Tax Year 2025: The After Action Report

Now that we’re well into the new tax landscape shaped by both the Tax Cuts and Jobs Act of 2017 (TCJA) and the significant changes introduced by the One Big Beautiful Bill Act (OBBBA) — signed into law on July 4, 2025 — I wanted to provide an updated set of lessons learned. The OBBBA permanently extended most TCJA provisions, raised several key thresholds, and introduced new planning opportunities. Here’s what you need to know. [IRS: OBBBA Provisions]

Background

Most taxpayers now have several years of experience filing under the TCJA framework. What began as “new rules” in 2018 are now well-established. However, the passage of the OBBBA in mid-2025 changed the calculus again — this time by making many provisions permanent and adding new ones. The combination creates both opportunity and complexity for careful planners.

The tax filing deadline remains one of the few hardened due dates in the financial world. You can postpone that appointment with your Estate Attorney for as long as you wish. You ignore income taxes at your own peril…

Lessons Learned

Lesson #1: The Standard Deduction Is Now Even Higher — and More Consequential

Originally, the TCJA roughly doubled the standard deduction in 2018. The OBBBA has raised it again. For tax year 2025, the standard deduction is [IRS: 2026 Tax Adjustments]:

• $31,500 for married couples filing jointly
• $15,750 for single filers
• $23,625 for heads of household

For comparison, back in 2017 the standard deduction was $12,700 for married filers and $6,350 for single filers. The nearly 150% increase over eight years has fundamentally changed the calculus for most taxpayers. About 90% of filers now take the standard deduction rather than itemizing. When you think about median household income in the U.S. — hovering around $80,000 — a good deal of income is simply not subject to federal income tax at all. Of course, payroll taxes are a different story.

One consequence of the elevated standard deduction: the tax benefit of owning a home has been largely neutralized for most filers. The ability to deduct mortgage interest still exists, but for those who don’t itemize, it provides no benefit. Please consider all aspects of purchasing a home — and please don’t borrow from your retirement funds to do it.

Lesson #2: Tax Refunds Are Not a Complete Gauge for Overall Tax Liability

Much was made in the press in prior years about the decrease in the size of tax refunds following TCJA. Some mistakenly concluded that a reduced refund meant they didn’t receive a tax cut. Nothing could be farther from the truth.

Your income tax refund is a reflection of both your tax liability AND your withholding AND estimated tax payments. If your withholding decreases to match your actual lower liability, your refund will shrink — even though you’re paying less in taxes overall. For completeness, you might be subject to underpayment penalties if you don’t pay enough throughout the year, so it is worth the effort to calculate your estimated taxes and withholding.

My suggestion is to use the IRS’s Withholding Estimator and make adjustments so you have a positive, though not excessive, refund at tax time. Remember: if you receive a large refund, you are — in essence — providing the government a tax-free loan. For those who can’t seem to save, a large refund can serve as a forced savings plan… provided you actually save the money. In short, have a wary eye on tax refunds.

Lesson #3: Itemized Deductions — Still Relevant for the Right Taxpayer

For most filers, the standard deduction remains the better choice. But with the OBBBA raising the SALT deduction cap dramatically (see Lesson #6), itemizing has become worthwhile again for a meaningful segment of taxpayers, particularly those in high-tax states.

For those who are near the cusp of itemizing, a Donor Advised Fund (DAF) may still make excellent sense. With DAFs, you can employ a strategy called “bunching,” where you group multiple years’ worth of charitable donations into one year and parse the funds out over time. The upfront deduction for the full contribution pushes you into itemizing territory, which provides full credit for your charitable giving.

Lesson #4: Charitable Contributions — New Opportunity for Standard Deduction Filers

For the charitably inclined, the OBBBA introduced a meaningful new provision. Beginning in 2026, taxpayers who take the standard deduction — rather than itemizing — can still deduct up to $1,000 in charitable contributions ($2,000 for those married filing jointly). This is a departure from the prior rule, which only allowed charitable deductions for itemizers. For many clients who give regularly to their church, community, or favorite cause, this is a welcome development.

For larger givers, a Donor Advised Fund continues to be the premier vehicle for maximizing charitable tax efficiency.

