Tax Policy – What the Senate Draft Tells Us

Introduction:

The Senate Finance Committee released its draft of the much-hyped “One, Big, Beautiful Bill” – a key development in the push to ram legislation through by July 4th.  

While Capitol Hill races to finalize sweeping changes that could shape tax planning for years to come – much remains unresolved. However, the latest draft gives valuable clues as to where tax policy may be headed.  

From one of America’s leading voices in tax planning – who is a strategic partner to Newground's Advanced Planning Team – below is a summary of what you need to know about the House and Senate proposals, where the key differences lie, and what we should watch for as negotiations move forward.

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Tax Policy Update – The Latest On Where We're Headed

by Jeffrey Levine, CPA/PFS, CFP®, AIF®, CWS®, BFA, ChFC, RICP
Chief Planning Officer | Advanced Planning Team | Focus Partners

As you may have seen, on June 16th the Senate Finance Committee released its draft of the tax provisions for the One, Big, Beautiful Bill. The much-anticipated text is the latest step towards meeting Congressional Republican's self-imposed goal of having a bill on President Trump's desk by July 4th. 

To read the Senate's draft language: click here. 

While at this time there are few, if any, concrete planning steps to take, the status of taxes for 2026 (and actually, in some cases, for this year) and beyond continues to be a hot topic. With that in mind, here's what you should know. 

A | How close are we to a final bill/law?

This really depends on your point of view. The Senate will, undoubtedly, pass its version of the One, Big, Beautiful Bill in short order. At that point, a Conference Committee will get to work to resolve the differences (more on this below) between the House and Senate versions of the bill. Then, it's back to the respective chambers to be re-passed before it can go to the President for his signature.

On one hand, the fact that we now have real, bonafide text from both the House and the Senate means we've come a long way and are potentially nearing the finish line and may be able hit the July 4th target date.

On the other hand, there are some very meaningful differences between the two bills (despite many similarities). While the Conference Committee will try to resolve those differences in a way that maintains broad Republican support for the bill, any changes from the original versions could result in one or more Congresspersons deciding to change their vote (at a time when slim majorities in both chambers mean Republicans need to maintain near unanimity to move the bill forward.) 

B | What is the same between the Senate and House version of the One, Big, Beautiful bill?

The following provisions are the same (or really close) in the two bills, and thus, are extraordinarily likely to remain "as is" in the final bill text:

1. Permanent extension of the current tax rates.
2. Permanent repeal of personal exemptions.
3. Permanent $15MM inflation-adjusted gift/estate tax exemption amount beginning in 2026.
4. Pease limit (3% reduction in itemized deductions for every dollar in excess of a threshold) permanently repealed.
5. Creation of "Trump accounts" (formerly known as "MAGA Accounts"), with $1,000 pilot program for children born in 2025 - 2028.
6. Expansion of 529 qualified expenses (e.g., costs related to post-secondary credentialing programs (like the CFP!), as well as expenses for elementary and secondary schooling).
7. Temporary above-the-line deduction (available 2025 - 2028) for auto-loan interest, subject to certain limitations (e.g., income phase-out, location of vehicle assembly).
8. Increase the maximum Section 179 deduction to $2.5MM, and increase the beginning of the phaseout to purchases of property in excess of $4MM. 

C | What is somewhat similar between the two bills?

There are some differences between the House and Senate versions of the provisions described below, but they are relatively minor (at least from a political point-of-view) and should not pose any significant challenge to enacting a unified version of the bill. Accordingly, it's reasonable to expect that the final version of the bill will contain provisions substantially similar to those described below:

