show of "unanimous consent," the Senate passed the No Tax on Tips Act, which does what the name says for folks earning $160,000 or less. There's similar language in the One, Big, Beautiful Bill, as well as an exemption below the same threshold for overtime pay through 2025. It's likely the government hopes these changes will address staffing issues in certain industries post-COVID and incentivize folks to keep working in restaurants, warehouses, etc.
3. Retirement and Legacy
529 accounts are tools we use quite often at Keen Wealth to help folks provide for a child's or grandchild's education. The 2025 tax bill proposes an expansion of allowable expenses, including homeschooling, tutoring, and earning professional credentials. Adding more flexibility to how 529s can be used will hopefully encourage more folks to plan ahead and invest in the next generation.
The 2025 tax bill would also double contribution limits to health savings accounts, depending on your adjusted gross income. Funds in these accounts are "triple tax exempt": contributions are exempt from income tax and FICA, exempt from your earnings as they grow, and exempt from income tax upon withdrawal. If you don't need to tap into your health savings account while you're on an employer-subsidized plan, you can let the account continue to grow and use it to cover Medicare premiums and other health care expenses later in retirement.
Finally, folks with large estates will be happy to know that the 2025 tax bill proposes lifting the lifetime estate tax exemption to $15 million ($30 million for couples). Remember that annual gifts of up to $19,000 per recipient do not count towards this exemption, so married couples can give up to $38,000 per year to a loved one without any taxes or recordkeeping.
4. Subscribe for the Follow-Up
The One, Big, Beautiful Bill is currently facing opposition in the Senate from both Democrats and a handful of Republicans who are concerned the bill will add too much to the national debt. It will also be interesting to track some proposals that haven't made major headlines, like a deduction for auto loan interest on American-made cars.
If you click here and join our mailing list, once the final bill passes we'll let you know when we're ready for a follow-up episode. Matt Wilson, our Chief Investment Officer and President, will also touch on any important changes to tax policy when he holds his next Market Update webinar.
In the meantime, wait for the dust to settle before jumping to any conclusions about the 2025 tax bill and your financial plan, and reach out to Keen Wealth if you have any questions.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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