Lesson #5: The Alternative Minimum Tax (AMT) Remains Contained for Most

The AMT modifications from TCJA — which dramatically reduced the number of taxpayers subject to this tax — have been made permanent under the OBBBA. Originally conceived to make tax dodgers pay their fair share, the AMT had morphed into a very wide tax net before 2018. Today, only a small fraction of taxpayers — roughly 0.1% — are affected. For high-income filers in high-tax states who may now be itemizing due to the elevated SALT cap, it’s worth confirming with your tax advisor that the AMT doesn’t apply to your situation.

Lesson #6: State and Local Income Taxes (SALT) — A Major Change

One of the most significant updates in the OBBBA is the expansion of the SALT deduction cap. Under TCJA, the cap was $10,000 — a limit that stung taxpayers in high-tax states like New York, New Jersey, California, and Connecticut. Under the OBBBA, the cap has been raised to $40,000 for tax years 2025 through 2029 (for filers with income below $500,000). The cap increases by 1% each year through 2029, then reverts to $10,000 in 2030 — so there is a defined window to take advantage of this.

For clients who live in high-tax states and have historically paid well above $10,000 in state and local taxes, this is a meaningful planning opportunity. If you haven’t revisited whether itemizing makes sense for your situation, now is the time to do so. High earners should note that the expanded cap phases down for modified adjusted gross income above $500,000.

The bottom line: SALT is no longer a static story. Five years of elevated caps create real planning opportunities, particularly when combined with mortgage interest, charitable deductions, and other itemized expenses.

Lesson #7: UGMA and UTMA Accounts — Tax Gain Harvesting Still Works

The income tax treatment of UGMA and UTMA accounts — often called the “kiddie tax” — taxes unearned income for minors at trust rates. For 2025, those rates are:

• 0%: $0 – $3,150
• 15%: $3,151 – $15,450
• 20%: $15,451 and up

Of note, the first $2,500 of unearned income is deducted before you start, meaning you can effectively avoid capital gains taxes on up to $5,650 of gains by gifting appreciated assets to your child and then “tax gain harvesting” — selling the asset and immediately buying it back to establish a new, higher cost basis.

There are nuances to this strategy, so please be sure to consult your tax advisor before pulling the trigger. For those sitting on large amounts of capital gains in taxable accounts, this can be an invaluable strategy.

Lesson #8: New Senior Deduction — A Meaningful Benefit for Those 65+

The OBBBA introduced a new deduction specifically for taxpayers age 65 and older, available for tax years 2025 through 2028. This deduction is $6,000 per qualifying individual ($12,000 for married couples where both spouses qualify). Critically, unlike most deductions, this one is available whether you itemize OR take the standard deduction.[IRS: 2026 Senior Filing Updates]

The deduction phases out for higher earners: it begins reducing at $75,000 of modified AGI for single filers and $150,000 for joint filers, at a 6% rate. For many retirees, this represents a significant and underappreciated tax break. If you or a family member is 65 or older, make sure your tax advisor is accounting for this.

Lesson #9: Back Door Roth IRA — Still Alive and Well

Despite persistent rumors during the legislative process, the OBBBA did not eliminate the Backdoor Roth IRA strategy. High-income earners can still contribute to a non-deductible Traditional IRA and convert those funds to a Roth IRA. There are no income limits for either non-deductible Traditional IRA contributions or Roth conversions.

The big catch remains the same: you should have no pre-tax Traditional IRA assets, which you can accomplish through Roth conversions or “roll-ins” to your employer’s qualified plan if it accepts them. The IRS aggregation rule means pre-tax IRA balances can create an unexpected tax bill at conversion — please refer to your tax advisor if you’re in doubt.

Bottom Line: a Roth IRA is one of the most powerful retirement planning tools available, full stop. With TCJA tax rates now permanently extended under the OBBBA, locking in today’s favorable rates through Roth conversions may be even more compelling. If you disagree, call me at (901) 318-3423 and we can talk about it. I suggest making the necessary moves to get funds into a Roth IRA if you can.

Lesson #10: Use of Qualified Plans — More Important Than Ever

Participation in employer-sponsored retirement plans continues to climb, and for good reason. The 401(k) elective deferral limit for 2025 is $23,500. Those age 50 and older can contribute an additional $7,500 in standard catch-up contributions for a total of $31,000. [IRS: 401(k) Limits 2026]

Special Alert for Those Aged 60–63: The “Super Catch-Up”

Under the SECURE 2.0 Act, workers who are 60, 61, 62, or 63 years old are eligible for an enhanced “super catch-up” contribution of $11,250 — fully 50% more than the standard $7,500 available to those 50 and older. Combined with the $23,500 base deferral, those in this age window can contribute up to $34,750 to their 401(k) in 2025. [IRS: Catch-Up Contributions]

This window only exists for exactly four years of your life. It is one of the most powerful and time-limited tax-advantaged opportunities in the entire tax code — and it is frequently overlooked. If you fall in this age range and are not already maximizing this, you are leaving meaningful tax-sheltered savings on the table. Please call us.

Unfortunately, median account balances for those in their 50s remain far below what most people will need in retirement. Whatever your balance is today, the only way to build it up is disciplined, consistent saving — “save until it hurts” remains the right philosophy.

Take advantage of any employer match first — that’s free money on the table. Then maximize your own contributions to the extent possible. The amounts stack up over time in ways that are easy to underestimate in the early years.

To Roth or Not to Roth

Intelligent people can reach different conclusions on whether to contribute to a Traditional (pre-tax) or Roth (after-tax) retirement account. Many factors come into play — current tax rates, expected retirement income, pension income, and more.

With TCJA tax rates made permanent under the OBBBA, the urgency to “lock in” low rates before a scheduled sunset is less pressing than it was. That said, Roth assets remain an extraordinary long-term planning tool given their tax-free growth, tax-free withdrawals, and lack of required minimum distributions. In my view, for most clients, getting assets into Roth accounts remains a high-priority goal.

Practically speaking, retirement account balances in aggregate remain far too low. So the most important answer is simply this: save as much as you can, in whichever bucket makes sense. The difference between Roth and Traditional tax treatment in retirement is unlikely to be the difference between first-class and coach — it will more likely be BMW versus Mercedes. Get your account to a meaningful level first… then we can have a fine-grained conversation about bucket allocation.

For military members, who are fortunate to earn a meaningful portion of their pay tax-free (BAH, BAS, and COLA), Resilient Asset Management has generally steered clients toward Roth TSP contributions. This recommendation is situation dependent, so please don’t take it as Holy Writ.

A Word About the OBBBA and Future Tax Planning

The passage of the One Big Beautiful Bill Act on July 4, 2025 is one of the most consequential tax events in recent memory. By making TCJA provisions permanent, it removes much of the uncertainty that had defined tax planning for years. Key changes now locked in permanently include:

• The seven individual tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent
• The elevated standard deduction is permanent and continues to rise with inflation
• The 20% Qualified Business Income (QBI) deduction under Section 199A is now permanent
• AMT relief is permanent
• The elevated estate tax exemption continues

New temporary provisions — the $40,000 SALT cap (through 2029), the $6,000 senior deduction (through 2028), and new deductions for tips and overtime — create near-term planning opportunities that will not last. If any of these apply to your situation, acting sooner rather than later is prudent.

Looking Ahead: What to Watch for in Tax Year 2026

As we move into 2026, several meaningful tax changes have already taken effect — or are taking effect for the first time this year. These are worth understanding now, as they will impact the returns you file in early 2027.

Higher Standard Deduction — Again

The standard deduction continues to climb. For tax year 2026, the amounts are:

• $32,200 for married couples filing jointly (up from $31,500 in 2025) [IRS: 2026 Tax Adjustments]
• $16,100 for single filers (up from $15,750 in 2025)
• $24,150 for heads of household (up from $23,625 in 2025)

For the overwhelming majority of filers — now approaching 90% — this continues to make the standard deduction the clear choice over itemizing. If you are on the cusp of itemizing, this is worth revisiting with your advisor each year.

New Charitable Deduction for Standard Deduction Filers (Effective 2026)

As noted in Lesson #4, beginning with tax year 2026, taxpayers who take the standard deduction can now deduct up to $1,000 in charitable contributions ($2,000 for married couples filing jointly). This permanent provision is now live for the first time. If you give to charity and take the standard deduction, make sure your contributions are documented and that your tax preparer is capturing this deduction.

High Earners: The New “2/37ths” Limitation on Itemized Deductions

Starting in 2026, taxpayers in the 37% bracket — those with income above $768,700 for married filers or $640,600 for single filers — face a new limitation on the value of their itemized deductions. The rule reduces total itemized deductions by 2/37ths of the lesser of (a) your total itemized deductions or (b) the amount by which your taxable income exceeds the top bracket threshold.

In practical terms, the effective tax benefit of each dollar deducted is reduced from 37 cents to approximately 35 cents. For large charitable gifts in particular, this is consequential. A $100,000 donation that saved $37,000 in taxes in 2025 will now save approximately $35,000 in 2026 and beyond.

