Understanding the New Standard Deduction Under OBBBA

Episode 4

Understanding the New Standard Deduction Under OBBBA

Published on August 20th, 2025

In Episode 4 of Retirement Tax Matters we explore the permanent extension of the higher standard deduction under the new "One Big Beautiful Bill Act" (OBBBA). We'll cover the new 2025 standard deduction amount for married couples ($31,500) and explain how the new law, while beneficial, adds layers of complexity with income-based phase-outs for deductions like the new Enhanced Senior Deduction. Learn why this new tax landscape makes end-of-year projections more critical than ever and how the now-permanent lower tax brackets create a longer "runway" for powerful, long-term Roth conversion strategies.

Key Tax Planning Questions

Click Below To See The Answer

• What is the standard deduction for 2025?

  For 2025, the standard deduction is $15,750 for single individuals and $31,500 for married couples filing jointly.

  The recently passed "One Big Beautiful Bill Act" (OBBBA) made the higher standard deductions from the 2017 Tax Cuts and Jobs Act permanent with a slight increase for 2025.

  If you are 65 or older, your deduction increases. You can add an additional $2,000 (if filing single) or $1,600 per person (if filing MFJ and both spouses are over 65).

  Finally, the new Enhanced Senior Deduction (also created by the OBBBA) can possibly gets added on top of all this depending on your Household Income.

• What if my giving is more than the standard deduction?

  Most retirees in 2025 will take the standard deduction. However, let’s look at a HNW Retiree example where that’s not the case:
  
  Ex: Bob and Jane are married and both age 65. Their total income (AGI) is $145,000. Their standard deduction is $34,700 ($31,500 + $1,600 + $1,600)
  
  Let’s say Bob and Jane gave $14,500 to their church as a tithe, $3,000 for property taxes, but also made a one-time appreciated stock gift of $43,000 to their Donor Advised Fund. In this case, their total itemized deductions are $63,500 which is higher than the $34,700 standard deduction. Bob and Jane income level is still low enough to also take advantage of the new Enhanced Senior Deduction and can deduct another additional $12,000 from their income!

  Bob and Jane should think about doing a Roth conversion to take advantage of that large one-time DAF contribution they made. However the more Roth conversion they do the more of the Enhanced Senior Deduction benefit they will lose.
  
  

Full Episode Transcript

Adam: All right, good morning and welcome to Retirement Tax Matters. How you doing this morning, Garrett?

Garrett: I'm doing pretty good. I don't know how many of these we'll record in succession, but here we are today where for all of our subscribers out there, they may say, "You guys are wearing the exact same thing. Same cup of coffee." So, let's pull back the curtain, tell them some exciting news that's happening for you. Adam is bringing another kid into the world with his wife, up to number three, but give us a little update.

Adam: Number three. My wife is 39 weeks and four days, so any day now. She would have hoped it would have been last week. She's ready to kick the baby out and hold him. So, we're looking forward to it. It feels like it's right there, but we also already have two boys, so it's chaos at our house all the time. It also feels like we haven't really thought about it yet. It just feels like it's gonna happen and we're gonna be like, "All right, here we go." But we're excited for it.

Garrett: I was really appreciative when Adam came on board earlier this year. In financial planning and with our business, we have busy seasons and low seasons. End of the year, tax time, those get really busy with clients needing things. July is a perfect month to have a kid and take some time off. It was just really nice of you all to plan all that accordingly. We were joking this morning, we're doing a podcast here about retirees and the one big beautiful bill we're going through, and the child tax credit. Did you all plan to have this come out the same year so that you'd get another child tax credit?

Adam: And from what I understand, maybe the Trump account, does this make it through? So, $1,000, which is kind of funny because we've got three boys and this will be our, it's only our third will have it. And he'll be some billionaire in retirement taking over the world.

Garrett: That's an episode for a future day. I haven't dug deep into the Trump account yet, but I keep forgetting about that. So, you'll have a Trump account, I guess, at the end of the year or at some point. I think they're still trying to sort that out. I think the child tax credit, I was just looking, I think it's $2,200 per kid. So, congratulations on doing some financial planning by having another kid.

Adam: And trying to reduce my taxes as much as I can. But I think that's a good segue into what we're wanting to touch on today. We touched on the senior deduction maybe a couple of weeks ago, but wanted to talk through just the new standard deduction, some of the updates to this year. How does it affect not only our clients, but people that may be tuning in? And what are maybe some key points to be mindful of as we try to reduce our tax bill as much as we can?

Garrett: So, if you've been following along with us, and I encourage you to go back and watch the previous episodes, we've talked about the new senior deduction, which was not the no tax on Social Security, but if you're over age 65, an additional $6,000 per year. We've talked about the extension of the current low tax brackets to be permanent. And this is probably that third big part of the Big Beautiful Bill where we have made permanent this new higher standard deduction environment that we're in. I think that's great for retirees.

So I just want to start with a little history in that a lot of people that are near retirement are going to remember back in their working years pre-2017 when we had that term we threw out there all the time called personal exemptions. Based on how many kids you had, how many people you had in the house, you could take a personal exemption. You had a household of four, you do the math and it basically built up this amount that you could reduce off your taxable ordinary income. A lot of people remember that it was a little confusing.

