‘Big Beautiful Bill’ Affects Tax Planning For Stock Options And RSUs

The “One Big Beautiful Bill” Act of 2025 (OBBBA), signed into law on July 4, is not nearly as dramatic in its impact on tax and financial planning as was the Tax Cuts & Jobs Act in 2018 (TCJA). However, it does have a few surprises that may affect planning with stock options, restricted stock units (RSUs), and other types of equity awards. These include changes that influence the calculation of the alternative minimum tax (AMT), most notably in the significantly raised cap on state and local tax (SALT) deductions. Other provisions in the law concern the special tax treatment for startup company stock and tax planning around charitable donations.

‘Timing Is Going To Be Huge’

Financial advisors are digging into the new tax law, trying to make sense of its sprawling provisions and their effective dates: what applies this year (and from what date); what takes effect next year; and what goes away again in a few years.

“I think timing is going to be huge from a planning perspective,” says John Owens, Managing Partner of financial-advisory firm Brooklyn FI in New York. “Half this law comes into effect for 2025, another half for 2026. This year is fertile territory for some creative tax planning around stock option exercise strategies, SALT deductions, and charitable gifts,” he explained.

SALT Deduction Affects Taxes For Incentive Stock Options

In 2018, the TCJA imposed a cap of $10,000 on the total amount of state and local taxes (SALT) available for your itemized deductions. This controversial limit had to change significantly for the OBBBA to get enough Republican votes to pass in the House of Representatives. As a result, the OBBBA quadrupled the cap on SALT deductions to $40,000 per year from 2025 through 2029, with a 1% increase each year.

Whenever you exercise incentive stock options (ISOs) and hold the stock, you need to consider whether this will trigger the AMT, as the exercise spread becomes part of your AMT income (AMTI). Dealing with the AMT will be more of a hassle for anyone with ISOs trying to obtain the preferential ISO tax treatment at sale. The denial of the SALT deduction under the AMT rules, where instead it’s added back to your income to increase your AMTI, will now play a bigger role. Given the quirky way in which AMT income is determined, taking SALT deductions up to the $40,000 cap could make it more likely that you will trigger the AMT with an ISO exercise/hold. (For details on the AMT calculation, see an FAQ at the website myStockOptions.com.)

What this means: Your strategy for how many ISOs to exercise could be uprooted. If you’re worried about triggering the AMT, the number of ISOs you’ll want to exercise will be lower to reduce the total spread of income between your exercise price and the stock price. However, whenever you pay the AMT, you still get a future tax credit to use.

Holistiplan, which provides tax-planning software tools for advisors, calculated for me how much the higher SALT deduction will lower the ISO spread value that triggers the AMT. Across all the scenarios in Holistiplan’s data, the SALT deductions are combined with other itemized deductions of $30,000 ($20,000 of mortgage interest and $10,000 of charitable contributions). The analysis in the data tables below shows how an increasing SALT deduction will lower the spread value and thus the number of ISOs you can exercise/hold without triggering the AMT.

*The pre-OBBBA cap on SALT deductions was $10,000. Therefore, the trigger points at $20,000 and $40,000 of SALT deductions during the TCJA period are the same.

Phaseout Of The Higher SALT Cap

Phaseouts are the laser gun of the tax code. Politicians use them to vaporize taxpayer-favorable provisions along a gradient to meet budget limits. However, phaseouts also amplify the complexity of the tax rules.

Not surprisingly, the OBBBA imposes a phaseout on the increased SALT deduction. For taxpayers with modified adjusted gross income (MAGI) above $500,000, the deduction phases out at 30% of every dollar over that threshold. It will thus phase out completely at $600,000 of MAGI.

What this means: When you have income in the $500,000 range, in a year with a big RSU vesting, exercise of nonqualified stock options, early ISO sale, cash bonus, big stock or asset sale, or other taxable income, you could lose all or part of the higher SALT deduction.

While advisors generally welcome the higher SALT cap, CJ Stermetz, the founder of the financial-advisory firm Equity For The Win in San Jose, California, observes that it “penalizes high-income couples and can create an even greater marriage penalty.” For example, he says, the $500,000 phaseout point is the same for both married joint filers and single filers.

