Objective Financial Advice

Welcome to summer and to the 2nd half of 2025!

A lot has happened this past quarter. Only 3 short months ago we were talking about how to take advantage of a market downturn, and now the investment markets are back to all-time highs. We also have a lot more certainty on taxes for 2025 and 2026 with the passing of the One Big Beautiful Bill Act (OBBBA) -- planning ideas are included in this edition of the newsletter.

We are also keenly aware of those who have been impacted by the flooding in Texas, New Mexico, and elsewhere. The loss of life and property have been devastating and our hearts hurt for those victims.

We have recently started using a note-taking software, Zocks, in our meetings and phone calls as a tool to be more efficient and keep working in your best interest. You can find out more about the program we've adopted here.

Scams are on the rise, and with the REAL ID requirement to fly now in place, the Federal Trade Commission (FTC) reports that there has been an uptick in scam texts around this. The only way you can get a REAL ID is by going to the DMV. Consider this your friendly reminder to make sure your driver's license or other form of ID has that REAL ID star in the upper right corner before you buy those plane tickets.

As a result of a recent regulatory change, we are now permitted as financial planners to receive and share online reviews. We are thrilled about this restriction being lifted! If you are so inclined to share about your experience working with our firm, there are some things we'd like for you to know here about how this process will work.

Please read on for other actionable planning ideas. We will be closed for Labor Day (Monday, September 1st) and our annual team-building day (Friday, October 10th). We plan to send the next newsletter out in mid-October. We'd love to hear from you on questions or suggestions for topics you’d like to see covered in the future.

Breaking Down the One Big Beautiful Bill Act (OBBBA)

By definition, an omnibus bill covers a variety of topics in one single bill, so this bill has many components to it. Our intention is to cover some of the highlights.

This article is the first one in this newsletter on OBBBA. We cover some more items specific to 2025 and 2026 tax planning below. And there are still A LOT more items that we don't have room to list here that may be relevant to your situation. We'll be publishing more in future newsletters and on our blog. At your upcoming financial planning meetings, we'll be diving into opportunities for you, and if you want to read further now, Michael Kitces published a comprehensive overview.

We would also like to acknowledge upfront that there are a wide range of viewpoints on this law. Our goal is not to express approval or disapproval on any components, but to help you as an individual optimize your financial situation based on these new rules.

Estate Planning

We currently have an estate and gift tax exclusion of $13,990,000. This higher exemption amount was extended beyond 2025 and is now increased to $15 million beginning in 2026. We also still have the portability rule that allows any unused portion of that exemption to transfer to a surviving spouse.

Business Owners

Need a new manufacturing facility? As long as construction begins before 2029, these costs now get more favorable tax status. In addition, businesses can start deducting the cost of research & development for that calendar year. Some entrepreneurs starting a small business are also eligible for tax exemptions on the growth & value of their business.

Clean Energy Credits

The clean vehicle credit of up to $7,500 for a new electric vehicle and $4,000 for a used one now terminates after September 30, 2025. So if utilizing this credit was part of your plan for your next vehicle purchase, you need to act quickly.

Other expirations for credits for energy-efficient home improvement and residential clean energy were also accelerated so that expenditures now need to be made prior to December 31, 2025 to qualify.

Expanded 529-Eligible Expenses

The list of eligible expenses for 529 plans is expanded for K-12 from just tuition to many other education-related expenses this year, and the annual maximum is doubled from $10,000 to $20,000 beginning in 2026. 529 plans may also be used for certain postsecondary credentialing expenses.

Trump Accounts

Beginning in July 2026, contributions of up to $5,000 per year can be made to a beneficiary's account before the year they turn 18, plus employers and other organizations can also contribute. A $1,000 per child contribution funded by the federal government for US citizens born 2025 - 2028 is also included. There are many details still to be learned about these accounts, and we'll need to determine when using a Trump account to save on behalf of a child is beneficial or if other vehicles may be superior.

NAPFA's Women to Know 2025

The National Association of Personal Financial Advisors (NAPFA) recently published a list of women advisors who were submitted by members for their own accomplishments in the industry and for promoting other women in financial planning.

We are proud to share that our very own fearless leader, Jean Keener, is on that list! Congratulations, Jean! We are all grateful we know you!

Tax Planning in the Coming Years (OBBBA changes)

With tax implications at the heart of the OBBBA, we thought it deserved its own little section. Many of these tax provisions were added to extend many items from the Tax Cuts and Jobs Act (TCJA) of 2017 that were due to sunset at the end of this year. We'll start with the retroactive changes first.

2025 Tax Year Impact

1) Social Security is still taxable, but if you are 65 or older, you get an extra $6,000 / per person deduction if Modified Adjusted Gross Income (MAGI) is below $75,000 (or $150,000 for joint filers) with a phaseout up to $175,000 (or $250,000 for joint filers)

2) If your income is below $500,000 and you itemize, the SALT cap (sales, state and property tax) increased from $10,000 to $40,000

3) The child tax credit is increased to $2,200 (from $2,000) and indexed to inflation for future years

4) Individuals can deduct up to $25,000 of tip income per tax return from their wages or self-employment income. This deduction phases out for those with modified adjusted gross income (MAGI) over $150k (or $300k for joint filing)

5) Overtime pay up to $12,500 per taxpayer for the same $150k (or $300k for joint filing) income limit is also not subject to federal taxes but payroll and state taxes rules will still apply

6) To help offset those higher auto loan rates, you can now deduct up to $10,000 in interest for new loans on new USA-made (or assembled) vehicles if you make less than $100,000 ($200,000 for joint filers) with a phaseout up to $150,000 ($250,000 for joint filers)

Now, because we're financial planners and just can't help ourselves ... just because you technically can deduct up to $10,000 in car loan interest, doesn't mean you should take on that much car debt. These income phaseout numbers look awfully close to some other numbers that can help you out on your taxes this year. They're almost identical to the income ranges for deducting 2025 IRA contributions. Well, isn't that interesting?

