3 tax code changes affecting year-end planning in 2025
There are many tax code changes in the One Big Beautiful Bill Act of 2025 (OBBBA). Some make year-end planning for 2025 more complicated. There is a good chance one of the three changes we cover in this post could affect you.
- ACA Marketplace changes for 2026 can affect anyone planning to use the marketplace for their health insurance.
- A new deduction for anyone over age 65 can complicate year-end tax planning.
- A new set of rules for the deductibility of charitable contributions can affect donors of all ages.
What are the changes coming to the ACA marketplace?
When one does not have health insurance through their employer, other group, Medicaid or Medicare, they may obtain coverage via the Affordable Care Act (ACA) Marketplace. The cost of marketplace plans may be subsidized based on income.
The One Big Beautiful Bill Act of 2025 (OBBBA) did not extend a COVID-era provision that capped premiums for ACA marketplace plans at 8.5% of income, generally. Under the COVID era provision, as income rose, the subsidy gradually shrunk. This meant that households with incomes in a large range could get some subsidy. KFF, a healthcare policy organization, estimates 92% of the 22 million ACA marketplace users received some level of subsidy.
If Congress does not act by year end, the system will revert to the pre-COVID rules which instead of a graduated approach uses a “cliff” regimen. This method dictates that if you exceed the threshold amount by even a mere $1, there is no subsidy. The threshold is 400% of the Federal Poverty Level (FPL). For a single person, 400% of the FPL in 2025 is $62,600. For a couple, it’s $84,600, according to the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. For amounts applicable to other household sizes and more information about the poverty guidelines visit the Assistant Secretary’s website.
For households receiving ACA subsidies in 2025 or expecting to use the marketplace in 2026, it will be wise to consider whether accelerating income into 2025 might help obtain subsidy money that would not be available in 2026. However, because accelerating income raises the income tax bill, there is a limit to how much income can be accelerated and still result in savings for the household overall.
How does the new senior deduction affect year-end tax planning?
For the years 2025 through 2028 only, the OBBBA provides a new $6,000 additional deduction for any individual taxpayer who is age 65 or older. However, this senior deduction begins to phase out when a taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds $75,000 ($150,000 in the case of a joint return). The added deduction is completely phased out for singles with a MAGI of $175,000 or more and couples with MAGI exceeding $250,000.
A cornerstone of good year-end tax planning is assessing whether income can be either postponed into a future year or accelerated into the current year to lower the combined tax bill for those years. Many retirees deliberately increase their income by taking funds from retirement accounts or execute Roth conversions before they reach the age for Required Minimum Distributions. They do this because they can get those funds taxed at a lower rate than they anticipate paying if they take the funds in the future.
…the new deduction can complicate the calculation …
In most cases, the new senior deduction doesn’t diminish the wisdom of that strategy. However, the new deduction can complicate the calculation for any household whose MAGI is in the phaseout range or would be in that range due to the added income.
In addition, for couples who are both over age 65, some may want to adjust their withholding levels. Those that are using the standard deduction, under $150,000 of MAGI, and have no use for an income shifting strategy may not need to withhold as much for taxes given the added $12,000 in deductions.
How do the new charitable deduction provisions affect year-end tax planning?
In any given year, taxpayers are either itemizers that claim deductions from an itemized list on Schedule A, or they are non-itemizers and use the standard deduction. The OBBBA has new provisions that start in 2026 for how charitable donations are treated by both itemizers and non-itemizers.
Roughly 85% of tax filers are non-itemizers that rely on the standard deduction. For them, beginning in 2026, a deduction will be available for charitable donations of cash up to a cumulative total for the year of $1,000. A married couple can donate $2,000. This added deduction is in addition to the standard deduction and there is no income limitation. Therefore, depending on your charitable goals for 2025 and 2026, it may be better to wait until after December 31, 2025 to make your donation.
For the remaining filers that itemize, there are two new limits that affect the tax savings possible through charitable donations made in or after 2026. First, the amount of the charitable donation that is included on Schedule A is reduced by ½% of Adjusted Gross Income (AGI). This means if you have an AGI of $100,000, the first $500 of your donations will not be included on your charitable deduction line, line 14 on the 2024 form. (The 2025 form is not available yet.)
The second limitation applies to those in the highest tax bracket of 37%. It is a new overall limitation on the total of all itemized deductions listed on Schedule A. The amount of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of (1) the amount of the itemized deductions or (2) the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket. This leads to a condition in which the itemized deduction offsets taxes at no higher than a 35% rate.
It is challenging to try to explain tax code issues in plain English. Fortunately, we have 3 CPAs and 7 Enrolled Agents (EA) on our tax team that can translate tax matters into helpful strategies and provide actionable tax advice to our clients who want it. There is no need to slog through the rules or wonder what you could or should do to manage your tax bills. We are available to do all that for you.