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The tax landscape shifted dramatically when Congress passed, and the president signed, what they referred to as the One Big Beautiful Bill (OBBB).
The bill was packed with plenty of changes, perhaps the most important being that it kept tax rates from going up at the end of this year. If the bill hadn’t passed, we would have reverted to the tax rates that existed before the Tax Cuts and Jobs Act of 2017, and taxes would have increased as of January 1.
Of course, although the OBBB describes these tax rates as now permanent, we know that in government-speak “permanent” just means until the next Congress or president decides otherwise.
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And not everything in the bill is permanent, even by that definition. Some provisions come with expiration dates. This is why it’s wise to take advantage of the moment and make moves to get the most out of the tax situation right now, putting yourself in a better position for the future when taxes are likely to go up.
Before examining how you can do that, though, let’s look at some of the changes that affect individuals — especially those retirees should take note of.
A greater deduction for older people
These older Americans already qualified for an additional deduction, so this is on top of the existing one.
You can think of the new $6,000 deduction as the “Social Security deduction.” You may recall there was talk in Washington of making Social Security benefits tax-free, but there were never enough votes to pull that off.
Instead, this $6,000 deduction could help some people lower or eliminate income tax on their Social Security, and you can take the deduction whether you are drawing your Social Security benefit or not.
The deduction doesn’t apply to everyone, though; there are income limits. The deduction begins to phase out for single filers with modified adjusted gross income (MAGI) over $75,000 and joint filers with income of $150,000. Also, this deduction won’t be around long. It disappears after 2028.
SALT tax
Taxpayers of all ages also have an opportunity to claim a greater deduction on the amount of money they pay in state income taxes and property taxes. Previously, the State and Local Tax (SALT) deduction was limited to $10,000. The bill has raised the deduction to $40,000.
Once again, there are income restrictions. The new cap applies to households with a MAGI of $500,000 or less ($250,000 for married couples filing separately).
The amount of the cap begins dropping for households that go over that income limit until it eventually reaches the previous $10,000 mark.
The extra deduction amount means many people who typically use the standard deduction may now be able to itemize their deductions. This tax change also has an expiration date, and it will go away after 2029.
Putting these deductions to use
Those are just a couple of the changes the tax bill made. Now let’s consider how you might use these changes to improve your tax situation before they expire.
The $6,000 deduction for those 65 and older is a good place to start. Also, remember this is $12,000 when both spouses meet the age requirement.
Of course, you could go ahead and take the deduction and reduce your tax liability slightly over each of the next few years. Another option, though, is to capitalize on this moment to make a Roth conversion.
Many, if not most, people in the 65-and-older age bracket were encouraged during their working years to save for retirement through tax-deferred accounts, such as a traditional IRA or 401(k).
That had its advantages because the money they contributed to the accounts each year wasn’t counted as income, which slightly decreased the amount they paid come tax-filing time.
The disadvantage (which many in this age group have already experienced) is that the tax bill eventually comes due. You pay taxes on the money you withdraw from those accounts in retirement.
Also, once you reach age 73 (age 75 for those born in 1960 or later), required minimum distributions (RMDs) kick in, forcing you to withdraw a certain percentage from the accounts each year, whether you want to or not, so that the federal government can collect its taxes.
That’s where converting those tax-deferred accounts to a Roth comes in. Roth accounts grow tax-free, withdrawals aren’t taxed, and there are no RMDs. You do pay taxes when you make the conversion, though, and that’s why this is an opportune time to consider a Roth conversion for anyone 65 or older.
The additional $6,000 deduction gives you room to maneuver. Because of it, you can essentially move money into a Roth and pay no more in taxes than you did the previous year.
Yes, you won’t get the full advantage of this temporary deduction right now, but you will save yourself taxes long term because you will avoid RMDs in the future, and your money will be growing tax-free.
Standard or itemized
Similarly, the larger SALT deduction provides an opportunity for some people.
Most taxpayers use the standard deduction because it’s a larger deduction than they would have by itemizing. That may still be true for many people, even with the increased SALT deduction, as the amount people pay for state income taxes and property taxes varies greatly by state and by individual.
But it’s worth taking a look to see whether paying your property taxes twice in the same year (January and December) and stacking other potential deductions on top of SALT is enough to get you above the standard deduction.
One other thing to consider is charitable deductions. For example, by using a donor-advised fund, you can stack several years of donations together and claim them as a deduction in one year.
Planning for the future, rather than the now
These are just a couple of examples of how, by making the right moves now, you can save on your taxes — possibly for years to come.
Of course, so much of this comes down to your personal situation. A financial professional can help you explore these and other options so that, if income taxes rise in the future (and there’s a good chance they will), you will be better situated to keep more of your money in your own pockets.
Ronnie Blair contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