Advisors are also not recommending that you overly focus on planning around the higher SALT cap phasedown.

“I have always been a ‘grab the income when it comes your way’ kind of tax advisor—don’t delay, because we don’t know what the future holds,” asserts Randy Joseph (CPA), founder of the Seattle, Washington tax-advisory firm Joseph & Hetrick. “I don’t like the idea of delaying income to possibly get a SALT deduction unless it is something obvious, like don’t exercise nonqualified stock options until the next year. And even then, if you have a great reason to want to exercise/sell the NQSOs (e.g. a tender offer in a private company or a need for cash to buy something like a home), I still say grab the income.”

AMT Changes

Back in 2018, the TCJA lessened the likelihood of triggering the AMT by raising the AMT income exemption amount and the threshold for where it phases out. The table below shows the exemption and phaseout amounts for 2025.

While the OBBBA continued these parts of the TCJA on the AMT calculation, it made changes that increase the risk of trigging the AMT, starting in 2026, for higher income taxpayers:

• The phaseout starting point for the AMTI income exemption goes down to $1,000,000 (joint) and $500,000 (single).
• The phaseout calculation rises to 50 cents for every dollar of AMTI over the thresholds.

The changes in the AMT phaseout are among the top issues that tax advisors are starting to look at, as minimizing the AMT is a major concern for clients with ISOs.

“I’m curious to see how the accelerated phaseout of the AMT exemption could play out for clients,” says Rebecca Conner (CPA), the founder of SeedSafe Financial in Austin, Texas. She expects to dig into testing planning scenarios in September, when future tax projections pick up again for her clients with ISOs. “So far, it looks like this will be one of the key pieces we’ll be working through,” she explains.

For those with higher incomes concerned about the AMT, Owens suggests that “if you have ISOs, you may want to think about a strategy to exercise more in 2025, before this takes effect, because it’s much more likely that you’ll pay AMT in the future than in the current tax year.”

Startup/Pre-IPO Company Stock

The OBBBA expanded the tax benefits and eligibility of Qualified Small Business Stock (QSBS). The changes apply for stock issued after the date of the tax law’s enactment.

For QSBS, the OBBBA increased the gross-asset test for companies eligible to issue QSBS to $75 million and raised the amount of the capital gain exclusion on your tax return to $15 million. It also added shorter stock-holding periods for the exclusion of capital gain income from taxes. Now there are three tiers:

• 100% exclusion for shares held five years
• 75% for shares held four years
• 50% for shares held three years

What The QSBS Change Means For You

The significance of the change in QSBS provisions goes beyond the founders, investors, and venture-capital firms involved in startups. It does provide some potential tax treats to regular employees.

If you work for a startup or later-stage private company and have restricted stock/RSUs or stock options in it, the shares you receive from these equity awards may now be eligible for this special tax-law provision. It depends on the gross assets of the company on the date of restricted stock/RSU vesting or option exercise and on how long you hold the shares before you sell them. The higher gross-asset test means more later-stage startup companies will qualify to issue QSBS. The partial to full exclusion of capital gains now starts with a holding period of just three years before your stock sale—whether in a tender offer through a company-sponsored liquidity program, in an M&A deal, or after an IPO.

Charitable Donations: New Deduction Limit

While not related to stock compensation, a new limit on charitable deductions may affect your planning for holdings of company stock when you plan to donate it. Under the OBBBA, starting in 2026 you have a 0.5% Adjusted Gross Income (AGI) floor on charitable-contribution deductions if you itemize on Schedule A of your tax return instead of taking the standard deduction.

When you itemize deductions for 2026 and later years, you can deduct only those charitable contributions, such as donations of company stock, that exceed 0.5% of your AGI. That makes the the initial 0.5% of income donated to charity not deductible. This could motivate you to bunch donations in some years to get you over that hurdle. Also starting in 2026: For individuals in the 37% top income-tax bracket who itemize, the tax benefit from all itemized deductions is capped at 35%, including the charitable deduction.