2026 Tax Year Impact

1) Charitable itemized deductions are reduced by .5% of your adjusted gross income (AGI). If you're planning an especially large donation for this year or next year, you'd get a slightly larger deduction this year.

2) Charitable contribution deductions are back even if you take the standard deduction as you can take up to a $1,000 / person ($2,000 / couple) for cash donations

3) Most notably, our current tax rates will not sunset at the end of 2025

4) Itemized deductions are limited for those in the 37% tax bracket

Okay ... So, Now What?

Some folks are going to be paying less in taxes this year than they thought a few months ago. There may be an opportunity here to create more taxable income through your investments without moving the needle on your preliminary 2025 projected tax bill. More income but paying the same amount of tax you were already planning for? Sign me up!

The other side of that coin is for those folks who were planning to make more aggressive tax planning moves assuming they'd see higher tax rates starting next year. Good news! Your tax planning runway at these lower rates just got extended. Maybe you want to ease off the gas a little and spread that tax burden out a little more.

If you'd like some help navigating the strategies specific to you or just have an idea you'd like to bounce off us, we'd love to hear from you!

Charles Schwab Class-Action Settlement

You may have received a postcard or email recently regarding a settlement against Charles Schwab. Millions of individuals did as there was an automatic inclusion in this settlement if you hold (or held) accounts with them. This all ties back to their acquisition of TD Ameritrade in 2020.

The argument is that the acquisition reduced competition and resulted in diminishing returns for investors. Schwab has denied wrong-doing and no financial restitution has been offered. Ultimately, since you cannot opt out, you are probably just along for the ride.

This is not the first time we've seen this, nor are these class-action settlements limited to a single custodian. If Charles Schwab is your custodian, we see no reason to respond to this, but if you wish to learn more, you can access their official settlement website.

Investment Market Update

The market is back up after stumbling in March and April due to the concern around tariffs. Though we have seen recent delays as to when some tariffs are to take effect, we did see inflation tick up last month to a 2.7% annual increase in the U.S. Consumer Price Index, but let's talk about the investment market for a moment.

The S&P 500* returned 10.94% last quarter and is just under 7% for the year. Small cap stocks were up 8.5% for the quarter and are just barely positive year-to-date. Large cap value stocks were positive as well at 3.79% for the quarter.

We're thrilled to have positive returns in our U.S. stock for the year after the peaks and valleys we've experienced, but let's talk about those international stocks. If you recall, just 2 quarters ago, we acknowledged that international stock had been lagging behind U.S. stock for more than a decade and to just be a little more patient. Well, if you stuck with this, you were rewarded with an incredible 11.78% return last quarter for developed market stock and 11.99% for emerging market stock. Please don't abandon your U.S. stock funds and go all in for international stock. We still advocate for a diversified approach, but this was a fun quarter to have a more global stock exposure.

Our bond funds are positive for the quarter with intermediate-term bonds at 1.21% and shorter-term bonds at 1.19% for the quarter.

We've had some questions around taxable vs. municipal bond funds and how to know which might be better. Unfortunately, it depends, but it comes down to tax-equivalent yield. If you're unfamiliar with this term, this refers to a calculation used to compare what the yield of a tax-exempt municipal bond is compared to that of a taxable bond to get an apples-to-apples comparison. Below is the formula for calculating the tax-equivalent yield:

Return (TEY) = Return (TX) / (1-t)

Return (TEY) = return on the fully taxable equivalent yield

Return (TX) = return on the tax-exempt investment

t = your marginal tax rate

Since these yields fluctuate, you may do the calculation one quarter and get a different answer the next quarter. Rather than hopping back and forth, we use some rules of thumb based on multiple data points to determine whether we use municipal bonds or taxable bonds in a taxable brokerage account. There are some other nuances here like how Social Security and state income taxes fit into which bond type might be better. Generally, if you're in the 32% and higher tax brackets, municipal bonds may make sense. If you're looking for something even more black and white, here it is: never use tax-free municipal bond funds in an IRA.

If you're looking for ways to optimize your portfolio for tax efficiency, we're happy to help assess things like asset location or capital gain minimization, as well.

*Source for investment returns is Morningstar. Quarterly returns are as of June 30, 2025. S&P 500 TR USD for S&P 500. Russell 2000 TR USD for small cap stock. Russell 1000 Value TR USD for large value stocks. MSCI EAFE NR USD for developed international markets. MSCI EM NR USD for emerging markets stock. Bloomberg US Agg Bond TR USD for the US aggregate bond index. Bloomberg US Government 1-3 Yr TR USD for short-term bonds.

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