And then in 2016, when then President Trump was on the campaign trail, one of the ideas was simplifying the complicated tax code. There is a general consensus that taxes are complicated. I find it really fun when taxes are complicated, but for our clients, nobody likes how complicated it is. Nobody likes paying taxes. So I think that message of simplifying the tax code really resonated with a lot of people. Y'all remember this idea of having the tax return fit on the size of a postcard.

Adam: You think they've accomplished that yet?

Garrett: They did actually reduce the size and formatting of the 1040 basic return. They took away a few lines. It was not postcard size, but they did remove a couple of lines and condensed it. But even more than the format of the 1040, I think the biggest thing that they did in simplifying was bringing about this idea of a new higher standard deduction. Instead of these personal exemptions, get rid of those, let people have a higher amount and not make people go through these miscellaneous itemized deductions.

So that's a long history of where we came from. But a lot of you all, when the 2017 Tax Cut and Jobs Act was passed, you actually saw in your take-home pay that you were getting more money per month. That was in combination with the lower tax brackets and the new higher standard deduction. So, in one way, I think they did simplify it for a lot of people. But here we are at the Big Beautiful Bill, and I would say the goal is not to simplify it anymore, but instead to lower taxes in creative ways even further.

Where we're at with the IRS is we have maintained that large standard deduction, which is a win for retirees. But now we're starting to add back in some of those things that complicated the formula, like the new senior bonus deduction, the SALT deduction that has a phase-out, no tax on tips, no tax on overtime—all have these phase-outs that are an additional deduction, but at the expense of making it more complicated. We've all gotten fat and happy with the standard deduction. We want more deductions, so we're adding it back in. We're getting further and further away from that simple postcard framework.

Adam: The complications that come from it are not so much checking a box, but then some of the phase-outs. That's where financial planning becomes more challenging because it's like, do I value this deduction enough to not do this financial planning tool I'm thinking about? It's nice to have more deductions, but it also comes with the shadow side of, well, do I want to lose that and go above that income level or do I want to stay below it and keep that? Just more things to think through.

Garrett: You're hitting the nail on the head. Prior to the Big Beautiful Bill, with most clients we have who are charitable givers, they were not giving enough away to exceed the standard deduction level. For 2025, the married filing jointly standard deduction is $31,500. If you're not married, that standard deduction is $15,750. Prior to this new bill, I could almost look down my list of clients and say, okay, standard deduction, standard deduction. I would say 85% of our clients were taking the standard deduction.

That's still going to be the case, but because we're adding in these other things with income phase-outs—the senior bonus deduction, no tax on tips, no tax on overtime, state and local income tax—all those are based on an income at which some of those deductions can go away. I'm already seeing it come up with clients that if we want to do a Roth conversion, we have to have a conversation. Do we want to give up the senior bonus deduction? Some of it, all of it, none of it? It used to be "look out for Medicare IRMAA charges" and that was it. Now we've got these extra layers.

At the end of the day, the Big Beautiful Bill makes tax planning—which is the whole impetus behind this podcast and what we're doing at Providence Wealth Management—more complicated. You can't just do a back-of-the-envelope projection anymore. You're going to have to do a projection before the end of the year to see how much room you have if you want to do a Roth conversion. That's exactly what we've been doing for the past four to five years at our firm. The new standard deduction amount along with these phase-outs is making it more complicated, and you're going to have to do projections to figure out where you're at. I think you're going to save money on taxes overall, but we're paying the cost of additional complexity. I have a hunch in the future somebody's going to say things are too complicated and maybe revisit the standard deduction and try to get rid of some of these other issues. But we are not there yet.

Adam: So, in summary, people under $150,000 will see their tax bill a little bit smaller next year. Is that fair to say? I think some of those phase-outs start around the $150,000 mark.

Garrett: Yes. Below the video, we'll give some examples. But you're right, for your average couple, they're going to see a big tax savings overall with the way the new senior deduction coordinates with the standard deduction. Once your income goes up, you're going to see that go away. But I've had a few appointments where even with Roth conversion planning, taxes are historically low. We don't want to miss the forest for the trees. Roth conversion planning is still important, but we've just got more variables to consider. For those higher-income couples, Roth conversion planning is still really important.

Adam: It's always fun. You say it's getting more complicated for the average person, but for me and you, it's getting more fun because there are more variables. There are more dials we can turn and levers we can pull to find that extra little efficiency.

Garrett: It's been perfect timing here at Providence. I use a tax planning software called HolistiPlan. Five years ago, I could not have done the planning for clients that I can now. But if I have a client that's willing to help me understand where they are income-wise for the year, if I can see in their investment accounts, capital gains, dividends, if I can help them make estimates, it's amazing the depth of planning that we can get to to dial this stuff in. Everybody I do that with, they walk away thinking, "Man, I wish I'd had this 15 or 20 years ago." That's where we're at. I think it's a compelling thing that we're doing with our clients.

Adam: Absolutely. I appreciate the insight. I think that's helpful and it's a good idea to give some examples down below the video today. We'll knock that out.

Garrett: We appreciate you guys joining us and next time we see you, you might have another kid in your flock.

Adam I'll have a baby here in my arms with a bottle in their mouth talking about taxes.

Garrett: Looking forward to it. Good deal. Adam, we wish you and Sydney the best of luck and, when we see you next time, it'll be a fun reunion.

Adam: Absolutely.

Cool. Thank y'all for joining us today on Retirement Tax Matters. Hope you guys have a great rest of your day.

Garrett: All right, talk to you later.