Quarterly Commentary: Second Quarter 2025

The second quarter of 2025 began amid continued geopolitical tensions, renewed angst about fiscal debt and deficits, and a sweeping new trade policy. On April 2^nd, the Trump administration announced “Liberation Day” levying a blanket 10% tariff on all imported goods, as well as additional reciprocal tariffs on certain targeted countries. The sheer breadth and depth of these tariffs caught investors off guard resulting in a precipitous drop in global equites. However, market conditions began to stabilize by May, after a 90-day suspension of the tariffs and a more flexible tone from President Trump. 

Volatility returned in June as geopolitical tensions intensified between Israel and Iran, culminating in U.S.-led strikes on Iranian nuclear facilities in an attempt to derail the threat of a nuclear Iran. With no signs of greater escalation in the aftermath of these strikes and the pause in trade actions, markets swiftly rebounded into the end of the quarter.

Index	2Q25 (04/01/25-06/30/25)
S&P 500 Index	10.94%
Russell 2000 Index	8.50%
MSCI EAFE Index	11.78%
MSCI Emerging Markets Index	11.99%
Dow Jones U.S Select REIT Index	-0.44%
Bloomberg US Aggregate Index	1.21%

Source: YCharts

 

The One Big Beautiful Bill Act

Shortly after the close of the quarter, on July 4^th, President Trump signed into law the One Big Beautiful Bill Act (OBBBA). This 870-page piece of legislation will affect virtually every sector of our economy and will most likely have an impact on the trajectory of our GDP, inflation, interest rates, and our debt and deficit. The following is a recap of some of the most notable provisions of the Bill. Please note that some parts of this bill are permanent while others will only be temporary, a necessary part of the negotiations to allow the act to be funded and passed.  This is a voluminous bill, so in the interest of space, our focus will be on some of the most relevant changes for individuals. As we monitor the OBBBA’s rollout, we will evaluate its impact on your individual circumstances to identify strategies and opportunities with you. 

Individual Income Tax

1. 1. The OBBBA will extend the individual income tax rates established under the Tax Cuts and Jobs Act of 2017 (TCJA) which was passed during President Trump’s first term. This will keep the top marginal income tax rate at 37% and the bottom rate at 10% with some additional inflation adjustments to some of the brackets.

2. 2. The TCJA’s increased standard deduction is now permanent at $31,500 for married filing jointly and $15,750 for most other taxpayers.

3. 3. The state and local deduction limitation (SALT) remains in effect, but the OBBBA increases the maximum deduction from $10,000 to $40,000 starting in 2025. Beginning in 2026, this cap increases by 1% each year but will revert back to $10,000 in 2030. In addition, the cap will be reduced 30% for taxpayers to the extent their modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for those married filing separately).

4. 4. The overall limitation on itemized deductions (known as the Pease limitation) has been permanently removed and replaced with one that essentially caps the benefit of the deduction at 35% for those in the highest marginal bracket of 37%. Further, under the new bill, the elimination of miscellaneous itemized deductions is now permanent. 

5. 5. “No Tax on Tips” was a popular campaign theme which became part of the OBBBA. The Bill allows for an annual deduction of up to $25,000 for qualified tips that applies to employees and independent contractors in occupations that customarily receive tips. While there is an income tax deduction, payroll taxes still apply. The deduction phases out when the MAGI exceeds $300,000 for couples filing jointly and $150,000 for most other filers. This is a temporary provision for tax years 2025 through 2028.

6. 6. Another campaign promise, “No Tax on Overtime” also became law allowing for “qualified overtime compensation” (subject to the standards in Section 7 of the Fair Labor Standards Act of 1938) of up to $25,000 for married couples filing jointly and $12,500 for individuals. A phase out begins when taxpayer’s MAGI is $300,00 for joint filers and $150,000 for most others. This special provision will only apply for tax years 2025 through 2028.

7. 7. Currently, taxpayers aged 65 and older receive an extra deduction of $2,000 for single filers and $3,200 for joint filers. Under the OBBBA, these taxpayers will get an additional $6,000 deduction that begins to phase out at $75,000 for single filers and $150,000 for joint filers in 2025 through 2028. The legislation does not include President Trump’s proposal to eliminate taxes on Social Security benefits; however, this additional deduction may help offset taxes on Social Security benefits for some individuals with income at or below these thresholds for the next four years.

8. 8. The new law allows for a deduction of up to $10,000 of loan interest for vehicles purchased between 2025 and 2028 whose final assembly took place in the US. The deduction will apply to single taxpayers with a MAGI of $100,000 or less and $200,000 or less for those who are married filing jointly.

