Year-end conversations with clients are always worth having, but 2025 stands out as a particularly important year to have this talk, because of the numerous changes in tax law under the “One Big Beautiful Bill Act” (OBBBA).
One example: If giving generously is part of your client’s financial strategy, make sure they are aware that OBBBA changed key rules governing charitable contributions. As a result, clients may want to accelerate charitable gifts this year to make the most of current deduction opportunities.
OBBBA changed tax policy in numerous key areas — from charitable deductions to taxes on small business owners to taxes on tips and deductions for state and local taxes. To make sure you have a good overview of all the OBBBA changes, use this two-page summary of how OBBBA may impact your clients.
Below are more details, and other reminders, to discuss with clients before the end of 2025:
Navigating new limits on charitable deductions
Starting in 2026, a federal tax law change will make it less advantageous for high net worth individuals to claim charitable deductions. Two key provisions will affect how much they can deduct.
First, the tax benefit of all itemized deductions will be capped at 35%. This means that even if your client is in the highest federal tax bracket (currently 37%), starting in 2026, they will only save 35 cents in taxes for every dollar they deduct, rather than 37 cents.
Second, a new “floor” will apply to itemized charitable deductions. This means clients will only be able to deduct the portion of their charitable gifts that exceeds 0.5% of their adjusted gross income (AGI). Thus, if a client’s AGI is $1 million, the first $5,000 of charitable giving won’t be deductible — only amounts above that threshold will count. If AGI is $10 million, the floor rises to $50,000. In short, as income increases, so does the minimum amount a taxpayer must give before they can start claiming a deduction.
To see how this might work in practice, consider the following example. If your client were to make a $100,000 charitable gift and her AGI was $1 million, in 2025 she could deduct the full amount at her top rate, saving $37,000 in taxes. In 2026, she will only be able to deduct $95,000 after the imposition of the new floor, and her tax savings would be capped at $33,250.
Accelerating deductions in 2025 and frontloading charitable giving, such as funding donor-advised funds (DAFs) for future giving, can help mitigate the impact.
Don’t forget that individuals 70 1/2 and older can contribute up to $108,000 (for 2025) directly from traditional individual retirement accounts (IRAs) to qualified charities. These qualified charitable distributions (QCDs) are not included in taxable income and count toward an individual’s required minimum distributions. QCDs may be especially advantageous in light of changes made under the OBBBA. Unlike itemized deductions, QCDs bypass the new 0.5% floor on charitable deductions as well as the new 35% cap for high-income taxpayers taking effect in 2026.
OBBBA changes to state and local tax (SALT) deductions
Additionally, the SALT deduction increases for individuals and married couples filing jointly to $40,000 in 2025 through 2029 ($20,000 for married individuals filing separately) — up from the current limit of $10,000 ($5,000 for married individuals filing separately) — but is reduced for those with modified AGI exceeding $500,000 ($250,000 for married filing separately). Because of those phase-outs for higher income levels, you might encourage your clients to consider working with a tax advisor to reduce modified AGI. One method of reducing AGI is, for example, to contribute more to a pre-tax 401(k) or delay exercising stock options, if applicable to your client’s situation.
Mixed news on Alternative Minimum Tax (AMT)
OBBBA contained mixed news on the application of AMT. While it permanently extended most of the AMT provisions contained in the 2017 Tax Cuts and Jobs Act (TCJA), it also reduced the income phase-out thresholds, which may result in increased AMT risk for high earners beginning in the 2026 tax year.
This risk is somewhat similar to the risk high earners face of losing some or all of the newly expanded SALT exemption. In both cases higher incomes can produce a noticeable “bump” in tax rates above a certain income. Advisors should help clients understand the potential downside of higher income, and consider ways to manage income and deductions, both in the 2025 tax year and beyond.
Family gifting and estate planning
In 2025, the annual gift exclusion increased to $19,000 per person, while the lifetime gift and estate tax exemption is $13.99 million. In 2026, the lifetime gift and estate tax exemption will increase to $15 million, indexed for inflation. It’s important to review gifting strategies and estate plans with clients to see if it makes sense in their situation to make full use of these thresholds.
Additionally, the generation-skipping transfer (GST) tax exemption is increasing, offering more flexibility for multigenerational wealth transfers.
Retirement planning: SECURE Act 2.0 and Roth strategies
To maximize retirement savings, encourage clients to make all 401(k) and IRA contributions by December 31. For 2025, the 401(k) contribution limit is $23,500, with higher catch-up contributions for people aged 50 and above. IRA limits are set at $7,000, with an additional $1,000 catch-up for those over 50.
Starting January 1, 2026, a new rule under the SECURE Act 2.0 will impact how higher paid employees can make catch up contributions to their retirement plans. If a taxpayer is turning 50 or older in 2026 and her total 2025 FICA wages were over $150,000 (indexed annually), any catch-up contributions made in 2026 must be made as after-tax Roth contributions.
These are just a few of the changes in tax policy that may impact your clients. It has been a busy and eventful year, make sure you end the year by helping your clients understand the changes that impact tax strategy for 2025 and beyond.