Additionally, for itemizers, charitable contributions are only deductible to the extent they exceed a new 0.5% AGI floor. For a couple with $500,000 in AGI, the first $2,500 donated provides no deduction. For large and strategic givers, this means coordinating with your advisor before year-end — not after.

One silver lining: taxpayers who anticipated this rule and accelerated or bunched larger charitable gifts into 2025 may have benefited from the full 37% deduction before the haircut took effect. For 2026 and forward, Qualified Charitable Distributions (QCDs) from IRAs — available to those 70½ and older — remain a powerful tool to give charitably without the new limitations applying.

Higher Retirement Plan Contribution Limits

The IRS has increased contribution limits across the board for 2026:

• 401(k), 403(b), 457, and TSP: $24,500 (up from $23,500 in 2025) [IRS: 401(k) Limits 2026]
• IRA contributions: $7,500 (up from $7,000 in 2025)
• IRA catch-up (age 50+): $1,100 (up from $1,000 in 2025)
• 401(k) catch-up (age 50+): $8,000 (up from $7,500 in 2025)
• Super catch-up for ages 60–63: $11,250 (unchanged from 2025) — see callout below

Every dollar more you can shelter in a tax-advantaged account is a dollar deferred or tax-free. If you haven’t updated your payroll contributions to reflect the new limits, do so now — especially if you’re within a few years of retirement.

Reminder: The 60–63 Super Catch-Up Is Alive in 2026

As noted in Lesson #10, the SECURE 2.0 super catch-up of $11,250 continues unchanged for 2026. When combined with the new $24,500 base deferral, workers aged 60–63 can contribute up to $35,750 to their 401(k) this year. This four-year window is one of the most powerful last-mile savings opportunities available to pre-retirees. If this applies to you or someone in your family, this is the year to act.

One important new wrinkle effective in 2026: if you earned more than $150,000 in FICA wages in 2025, your age-based catch-up contributions must be made as Roth (after-tax) contributions. This was a SECURE 2.0 requirement that has now taken effect. Check your W-2 and confirm with your HR department whether this applies to you.

SALT Cap Ticks Up to $40,400 [IRS: SALT Correction Notice]

The SALT deduction cap, raised to $40,000 for 2025, automatically increased by 1% to $40,400 for 2026, as built into the OBBBA’s structure. This annual increase continues through 2029, after which the cap reverts to $10,000. For high-tax-state residents actively planning around this window, 2026 remains a valuable year to maximize deductible SALT.

Private Mortgage Insurance (PMI) Is Now Deductible Again

Beginning in 2026, homeowners who pay Private Mortgage Insurance premiums can once again deduct those premiums as mortgage interest for itemizers. This deduction had expired after the 2021 tax year and was reinstated by the OBBBA. The deduction phases out for AGI above $100,000 for single filers and $200,000 for joint filers. For qualifying homeowners who itemize, this is a quietly useful new benefit.

Estate Tax Exemption Increases

The estate tax basic exclusion amount has increased to $15,000,000 per individual for 2026 (up from $13,990,000 in 2025). For married couples with proper planning, this means up to $30,000,000 can pass estate-tax-free. Those with estates approaching or exceeding these thresholds should review their planning documents accordingly.

A Word About Your Income Tax Return

At Resilient Asset Management, we request to see each client’s income tax return — it is the financial equivalent of a medical chart for a doctor. Just as a reputable physician would never prescribe medication without first reviewing the chart, a reputable Financial Planner should not prescribe financial strategies without reviewing the tax return and considering the implications.

While you should not let the tax tail “wag the dog,” your Financial Planner should always be mindful of what the tail might knock over in the china shop. When possible, please facilitate collaboration between your Financial Planner and your Accountant — you will be happy you did.

Conclusion

Income taxes are part of everyone’s lives. With the OBBBA permanently extending most TCJA provisions and adding several new ones, the rules of the game are clearer than they’ve been in years. But “clearer” doesn’t mean “simpler.” The interaction of the higher SALT cap, the new senior deduction, the Roth landscape, and expanded charitable deduction rules creates real complexity — and real opportunity — for those who engage proactively.

If you are unsure how these changes affect your situation, please seek out the assistance of a qualified tax professional. Comments, criticism, and suggestions are always welcome. If you would like to discuss your personal situation with Resilient Asset Management, please contact us at chris@resilientam.com or (901) 318-3423.

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