July 2025 Newsletter – The OBBB

To my clients, friends and readers,

Thank you so much for your ongoing trust and partnership. It’s a privilege to work alongside you, and I’m reaching out today to share some important updates about the new One Big Beautiful Bill (OBBB)—legislation that will shape your financial landscape beginning with the 2025 tax year and beyond. My goal is to ensure you have timely, clear information so you can feel confident and well-prepared as we navigate these changes together.

As always, Robert and I are here to support you. While we both hold CFP and MBA credentials, we want to be transparent that we are not tax professionals. Our expertise is in investment management, and our priority is to help you understand how this new bill may affect your portfolio. We’re committed to working closely with you and your tax advisors to ensure your financial plan remains strong and adaptable.

What Matters Most

It all begins with income.

The OBBB introduces changes starting with how your income is calculated and reported.

Next comes tax.

Understanding the new tax implications is essential for making informed financial decisions.

After tax, it’s about growth.

Our shared goal is to help your money continue to grow, keeping pace with both inflation and taxation.

We’re here to answer your questions, provide guidance, and help you feel secure every step of the way. Thank you for letting us be part of your financial journey.

Our Approach

 To help you navigate these changes, we remain committed to:

• Mitigating downside risk while seeking opportunities for upside appreciation.
• Focusing on long-term investing, which is the most effective way to smooth out market volatility.
• Constant and vigilant assessment of:
• Corporate balance sheets
• Company value and momentum
• Technology readiness and adoption cycles
• Engineering, manufacturing, and distribution trends
• Quarter-to-quarter profitability and business model competitiveness

This ongoing diligence enables us to make prudent, well-informed decisions on your behalf—always with your long-term financial well-being in mind.

We appreciate your confidence in us as we guide you through this new chapter. If you have any questions or want to discuss how the OBBB may affect your specific situation, please don’t hesitate to reach out.

Now, let’s navigate these changes together as your financial future remains our top priority.

Navigating the New OBBB

Essential Tax & Financial Insights for High-Income Clients

Published: July 9, 2025

Signed Into Law: July 4, 2025

The U.S. tax landscape has fundamentally shifted with the signing of the “One Big Beautiful Bill Act” (OBBB) into law by President Trump on July 4, 2025. This landmark legislation brings sweeping changes to tax, spending, and energy policy, with profound implications for high-income individuals and business owners. Understanding these changes—and their observable effects—is critical for proactive financial planning.

What Is the OBBB?

The OBBB is a comprehensive overhaul of U.S. tax and fiscal policy. Its core goals are to:

• Make permanent many of the individual and business tax cuts from the Tax Cuts and Jobs Act of 2017 (TCJA)
• Rein in federal spending
• Promote domestic production and economic growth

While headlines tout “tax cuts,” the reality for high earners is nuanced: many benefits are targeted at middle-income households and businesses, but new opportunities and risks have emerged for those earning over $250,000.

Key Tax Provisions & Their Impact on High-Income Earners

1. Qualified Business Income (QBI) Deduction

• Permanent 20% Deduction: The 20% QBI deduction for pass-through entities (S-corps, partnerships, sole proprietorships) is now permanent.
• Expanded Thresholds:
• Joint filers: Lower threshold rises to $150,000 (from $394,600)
• Single filers: Lower threshold rises to $75,000 (from $197,300)

Implication: More high-earning owners—including those in Specified Service Trades or Businesses (SSTBs)—can now access the QBI deduction, subject to W-2 wage and property limitations. Strategic income management and entity structuring are essential to maximize this benefit.

Note: I have defined and added some insight into the history of SSTBs after my conclusion of this blog as an adjunct of understanding. .

2. State and Local Tax (SALT) Deduction Cap

• House Proposal: Raise cap to $40,000, phased out for MAGI above $500,000.
• Senate Position: Retain $10,000 cap.
• Final Compromise: Expect a phase-out for high earners, with most over $500,000 seeing little to no benefit.

Implication: High-income taxpayers in high-tax states will continue to face significant federal limitations on deducting state and local taxes, raising their effective tax rate.

3. Business Investment Incentives

• 100% Bonus Depreciation: Immediate expensing for new and used equipment is restored and made permanent for property placed in service after January 20, 2025.
• Immediate R&D Expensing: Domestic R&D costs are fully deductible in the year incurred, permanently.
• Interest Expense Limitation: Favorable calculation restored for 2025 and beyond.