9. 9. The Child Tax Credit has been increased from $2,000 to $2,200 and has been made permanent under the OBBBA and will also be indexed for inflation starting in 2025.

Estate and Gift Tax

There has been a fair amount of hand wringing around the pending sunsetting of the current estate and gift tax rates which were slated to take place by the end of this year. The OBBBA provided some clarity and permanency to this important area of estate planning, as well as other provisions pertaining to estates and gifts. The lifetime gift and estate tax exclusions will increase from $13.99 million to $15 million for individuals and from $27.98 million to $30 million for married couples. These exclusions will be indexed for inflation going forward.

The OBBBA also established new individual retirement accounts, Trump Accounts, for minors where the government will contribute a tax-deferred $1,000 for every child with a valid Social Security number born between December 1, 2025, and December 31,2028. Each subsequent year, the account can receive up to $5,000 in contributions indexed annually for inflation. Contributions are not deductible to the donor. Any contributions made by the government, made by a rollover from one Trump account to another, or made by a nonprofit entity to a qualified class of beneficiaries will be excluded from the $5,000 contribution limit. Employers can contribute up to $2,500 to the Trump Accounts of their employees, but they will count toward the $5,000 contribution limit. The investments in the account are limited to stock index funds, and no distributions can be made before the minor reaches age 18. Although contributions are made post-tax, the account is not treated like a Roth. At 18, it converts to a traditional IRA, with withdrawals taxed as ordinary income. If not used for qualified expenses (like tuition or a first-time home), early withdrawals before age 59½ also incur a 10% penalty.

Charitable Giving

Surprisingly, over 90% of individuals do not itemize deductions, which has precluded them from getting tax relief when making charitable contributions. In the Covid era, a short-term provision was established allowing a deduction for certain charitable gifts for these non-itemizers. The Bill made these deductions permanent while increasing them to $1,000 for individuals and $2,000 for joint filers. For those who itemize deductions, the Bill made charitable giving more complicated by creating a floor of 0.5% of the taxpayer’s contribution base—generally adjusted gross income (AGI)—on the charitable deductions of individuals who itemize. This reduces its fully deductible amount by 0.5% of an individual’s contribution base for the tax year.  Further, as we mentioned above, for those in the highest 37% tax bracket, the deduction will be capped at 35% of the dollars donated, compared to the current 37% rate. These provisions will all go into effect in the 2026 tax year.

Other Notable Provisions

Energy Tax Credits – The OBBBA made meaningful changes to the energy space including accelerating phase-outs for some tax credits, terminating others, and adding some restrictions for foreign entities. Tax breaks for wind and solar sunset after 2027; existing credits continue for nuclear, geothermal, and hydrogen. 

Expanded uses for health savings accounts (HSAs) and 529s. This legislation widens the types of health plans and participants eligible to use an HSA, allows payments of $150 a month ($300 for a family) for direct primary care arrangements, and makes an extension for telehealth arrangements permanent. The legislation also expands uses of 529 funds to include things such as testing fees, tutoring outside the home, and educational therapies for students with disabilities, among other things. It would also allow for tax-free withdrawals for recognized postsecondary credential programs.

Medicaid & SNAP cuts- The Act imposes deep cuts to Medicaid, tightens SNAP eligibility, and adds work requirements for those seeking benefits. This could disproportionately burden the lower income population, yet while wealthier investors will not be directly impacted, reduced federal healthcare support may strain hospitals and rural services—potentially raising healthcare and insurance costs for most people, especially retirees.

Stay the Course

The extreme volatility we experienced in the second quarter reinforced a simple but powerful lesson: staying invested and having a well-diversified portfolio can help weather uncertainty and capture opportunity.  While the world continues to present challenges, the wisdom of long-term investing remains unchanged.

Maintaining a prudent investment allocation in the context of a comprehensive financial plan can be an effective way for investors to manage fear and anxiety caused by a constantly changing economic and political landscape. As you do so, it will help you build conviction and confidence in your path to prosperity. Standing with you through this process is our core mission at Wealth Dimensions Group. 

Thank you for your continued confidence in our services.

The Wealth Dimensions Team

Sources:

https://www.congress.gov/bill/119th-congress/house-bill/1/text

Indices themselves are not investible products.

The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.

The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.

The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada. 

The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries. 

The Dow Jones U.S. Real Estate Index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.

The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.

Disclosure:
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.