One Big Beautiful Bill – Breaking Down the Tax Changes

August 6, 2025

On July 4th, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, ushering in some of the most significant tax law changes since the Tax Cuts and Jobs Act (TCJA) of 2017. The bill extends many of the TCJA provisions that were set to expire at the end of 2025 and introduces new deductions and credits for both individuals and businesses.

 

Key Changes for Individuals

  • TCJA Extensions – many items from the TCJA have been permanently extended, including retention of the current tax bracket structure, the elimination of personal exemptions, and the 20% deduction for qualifying pass-through business income (QBI). 

 

  • Standard Deduction – increased to $15,750 ($31,500 married filing joint) and indexed for inflation in future years. An additional deduction of $1,600 is available for taxpayers 65 and over and/or blind.

 

  • State and Local Tax (SALT) Deduction – temporarily increased to $40,000 for 2025 (indexed for inflation). Deduction phases out for taxpayers with adjusted gross income (AGI) over $500,000 and reverts back to the $10,000 limitation in 2030.

 

  • New Bonus Deduction for Seniors 65+ – temporary $6,000 “bonus” deduction for seniors age 65 and over for years 2025 – 2028. Deduction phases out for taxpayers with AGI exceeding $75,000 ($150,000 married filing joint). This deduction is an attempt to provide the promised “tax free social security benefits” to seniors.

 

  • Child Tax Credit – increased to $2,200 per child (under age 17); subject to phaseout for taxpayers with AGI exceeding $200,000 ($400,000 married filing joint). The $500 credit for “other dependents” is still available.

 

  • Estate and Lifetime Gift Tax Exemption – increased to $15 million after December 31, 2025 (indexed for inflation in future years).

 

  • Deduction for Tip Income – for tax years 2025 – 2028, there is a deduction of up to $25,000 per year for qualified tips. To be qualified, tips must be received in a business that typically receives tips.  The deduction phases out once modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 married filing joint).

 

  • Deduction for Overtime Pay – for tax years 2025 – 2028, there is a deduction of up to $12,500 (single) and $25,000 (married filing joint) for qualified overtime compensation (properly reported on W2/1099). The deduction phases out once MAGI exceeds $150,000 ($300,000 married filing joint).

 

  • Itemized Deductions – the former “Pease” limitation has been permanently removed along with the deduction for miscellaneous deductions (excluding the deduction for eligible educator expenses). Beginning in 2026, there is a phaseout on itemized deductions for those in the 37% tax bracket. 

 

  • Mortgage Interest Deduction – permanent retention of the $750,000 mortgage acquisition indebtedness limit. In addition, the deduction of mortgage insurance premiums as home mortgage interest is reinstated for tax years beginning after 2025.

 

  • Deduction for Interest on New Vehicle Loans – for tax years 2025 – 2028, there is a deduction of up to $10,000 per year for interest paid on new vehicle loans. The vehicle must qualify as a “qualified passenger vehicle” with final assembly in the United States. The deduction begins to phase out when MAGI exceeds $100,000 ($200,000 married filing joint).

 

  • Charitable Deduction for Non-Itemizers – a charitable deduction is allowed for taxpayers that make donations via cash, check, or credit card and normally take the standard deduction. Noncash donations such as clothing and personal items do not qualify. The deduction is limited to the amount donated up to $1,000 ($2,000 married filing joint).

 

  • Energy Efficient Home Improvement/Residential Clean Energy Credit – the credit for these expenses will no longer be available for property placed in service after December 31, 2025.

 

  • Clean Vehicle Credits – the credit for these expenses will no longer be available for vehicles acquired after September 30, 2025.

 

  • Electronic payments – beginning 9/30/25 – this was not part of OBBBA but rather an Executive Order signed in March 2025 mandating electronic payments for all federal disbursements and receipts.
    • The IRS will no longer issue paper checks for income tax refunds.
    • The IRS will no longer accept paper checks for tax payments.
    • All payments to and from the U.S. Treasury (including Social Security payments) must be made electronically.

 

Key Changes for Businesses

  • Bonus Depreciation – reinstated to 100% expensing for qualified property acquired and placed in service after January 19, 2025. 

 

  • Section 179 – the overall Code Sec. 179 expensing dollar limitation is increased to $2.5 million and the investment limitation is increased to $4 million for property placed in service in tax years beginning after December 31, 2024.

 

  • Research & Development Expenses – taxpayers are allowed to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Small business taxpayers with average annual gross receipts of $31 million or less may retroactively elect to apply this change to tax years beginning after December 31, 2021.

 

  • Business Interest Deduction Limitation – effective for tax years beginning after 2024, adjusted taxable income (ATI) is computed without taking into account deductions for depreciation, amortization, or depletion.

 

  • Form 1099 Reporting Threshold – for payments made after December 31, 2025, the dollar threshold amount is increased to $2,000 (instead of $600) for certain payments typically reported on Form 1099-MISC and 1099-NEC.

 

  • Elimination of Deduction for Employer Provided Meals – beginning in 2026, business expense deductions are disallowed for the cost of meals provided to employees for the convenience of the employer.

 

Want to know more about how these changes directly impact your specific tax situation? Contact your FLS team member today!

Posted in Small Businesses, Taxes