The stock market is at record highs, the Federal Reserve has resumed rate cuts and sweeping tax changes just took effect. Together, these shifts present new opportunities if you know where to look.
The Tax Cuts and Jobs Act was set to expire at the end of 2025. On July 4, Congress passed the One Big Beautiful Bill Act, making many TCJA provisions permanent and introducing new tax incentives. Here are some highlights.
Senior citizen deduction
Beginning in 2025, seniors aged 65 and older will receive an additional $6,000 tax deduction per qualified taxpayer under the One Big Beautiful Bill Act. This new benefit is added on top of the standard deduction or any itemized deductions they may already claim. For context, the standard deduction for 2025 is set at $15,750 for single filers, and $31,500 for married couples filing jointly.
This change could result in substantial tax savings. For example, a married couple who are both 65 or older would start with the $31,500 standard deduction, receive an extra $3,200 in age-based deductions ($1,600 per spouse), and then benefit from the new $12,000 OBBBA deduction ($6,000 per spouse). Altogether, they could claim up to $46,700 in deductions for 2025, assuming they meet the income requirements.
To qualify for the full deduction, income must be below $150,000 for joint filers or $75,000 for singles. The benefit begins to phase out above those levels and expires after 2028.
SALT deduction expanded
The cap on the state and local tax, known as SALT, deduction has increased from $10,000 to $40,000 starting in 2025. It begins to phase out at $500,000 in modified adjusted gross income and reverts back to $10,000 in 2030 unless extended.
No tax on tips
Taxpayers can deduct up to $25,000 in qualified tip income from federal taxable income. The deduction is per return (not per person) and applies to tips properly reported to the IRS. It’s an above-the-line deduction that reduces AGI; however, Federal Insurance Contributions Act taxes still apply on the full amount. Phaseouts begin at $150,000 for single filers and $300,000 for joint filers. The provision expires after 2028.
No tax on overtime
This deduction allows taxpayers to deduct the premium portion of overtime pay, specifically the “half” in time-and-a-half. The cap is $12,500 for single filers and $25,000 for joint filers with the same phaseout thresholds as the tip deduction. FICA taxes also apply on the full amount and the rule expires after 2028.
State capital gains exemption
Separate from the OBBBA, Missouri has eliminated state income tax on capital gains. Starting in 2025, profits from the sale of stocks, real estate and business interests are fully exempt from state tax.
Actionable strategies
Here are a few ways to align your portfolio with current market and tax conditions:
- Realize long-term gains. Given the stock market gains this year, now may be an opportune time to rebalance your portfolio. Selling appreciated assets held for over a year allows you to lock in gains at favorable long-term capital gains tax rates. It also resets your cost basis to a higher share price when reinvested. This strategy can reduce future tax liability when those assets are sold to generate income, making withdrawals more tax-efficient over time.
- Add to fixed income. As the Fed eases rates, long-term yields have been moving lower in recent months. Locking in current rates may be wise if the trend continues. While municipal bonds may be less tax-advantaged than before the passage of the OBBBA for some taxpayers, their yields remain attractive across tax brackets thanks to discounted pricing and strong credit quality.
- Give it away. Donating appreciated stock offers a full deduction for itemizers, avoids capital gains, and helps reduce concentrated holdings. If you’re over 70 and a half, you can give directly from your IRA via a qualified charitable distribution, which can count toward your required minimum distribution without adding taxable income.
This year brings a rare convergence of market strength, falling interest rates and favorable tax law changes. Strategic planning now can lead to meaningful long-term savings. As always, consult your tax adviser before making changes.
Andy Drennen is a certified financial planner and senior portfolio manager at Simmons Private Wealth in Springfield. He can be reached at [email protected].
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