As the heat of the Big Beautiful Bill, simmers from its boiling passage, its immediate successes must be noted. Republicans did much of what they set out to do; they passed a single bill close to their self-imposed deadline that permanentized the higher standard deduction and estate tax exemption. However, as time goes on, the underlying details are receiving closer scrutiny—most recently, changes to itemized deductions have come under the microscope. In short, the Big Beautiful Bill sets some Ugly New Potholes for High-Earners seeking deductions.
Charity Floor for High Earners
As of 2020, nearly two-thirds of taxpayers with an Adjusted Gross Income (AGI) over $500,000 itemized deductions, claiming an average of over $144,000.[1] The good news is that taxpayers who do not itemize can deduct up to $1,000 in cash gifts. However, this incentive is funded by reducing the available deductions for affluent individuals and companies. Itemizers may only deduct the portion of annual donations that exceeds 0.5% of adjusted gross income. For example, an individual with an AGI of $1,000,000 would need to contribute more than $5,000 to charity before being able to deduct any portion of their contributions. For those in the top tax bracket, the value of the charitable deduction is capped at 35% of ordinary income, down from the previous 37%. The existing limit allowing individuals to deduct cash contributions to public charities up to 60% of their AGI has been made permanent. This is instead of reverting to the 50% limit that was previously scheduled under the TCJA.
SALT in the Wound
On the upside, SALT deduction cap has been increased to $40,000 for the 2025 tax year, along with a 1% annual increase through 2029. But the trend against High Earners continues, and this increased cap is only available to those with a modified annual gross income of $500,000 or less. For incomes between $500,000 and $600,000, the deduction is reduced by 30%, and incomes higher than $600,000 are limited to the prior $10,000 SALT deduction. This expanded cap is temporary and is scheduled to revert back to $10,000 in 2030 (although the original $10,000 cap established in 2017 was also considered temporary).
MIA Miscellaneous Deductions
Beginning in 2026, the deductions for miscellaneous itemized expenses subject to the 2% AGI floor will be permanently eliminated for most taxpayers. This includes expenses such as unreimbursed employee expenses (e.g., union dues, professional organization dues, uniforms), investment fees and advisory fees, and tax preparation fees. While it’s another ding in the tax bill to High Earners, we anticipated this development. We worked throughout this year and 2024 to perfect and design tax-forward models to look at ways to shift the deductions to holding or special purpose entities and white papers and case studies on those client solutions are forthcoming.
Conclusion
Some of these changes aren’t great news for High Earners, but they are not unassailable. We have been on top of keeping our clients prepared for this and will continue to push to be on the cutting-edge of tax planning and structuring in ways that will be efficient and take every advantage for our clients. If you haven’t already, take a look at some of the other evergreen strategies and our robust tax planning methods.
- Turning Market Downturns Into Gifting Opportunities: Why Now May Be the Perfect Time to Transfer Wealth
- Tax and Estate Planning Essentials: Critical Differences in Revocable and Irrevocable Trust Structures
[1] https://taxpolicycenter.org/briefing-book/what-are-itemized-deductions-and-who-claims-them
