When it comes to navigating the ever-changing landscape of tax law, staying informed is essential, especially in light of the recently passed One Big Beautiful Bill Act (OBBBA).
This new legislation not only provides a measure of clarity on some previously uncertain provisions but also introduces unique opportunities for taxpayers, particularly seniors, as we approach the tax year 2025.
At Minton CPA & Associates, we pride ourselves on helping individuals and business owners understand how tax law changes impact their financial planning and preparation.
In this article, we’re exploring the details of the OBBBA, focusing on the elimination of personal exemptions and the introduction of a new $6,000 deduction for qualifying seniors. We’ll break down the rules, give tips, and explain how you can prepare for maximizing benefits under this new law.
The Elimination Of Personal Exemptions
Perhaps the most significant—and permanent—change introduced by the OBBBA is the elimination of personal exemptions. Personal exemptions were originally scheduled to return in 2026.
However, under this law, they’ve been completely removed from the tax code moving forward. While this change will likely have a wide-ranging impact on taxpayers, the OBBBA has introduced a new deduction specifically for seniors.
What Is The Senior Deduction?
The standout advantage of the OBBBA is its introduction of a $6,000 senior deduction. This deduction is designed to provide targeted relief for taxpayers who are 65 and older, but it comes with some specific requirements and phaseout rules you need to understand.
Basic Requirements For Eligibility
- You must be 65 or older during the tax year in question.
- The deduction applies only to tax years 2025 through 2028—it is not permanent.
- The $6,000 is available per taxpayer; however, if you’re married, you must file a joint tax return to qualify.
- A valid Social Security Number (SSN) is required.
Phaseouts And Adjustments
The $6,000 senior deduction isn’t automatically guaranteed to every eligible taxpayer. It is subject to income-based phaseouts. Here’s how the phaseout works:
- Single taxpayers with a modified adjusted gross income (MAGI) greater than $75,000 will see their deduction reduced by 6% of the excess income.
- For joint filers (where both spouses are over 65), the phaseout starts at $150,000 of MAGI, with the same 6% reduction rate applied to the excess.
- So the phaseout ranges are $75,000 to $175,000 for single filers and $150,000 to $350,000 for joint filers.
Income phaseouts create a sliding scale of benefits. For example:
A married couple, both aged 76, file their taxes jointly with a modified adjusted gross income of $200,000. Their senior exemption was reduced by $3,000 [6% X {$200,000 – $150,000)], totaling $9,000.
Standard Deductions
The OBBBA specifies that this $6,000 senior deduction is in addition to standard deductions, including age-related add-ons that taxpayers already receive once they hit 65. In no way does the new deduction replace these established benefits.
It’s also important to note that Social Security income remains taxable. Earlier speculation that the OBBBA might exclude Social Security benefits from taxable income has proven incorrect; this income will still factor into your overall tax liability, as will other common income sources for seniors.
Tips For Maximizing The $6,000 Senior Deduction
To make the most of this new deduction, proper planning is critical. Consider these actionable steps:
Know Your Phaseout Range
If your MAGI approaches the phaseout thresholds, think about ways to minimize excess income. In some cases, that might mean reducing work hours or deferring income to stay below the limit.
Understand What MAGI Means
The IRS defines MAGI differently depending on circumstances. It typically includes wages, investment income, and taxable Social Security. Review your income sources carefully with a professional to estimate your modified adjusted gross income accurately.
Adjust Your Withholdings
If you believe this deduction will impact your tax liability, you may need to revisit payroll withholdings or estimated tax payments to avoid surprises at tax time.
Spread The Word
Many people eligible for this deduction may not know about it yet. If you have friends, family members, or colleagues aged 65 or older, point them toward this valuable benefit.
Tax Planning Is Important
Tax laws like the OBBBA are packed with details and intricacies that require careful analysis to avoid errors or missed opportunities. And while the new senior deduction is a valuable benefit, it’s just one part of a massive bill.
At Minton CPA & Associates, we specialize in helping our clients navigate complex tax laws and optimize their returns. Whether you’re an individual looking to maximize deductions or a business owner managing your tax strategy, our team is ready to assist you every step of the way.
Call Minton for Expert Tax Advice
Don’t wait until tax season to get prepared. At Minton, we’re here to make sure you fully understand your tax obligations, and take advantage of opportunities like the $6,000 senior deduction.
Contact us today at 757-546-2870 to schedule a tax consultation or learn more about our services. Together, we’ll make sure your tax strategy is working for you.