1. Both bills would make the current "doubled" standard deduction permanent, but the House bill would extend an additional modest "boost" to the standard deduction for a few additional years.
2. Both bills would limit the value of most itemized deductions to 35% (limiting the value of those deductions for those in the highest 37% tax bracket), but the House bill further limits the value of SALT deductions to "just" 32%.
3. Both bills permanently extend the current "doubled" child tax credit, but with a little something extra. The House bill temporarily increases the credit to $2,500 (through 2028) per eligible child, at which point it would revert back down to $2,000, while the Senate's bill would permanently increase the credit to $2,200 per eligible child.
4. Both bills create a new, temporary tax break for tips (through 2028), but while the House bill would create an unlimited deduction for Qualified Tips, the Senate's version would limit the deduction to a maximum of $25,000 per person, and would subject the deduction to a phaseout as income exceeds $150,000 ($300,000 for joint filers).
5. Both bills create a new, temporary tax break for overtime wages (through 2028), but while the House bill would create an unlimited deduction for Qualified Overtime, the Senate's version would limit the deduction to a maximum of $12,500 ($25,000 for joint filers), and would subject the deduction to a phaseout as income exceeds $150,000 ($300,000 for joint filers).
6. Both bills would bring back 100% bonus depreciation, retroactive to January 20 of this year. But while the House bill only calls for the 100% deduction through 2028, the Senate version of the bill would make it permanent.

D | Where are there major differences between the House and Senate versions of the bill?

• SALT Deduction: There is, perhaps, no single issue that is more likely to be a sticking point in passing a unified bill that the SALT (State and Local Tax) deduction. That point is further illustrated by the very significant differences between the House and Senate versions of the bill.

The current version of the Senate bill would retain the $10k ($5k for separate filers) cap on SALT deductions, though that amount has already been reported to be a "placeholder" for a final compromise. In addition, the Senate's bill would limit pass-through entity owner's SALT deductions to any unused portions of their $10k personal limit, plus the greater of $40,000 ($20,000 for separate filers) or 50% of their pass-through entity taxes (PTET).

The House version of the bill would increase the maximum SALT deduction to $40,000 ($20,000 for separate filers), subject to phaseouts that could reduce the maximum back down to current limits as income rises. In addition, the House version of the bill would eliminate the ability for most owners of specified service businesses to benefit from pass-through entity taxes.

• QBI Deduction: While both the House and Senate versions of the bill would make the QBI deduction permanent, there are some very significant differences between the bills. For starters, while the House version of the bill would increase the deduction to a maximum of 23% of business income, the Senate version retains the current 20% limit. 

For many, though, the bigger difference between the two bills is with regard to the manner in which they treat high-income owners of Specified Service Businesses (most white-collar professions). The Senate's version of the bill provides only extremely limited relief to such individuals, by only modestly increasing the phaseout range over which the deduction is phased out from $100k to $150k for joint filers, and from $50k to $75k for all other taxpayers. By contrast, the House version of the bill would create an entirely new - and far more taxpayer friendly - version of the phaseout (by reducing the otherwise allowed deduction by 75% of the amount that a taxpayer’s income exceeds their applicable threshold).

Finally, whereas the House bill makes dividends from Business Development Companies (BDCs) eligible for the deduction, that change was not included in the Senate version.

• Charitable Contributions: Simply stated, if you itemize deductions, you're probably a fan of the House bill. If you don't itemize, you're probably a fan of the Senate version.  

The House version of the bill temporarily brings back (through 2028) the charitable deduction for non-itemizers, subject to a fairly nominal maximum of $150 ($300 for joint filers). It does not extend the current 60% AGI limit for cash contributions, so that would revert back to a maximum of 50% effective for 2026.

The Senate bill, on the other hand, would extend the current 60% AGI limit for cash contributions and create a permanent deduction for non-itemizers, up to the significantly more generous maximum of $1,000 ($2,000 for joint filers). However, the Senate's version of the bill would also introduce a new 0.5% floor for charitable contributions. So, for instance, under the Senate's bill, a taxpayer with $500,000 of income who donates $3,000 to charity would only be able to take an itemized deduction for their contributions of $3,000 - (500,000 x 0.005) = $500.

This is certainly not an exhaustive list of the changes that are contemplated by either the House or Senate versions of the One, Big, Beautiful Bill. It's also worth noting that, in all likelihood, there will be a fair number of non-tax-related provisions that impact areas of financial planning as well (e.g., changes to student loans, etc.).

Rest assured that if/when a final version of the bill is enacted, we will cover its many changes in detail, in a variety of formats (e.g., email updates, webinars, one-pages, etc.). 

For now, though, the information above is merely intended to keep you abreast of the latest developments on the matter. 

Happy Planning!

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Note:  This material is intended for educational purposes only. As with all our public writing, blog posts do not constitute tax or financial planning advice; likewise, they are neither an offer to sell nor solicitation to buy any investment or security.