The One Big Beautiful Bill Act
The One Big Beautiful Bill Act: What It Means for Your Taxes
On July 4, 2025, President Donald Trump signed the OBBBA into law. The legislation extends key provisions from the Tax Cuts and Jobs Act, introduces new tax breaks for individuals and businesses, and accelerates the phaseout of certain energy-related credits.
The full text of the law is available on the IRS website; however, below is a summary of the most significant provisions affecting individual and business taxes.
For Individuals
Lower Tax Rates Made Permanent
The individual income tax brackets, ranging from 10% to 37%, are made permanent, with annual adjustments for inflation. These rates were originally scheduled to expire after 2025.
Standard Deduction, NIIT, and Estate & Gift Tax Rules
The 3.8% Net Investment Income Tax (NIIT) continues to apply to high-income taxpayers.
The standard deduction is set at $15,750 for single filers and $31,500 for joint filers, with inflation indexing.
Beginning in 2026, the estate and gift tax exemption becomes $15 million per person ($30 million per couple), indexed for inflation. The generation-skipping transfer (GST) exemption rises in parallel. The top estate tax rate remains 40%.
Higher State and Local Tax (SALT) Deduction Cap
The SALT deduction cap increases to $40,000 ($20,000 for married filing separately) for most taxpayers, with a phasedown for Modified adjusted gross income (MAGI) above $500,000 ($250,000 MFS). The cap and thresholds are adjusted for inflation through 2029, after which they revert to $10,000 in 2030. The pass-through entity tax (PTET) workaround remains available.
Permanent 20% Qualified Business Income (QBI) Deduction for Pass-Through Entities
The OBBBA makes the 20% Qualified Business Income (QBI) deduction permanent for owners of pass-through entities, including sole proprietorships, partnerships, S corporations, and certain trusts and estates.
The law also raises the phase-in and phase-out thresholds for wage/property and Specified Service Trade or Business (SSTB) limitations by $75,000 for single filers and $150,000 for married couples filing jointly, with indexing for inflation beginning after 2026.
SSTBs include service-based fields such as law, accounting, consulting, financial services, health care, athletics, and the performing arts – industries where the business is built primarily on the reputation or skill of its owners or employees. For these businesses, the QBI deduction still phases out as income rises above the thresholds, but the OBBBA expands the income range before those restrictions fully apply. Non-SSTB businesses (such as construction, manufacturing, or retail) remain eligible above the thresholds, though subject to wage and property limitations.
Additionally, the law introduces a minimum QBI deduction of $400 for taxpayers with at least $1,000 in active QBI, ensuring that even small business owners receive a baseline benefit.
New Deductions for Tips and Overtime (2025–2028)
Employees and certain independent contractors may deduct up to $25,000 in qualified tips and $12,500 in qualified overtime pay (double for joint filers). Both deductions phase out above $150,000 in MAGI (single) or $300,000 in MAGI (joint). Eligibility is limited to qualifying occupations and specific reporting requirements.
New and Expanded Child Credits
Child Tax Credit: Increases to $2,200 per child in 2025, with inflation adjustments; the refundable portion rises with inflation.
Adoption Credit: Up to $5,000 refundable; phases out between $250,000–$290,000 MAGI.
Child and Dependent Care Credit: Maximum credit rate rises to 50% of qualifying expenses, phasing down at higher AGIs until reaching the 20% minimum.
Senior Deduction (2025–2028)
Taxpayers age 65+ may claim a temporary $6,000 deduction, phasing out at $75,000 MAGI (single) and $150,000 (joint). This has been referred to as the social security exemption.
Auto Loan Interest Deduction (2025–2028)
Taxpayers may deduct up to $10,000 in interest paid on auto loans for U.S.-assembled passenger vehicles. The deduction phases out above $100,000 in MAGI (single) or $200,000 in MAGI (joint). You will need the VIN number to make sure it qualifies.
Businesses Provisions
100% Bonus Depreciation Restored
The OBBBA restores full 100% bonus depreciation, which had been scheduled to phase down to 40% in 2025. Businesses can now immediately deduct the entire cost of qualifying assets—such as equipment, machinery, vehicles, and certain building improvements—placed in service after January 19, 2025.
Higher Section 179 Expensing Limits
The maximum Section 179 deduction increases to $2.5 million, with the benefit phasing out once total purchases exceed $4 million. This provision continues to allow businesses to fully deduct the cost of qualifying equipment and certain property in the year placed in service.
Full Deduction for Domestic Research & Development Costs
Starting in 2025, domestic R&D expenses can be fully deducted in the year incurred, reversing the requirement to amortize them over multiple years. Foreign R&D costs must still be amortized over a 15-year period.
Expanded Small Business Stock Exclusion (Section 1202)
For qualified small business stock acquired after enactment, 75% of the gain is excluded if the stock is held for at least four years, and 100% of the gain is excluded if held at least five years. This expansion may significantly reduce or eliminate federal tax liability on the sale of qualifying C-corporation shares.
Opportunity Zones Made Permanent
The Opportunity Zone program becomes permanent beginning January 1, 2027. The definition of “low-income community” is narrowed to better target incentives. Investors may continue to defer eligible capital gains by reinvesting in Qualified Opportunity Funds, with potential exclusion of tax on future gains.
New Payroll Reporting Requirements for Tips and Overtime
Employers must separately report qualified tip income and qualified overtime pay on Form W-2 (or applicable 1099 forms for contractors) beginning in 2026. The IRS deferred until 2026 the mandatory reporting for employers. This requirement supports the administration of new individual deductions and may require payroll system adjustments.
Why the 2025 OBBBA Tax Changes Matter for Your Planning
Many OBBBA provisions are already in effect or will take effect in 2025, meaning the upcoming tax season will reflect substantial changes. Several opportunities, such as bonus depreciation and energy-related credits, are tied to specific sunset dates, making timing an important consideration. A year-end review can help determine which provisions apply to your situation and how best to prepare.