Implication: Capital-intensive and innovative businesses gain significant tax savings and cash flow advantages, supporting reinvestment and growth.

4. Excess Business Loss Limitation

• Permanent Limitation: The cap on deductible business losses for non-corporate taxpayers is now permanent.

Implication: High-income business owners cannot fully offset other income with business losses in the current year; excess losses become net operating losses (NOLs) carried forward.

5. Enhanced Standard Deduction

• Permanent Increase: For 2025, $31,800 (joint) and $15,900 (single), indexed for inflation.

Implication: For many, especially in low-SALT states or with fewer itemized deductions, the standard deduction may now be more advantageous than itemizing.

6. Education Credits

• No New Credits: The OBBB does not introduce or expand general education credits (such as the American Opportunity Tax Credit).

Other Key Provisions

• Mortgage Interest Deduction: No change; interest on up to $750,000 of qualified debt remains deductible.
• Charitable Giving: No new above-the-line deduction; existing itemized deduction rules remain.
• Individual Tax Rates: Top marginal rate (37%) is made permanent.
• Estate and Gift Taxes: No major changes.

Five Hard-Hitting Truths for High-Income Clients

1. Most “New” Deductions Don’t Apply to You:

Headline-grabbing new deductions are not part of OBBB for high earners. Focus on the permanence of existing provisions and targeted incentives.

2. SALT Cap Remains a Major Obstacle:

Even if the cap is raised, phase-outs mean high earners will see little benefit.

3. Itemized vs. Standard Deduction Requires Annual Review:

The higher standard deduction may now outweigh itemizing for many affluent taxpayers.

4. QBI Deduction Planning Is Critical:

Expanded thresholds create new opportunities, but require careful planning-especially for SSTBs.

5. IRS Scrutiny Is Increasing:

Enhanced IRS funding means more audits and sophisticated enforcement. Meticulous compliance and documentation are essential.

Strategic Moves for High-Income Clients

• Reevaluate Itemized vs. Standard Deduction Annually

Compare potential itemized deductions against the higher standard deduction each year.

• Maximize QBI Deduction
• Manage income to stay within favorable thresholds
• Consider entity restructuring
• Optimize W-2 wage planning
• Charitable Giving
• Bunch contributions or use Donor-Advised Funds (DAFs)
• Use Qualified Charitable Distributions (QCDs) if eligible
• Monitor SALT Payments & Explore PTET Workarounds

Use state-level Pass-Through Entity (PTE) taxes where available.

• Review Mortgage & Real Estate Strategies

Weigh the value of interest deductions against the standard deduction.

• Prepare for IRS Scrutiny

Implement rigorous record-keeping and avoid aggressive tax positions.

• Optimize Business Investment

Take full advantage of restored bonus depreciation and R&D expense.

Observable Implications of the OBBB

• Tax Planning Complexity Increases

High earners must adopt more sophisticated, proactive strategies to maximize benefits and avoid pitfalls.

• Business Investment Likely to Rise

Permanent bonus depreciation and R&D expensing encourage capital spending and innovation.

• State Tax Workarounds Gain Importance

SALT cap limitations will drive more use of state PTE taxes and other planning tools.

• IRS Enforcement Gets Tougher

Expect more audits and greater scrutiny, especially for affluent taxpayers and business owners.

• Federal Deficit Grows

The OBBB is projected to add trillions to the national debt over the next decade.

Frequently Asked Questions

Will my taxes go up or down?

For most high-income earners, your effective federal tax rate will likely remain stable. The OBBB prevents a significant increase but does not deliver major new relief for top earners.

Can I still deduct mortgage interest?

Yes, on up to $750,000 of qualified debt.

What should business owners do now?

Focus on maximizing the QBI deduction, leveraging bonus depreciation and R&D expensing, and consider entity restructuring.

Are there new risks for high earners?

Yes—primarily increased IRS scrutiny and audit risk.

Action Steps: What to Do Now

• Schedule a comprehensive review with your advisor
• Update your tax projections for 2025–2026
• Revisit charitable and real estate strategies
• Plan for enhanced compliance and documentation
• Strategically time and structure business investments

Conclusion

The OBBB, signed into law on July 4, 2025, ushers in a new era of tax policy. For you, whether you find yourself in the low, middle-ish or high-income tax category , the tax landscape is now more complex. Deduction phase-outs are more persistent. Limitations and new opportunities require a more  strategic approach. You need to be proactive as to your tax and financial planning so as you have questions please feel free to email or call us.

