In this episode of Nurturing Financial Freedom, we dive into the implications of the newly passed federal tax bill—also known asl the “big, beautiful bill.” While the name might suggest sweeping changes, the truth is more about maintaining the status quo and preventing an expiration of key provisions from the 2017 Tax Cuts and Jobs Act. We break down what that means for retirees, investors, and anyone planning their financial future.
We start with the basics. Alex explains that the bill keeps existing tax brackets intact through 2025. The seven current brackets—ranging from 10% to 37%—remain unchanged and will continue to adjust with inflation. This alone helps prevent tax hikes for most Americans. Next, we look at the standard deduction. It’s staying high: $15,750 for individuals and $31,500 for married couples filing jointly in 2025. For seniors aged 65 and older, there’s an added bonus—an additional $6,000 per person. That means some retired couples could deduct up to $43,500, significantly lowering their taxable income. However, this senior deduction phases out at incomes over $150,000 and disappears entirely at $250,000.
Another highlight is a small but impactful update to tip and overtime tax treatment. Up to $2,500 in tips and $5,000 in overtime income will now be tax-exempt, a win for part-time workers and younger family members in service jobs. We also see an increase in the SALT (state and local tax) deduction cap—from $10,000 to $40,000—which could encourage some high earners in states like New York and California to start itemizing again.
Ed takes over to unpack how this affects investments. Capital gains tax rates remain unchanged, with the familiar 0%, 15%, and 20% tiers, adjusted for inflation. The 3.8% net investment income tax—sometimes dubbed the Obamacare surcharge—still applies to higher-income earners. Importantly, the step-up in basis on inherited assets is untouched, preserving one of the most efficient methods of wealth transfer.
The bill also maintains the Qualified Charitable Distribution (QCD) option, allowing those over 70½ to donate up to $100,000 directly from IRAs without increasing taxable income. Required Minimum Distributions (RMDs) still begin at age 73. We round out with a reminder on smart asset location—keeping tax-inefficient investments in tax-deferred accounts and long-term strategies in taxable accounts.
While the bill doesn’t overhaul the tax code, it preserves favorable conditions for most Americans, especially retirees and investors. Our advice remains: understand how these provisions impact your specific situation and reach out to a financial professional for personalized planning.