The media may have moved on after the passing of the One Big Beautiful Bill Act (OBBBA) this past spring. However, financial advisors and their clients are still wrestling with the long-term implications of this highly consequential piece of legislation.
And they are determined to get it right before year end. Or the economic or political environment changes.
Some commentators view the OBBBA at its core as an extension of the 2017 Tax Cuts and Jobs Act (TCJA). But advisors like Clint Costa, senior wealth strategist at Choreo, believe this viewpoint may be misleading and risky for wealth managers trying to integrate tax planning into their client relationships since it indicates a “potentially inaccurate status quo.”
While the bill does continue many TCJA provisions, Costa says it is shaped by a much more complex backdrop, including the constraints of budget reconciliation and Congressional Budget Office scoring, the need to balance competing priorities within the GOP caucus, and the additional promises made during the 2024 presidential campaign.
For example, Costa said the sharp phase-out of the enhanced state and local tax (SALT) deduction, dubbed the “SALT torpedo” could catch many taxpayers by surprise. Other nuances to some provisions appear designed primarily to achieve favorable budget scoring in his opinion, such as the 0.5% haircut on itemized charitable deductions, or the new cap on overall itemized deductions for those in the top marginal rate bracket.
At the same time, Costa points out that familiar programs have had some details materially altered, including the capital gain exclusion for Qualified Small Business Stock under Section 1202 and the extension of the Qualified Opportunity Zone program.
“Compounding the challenges of navigating the quirks of the OBBBA is the shifting landscape of tax advice itself. Private equity investment in the CPA industry has accelerated a trend where tax pros dealing with individual matters focus on ultra-high-net-worth clients and family offices, leaving a gap for affluent, potentially highly liquid, but less complex households,” Costa said.
Gerry Spitzer, founding partner of Questar Capital Partners, a Sanctuary Wealth partner firm, believes the OBBBA changed the playing field for every business owner in the country – and, as a result, their financial advisors - because it made employee stock ownership plan (ESOP) deals easier to finance and, in many cases, more compelling than ever thanks to higher estate and gift exemptions, permanent 100% bonus depreciation, and looser rules on deducting interest.
“When you combine tax-free corporate earnings in an S-corp ESOP with the ability to fully expense new equipment and deduct more interest, the math gets hard to ignore. Owners can exit on their terms, keep the company in the hands of people who built it, and still achieve liquidity without getting gutted by the IRS,” Spitzer said, adding that unlike a private equity deal “you don’t have to sell your culture along with your stock.”
Emphasized Spitzer: “Here’s the bottom line I’d tell any advisor or client: the Big Beautiful Bill Act didn’t kill ESOPs, it turbocharged them. If you’re serious about succession, don’t just ask ‘Can I sell to an ESOP? — ask ‘Why wouldn’t I?’”
The One Big Beautiful Bill Act locks in historically low tax brackets, but that may prove temporary as deficits rise. That’s why Anne Marie Stonich, chief client experience officer with Coldstream Wealth Management, is encouraging clients to accelerate income, convert to Roth, or realize capital gains now to capture today’s favorable rates. She notes, however, that this advice needs to be tailored to a client's location.
“Families in Washington state, for example, face added complexity with the nation’s highest estate tax and a capital gains tax that now ranges from 7% up to 9.9%, prompting business owners and tech executives to migrate to states like Nevada, Texas, Florida, Arizona, or Idaho — and even reconsider California because it has no estate tax,” Stonich said.
Elsewhere, enhancements to Qualified Small Business Stock (QSBS) and the permanent extension of Opportunity Zones provide valuable tools for entrepreneurs and investors at the Federal level. But in Washington state, she points out that these opportunities need to be weighed against the higher state capital gains and estate tax exposure.
“Coordinating federal and state planning is now more critical than ever,” Stonich said.
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