Thank you all for being a part of this journey. I wish everyone continued success and happiness this year.

Sincerely,

Vaughn Woods, CFP,MBA

Vaughn Woods Financial Group, Inc.

2226 Avenida De la Playa, Suite A

La Jolla, CA  92037

www.vaughnwoods.com

Addendeum

SSTBs: Demystified Essential Addendum for OBBB Tax Planning

Understanding Specified Service Trades or Businesses (SSTBs) is crucial under the OBBB. If you own or advise a business, knowing whether it qualifies as an SSTB can significantly affect your eligibility for the Qualified Business Income (QBI) deduction.

SSTBs: Not New, But Essential

SSTBs were introduced by the Tax Cuts and Jobs Act (TCJA) of 2017 and have applied since 2018. They were designed to ensure that high-earning professionals—whose main asset is their skill or reputation—do not disproportionately benefit from the QBI deduction.

What Is an SSTB?

An SSTB is a business where the principal asset is the reputation or skill of its employees or owners, operating in specific service fields defined by the IRS:

Health

Law

Accounting

Actuarial Science

Performing Arts

Consulting

Athletics

Financial Services

Brokerage Services

Investing & Investment Management

Trading

Dealing in Securities, Partnership Interests, or Commodities

Reputation or Skill (e.g., endorsements, licensing, appearances)

Examples of SSTBs

Health: Doctors, dentists, therapists, clinics (excludes health clubs, spas)

Law: Attorneys, law firms, legal consultants

Accounting: CPAs, auditors, tax preparers

Actuarial Science: Actuaries, consultants

Performing Arts: Actors, musicians, directors (excludes behind-the-scenes roles)

Consulting: Management, HR, marketing consultants (excludes incidental consulting)

Athletics: Athletes, coaches, trainers (excludes team owners)

Financial Services: Advisors, planners, investment managers (excludes banks)

Brokerage Services: Stock, bond, insurance brokers (excludes non-advisory real estate brokers)

Investing & Investment Management: Hedge fund, private equity managers

Trading: Securities, commodities traders

Dealing in Securities: Dealers, market makers

Reputation or Skill: Endorsements, licensing, appearances

What Is Not an SSTB?

Engineering and architecture firms

Manufacturers, retailers, wholesalers

Restaurants, hotels, hospitality businesses

Real estate agents and brokers (unless primarily providing investment advice)

Why SSTB Status Matters

QBI Deduction Limitation: SSTB owners face income-based phase-outs for the 20% QBI deduction. Above certain income levels, the deduction is reduced or eliminated.

Tax Planning: Accurate classification is vital for maximizing tax benefits under Section 199A.

Quick Reference Table

Are SSTBs a New Category?

No. SSTBs have been part of the tax code since 2018, created by the TCJA for Section 199A and the QBI deduction. The OBBB has not changed their existence or purpose.

Key Takeaways

SSTB status depends on the nature of your business, not just your profession.

Income thresholds affect your QBI deduction eligibility.

The OBBB makes the QBI deduction permanent, increasing the importance of proper classification and planning.

Consult a tax professional to maximize your benefits. Consult me, your wealth and portfolio management manager, to discuss ways to use these new rules for growth and income.

In summary:

SSTBs are a well-established category with significant tax implications. Knowing your status is essential to optimize your tax strategy under the OBBB.

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Past investment performance is not indicative of future results. Securities offered through Bolton Global Capital, Inc., Bolton, MA. Member FINRA, SIPC. Advisory services offered through Bolton Global Asset Management, a registered investment advisor, 579 Main St., Bolton, MA 01740 (978) 779-5361.

Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal.  Past performance is not a guarantee of future results.  Asset allocation cannot assure a profit nor protect against loss.  Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed.  Views expressed in this newsletter are those of Vaughn Woods and Vaughn Woods Financial Group and may not reflect the views of Bolton Global Capital or Bolton Global Asset Management.  The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.  VW1/VWA0320.

Representatives of VWFG do not provide tax advice, please consult a tax professional or CPA if needed.