On July 4, President Trump signed into law his long-awaited domestic policy. The legislation formally known as the One Big Beautiful Bill Act (OBBBA) clocks in at 870 pages and covers everything from defense spending to environmental issues to immigration.¹

A key focus for financial professionals is the impact the bill will have on the U.S. tax code.

Overall, OBBBA should lead the top 10% of earners to see a 2.4% increase in after-tax and transfer income – which if nothing else provides advisors with an opportunity to discuss how this change will affect clients’ income and financial plans.²

Beyond that expected increase, I’d like to dig a little deeper into the legislation and highlight three specific provisions that will affect many advisors’ high-income financial planning clients, as well as high-net-worth clients with at least $5 million in assets.

State and local taxes (SALT)

One of the main provisions we’ve been tracking this year is the SALT deduction. Many lawmakers across the country had argued that the current $10,000 cap on SALT deductions was far too low. Those calls for a higher cap were heard, and we will now see it increase to $40,000 through 2029 for most taxpayers making less than $500,000, with both figures increasing by 1% annually. Note that the cap is $20,000, with a $250,000 income threshold for those married individuals filing separate (MFS) returns. Also, in 2030, the cap would revert back to $10,000 ($5,000 MFS).

While the temporary increase is welcome news for many, the $40,000 cap would be phased out to as little as $10,000 as incomes reach or exceed $600,000. It will be crucial for advisors to understand how the phaseout could affect clients making between $500,000 and $600,000. That’s because the provision mandates a reduction of the SALT deduction by 30% of income greater than $500,000. The phaseout of the deduction could mean that if a client’s income increases by $100,000 ($500k to $600k), their taxable income could increase by $130,000!

Also of note, and particularly helpful for certain business owners, the legislation does not affect the ability of owners of pass-through entities (PTET) to pay their SALT taxes through their businesses. Currently, 36 states use PTETs to allow pass-through businesses to avoid the deduction cap.³

Qualified small business stock (QSBS)

Section 1202 of the Internal Revenue Code provides a wonderful tax savings opportunity for small business entrepreneurs and investors. Currently, this section allows those who have owned stock in a qualifying C Corp for at least five years to reduce their capital gains when they sell. The reduction could be 50%, 75%, or 100% depending on the date on which the stock was acquired and could exempt up to $10 million or 10 times the original basis of the investment, whichever is greater.

Designed to incentivize investment in startups, Trump’s OBBBA increases the threshold to qualify as a “small business” from $50 million to $75 million in assets and increases the minimum exclusion amount from $10 million to $15 million. The bill also continues the 50%, 75%, 100% tiering system, so that owners who sell stock after three years will receive a 50% capital gains reduction, those who sell after four years will receive a 75% reduction, and those who sell after five years will receive the full 100% reduction.

This is a big change and provides the opportunity going forward  for some great planning conversations between business owners, advisors, and CPAs, specifically around the question of, “Should I be an S-corporation, LLC, or C-corporation?” These new rules may change the calculus for this decision and could increase the popularity of C Corps.

Estate tax exemption

Despite calls to repeal the so-called “Death Tax,” it will continue to live on for the foreseeable future, even though it affects only a miniscule percentage of American families.

Starting in 2026, the estate tax exemption will increase to $15 million per person or $30 million for a married couple should the surviving spouse take advantage of portability. Having this clarity should lead to a much calmer end of the year for advisors and estate planning attorneys, as many had worried, they might need to update clients’ trust and legal documents at the eleventh hour should this provision and tax policy inch closer to the December 31 sunset. However, while the provision was made permanent, it’s important to remember that doesn’t mean we might not see calls for its reduction during the next election or under another administration.

While that may be the case, I am still a big believer in wealth transfer planning for families. First, remember that 18 states currently impose an estate or inheritance tax, and the exclusion amounts at the state levels are much less than the federal exclusion amount.

Second, it’s important to remind clients that most wealth transfers fail due to a lack of communication and trust between family members. Having conversations about the financial and non-financial aspects of wealth transfer remains vitally important – and any legislative changes that impact estate planning present an opportunity to revisit those discussions.

As with any piece of tax policy, clients will have questions about the OBBBA based on their specific financial situation. While it’s a lot to digest, understanding this bill and its provisions will help advisors provide holistic advice to clients and proactively respond to their concerns.

Over the coming weeks, watch for more articles from the Janus Henderson Wealth Strategist team, where we’ll dig into other OBBBA provisions, their effective dates, and the planning considerations they bring to the table.

IMPORTANT INFORMATION

Tax information contained herein is not intended or written to be used, and it cannot be used by taxpayers for the purposes of avoiding penalties that may be imposed on taxpayers. Such tax information and any estate planning information is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice.