It’s that time of year again when Americans prepare for their bacchanale of peace on Earth and good will to men… Oh sorry, we’re confusing the holidays with tax season again.

That’s right, it’s the time when we dig up old pay stubs and pray we aren’t missing a 1099. But one bright spot for taxpayers this time around may be bigger refunds. Thanks to changes under the One Big, Beautiful Bill Act and withholding tables that weren’t updated after the law passed, the average refund is 10.2% higher than last year, translating to roughly $3,804, according to early IRS filing data.

That bump, however, comes amid a growing pattern of legislative churn that can make tax filing confusing for clients and advisors alike. While the OBBBA didn’t dramatically overhaul taxes, it joined a string of laws passed through budget reconciliation, a process that lets Congress approve tax and spending changes with a simple Senate majority rather than the usual 60 votes. This same process helped enact the Tax Cuts and Jobs Act of 2017, the American Rescue Plan Act of 2021 and the Inflation Reduction Act of 2022.

“Once they figured out a way to do that, every administration seems to be using that budget reconciliation to change taxes, so it can get very confusing,” said Joe Marmorato, senior tax strategy advisor at Savant Wealth Management. “While they say that a lot of those provisions [in the OBBBA] are permanent, it’s really only permanent so long as we have a current administration and Congress as the way it is. The next administration and future Congress can come in and change that at any point in time.”

Give Me a Break

President Donald Trump signed the OBBBA into law last July, promoting the slogans: “No tax on tips. No tax on overtime. No tax on Social Security. No tax on car loan interest.” While a nice idea in theory, it’s not entirely true. “It’s kind of a misnomer,” said Steve Elliot, tax director at Mercer Advisors. “For somebody working in a restaurant, most of their compensation is from tips, not wages, so that doesn’t mean all that income gets excluded.”

What it really means is that there are some new rules that advisors will want to understand. The new deductions include:

  • Up to $25,000 for an individual’s tips; and up to $15,000 for individuals’ overtime pay, moving to $25,000 if a couple is filing jointly.
  • In addition to their standard senior citizen deduction, people 65 and older may claim a deduction of $6,000.
  • The up-to-$10,000 reduction for a car loan has specific requirements. The car must be brand new, be for personal use and have its assembly finished in the US.
  • Also, the State and Local Tax deduction cap has been increased from $10,000 to $40,000.

These deductions, while beneficial, have introduced new hurdles. Many W-2 forms Elliot and Mercer have been reviewing don’t break out overtime separately, meaning advisors must rely on year-end pay stubs to calculate accurate filings. “It’s the only place that would show that kind of detail,” Elliot told Advisor Upside. “The IRS put this change in and then didn’t mandate a change to the W-2 providers. That could be a huge miss for someone, and something advisors really need to be aware of to ask for.”

But Wait, There’s More. Not everything in the OBBBA has even gone into effect yet. For example, starting next year, non-itemizers can deduct cash donations to charity, up to $1,000 for single filers or $2,000 for married couples filing jointly. “And that has to be cash, check or charge,” Elliot said. “It can’t be dropping off bags at Goodwill.” Additionally, itemized charitable deductions will be capped at 35% of their value, even for those in the 37% tax bracket.

In the Loop

Another problem is that clients can often ask questions that made sense two years ago, but not anymore. For example, many of Marmorato’s clients have expressed interest in buying an electric vehicle, only for him to remind them that the OBBBA ended the federal EV rebate program. And what happens in Washington, DC, isn’t always mirrored in state laws. “We’re so focused on federal tax laws; however, not all of the states have necessarily conformed to the latest legislation,” Marmorato told Advisor Upside. “Some states are still focused on legislation that was before the Tax Cuts and Jobs Act of 2017 … It’s really just being mindful of all of these temporary and permanent changes and how they impact your client base.”

Keep It Going All Year Round. As riveting as tax planning is, it’s not really something clients are paying attention to, so they’re not aware of all the changes that often come with a new administration. For advisors, that can complicate getting all the necessary information from clients before its time to file.

“I can send out a list of requests, and if I don’t get everything back, or I don’t get things within a time frame that I need them, then I might not be able to do planning,” said Trent Horton, tax director at Creative Planning. He added that his firm holds a tax planning session at the end of the year for every client, and sometimes throughout the year, depending on a client’s needs. “We try to get ahead of the gap between just being a tax preparer and being a tax advisor,” he said. “Otherwise, the best we can do is put the numbers in the tax forms this year and then say, ‘Hey, maybe next year.’”