Article Highlights:
Individual Tax Rates
Standard Deductions
Senior Tax Deduction
Child Tax Credit
Qualified Business Income (QBI) Deduction
Minimum QBI Deduction
Estate and Gift Tax Exemption
Alternative Minimum Tax (AMT)
Gambling Losses
Mortgage Interest
No Tax on Tips
No Tax on Overtime
Car Loan Interest
Trump Accounts
State and Local Tax (SALT) Deduction
Casualty Loss Deduction
Pease Limitation
Adoption Credit
Dependent Care Assistance
Bonus Depreciation
Energy Credit Terminations
Contributions To Scholarship Granting Organizations
Charitable Contribution Non-itemizers
Taxpayers are at a crossroads as the Tax Cuts and Jobs Act (TCJA), which was signed into law during President Trump's first term, nears its end. With several of the TCJA's provisions due to expire after 2025, the One Big Beautiful Bill Act (OBBBA) provides timely extensions and subtle changes to these sunsetting laws. The OBBBA, which serves as both a continuation and a reimagining of previous legislation, not only extends important principles of the TCJA, such as individual tax rates and business deductions, but also includes new improvements that reflect the changing economic landscape. By addressing current difficulties while building on the TCJA's core gains, the OBBBA hopes to secure a path toward a more sustainable and inclusive fiscal future, assuring relief and opportunity for all levels of American taxpayers.
On July 4th, President Trump signed the OBBBA into law, bringing numerous changes to the tax landscape. Some of the changes will affect the current year, 2025, and future years.
This article concentrates on the elements of the OBBBA that directly affect individual taxpayers, small enterprises, and family-oriented tax benefits, while avoiding modifications and extensions that only affect major corporations and big business. This method ensures that the content is still very relevant and pertinent to the daily decisions of individual taxpayers and small business owners, who frequently negotiate their financial responsibilities without the same resources as giant organizations do.
By focusing on these aspects, the blog gives a personalized picture of the OBBBA's impact, ensuring that readers have knowledge that is not only relevant but also useful for their tax planning and financial management plans. This emphasis enables individual taxpayers to understand and benefit from the changes that are most important to them, without being overwhelmed by the complexities of rules created for large businesses.
These initiatives aim to provide universal alleviation and financial gains to millions of taxpayers. Below, we take a detailed look at the Act's numerous important features, which are critical for understanding its impact and ramifications.
NOTE : MAGI (Modified Adjusted Gross Income) is referred to multiple times in this article. For most taxpayers it is the same as the AGI. MAGI is AGI with foreign and territory excluded income added to the AGI.
Individual Tax Rates : The decreased individual tax rates, which are currently prolonged past January 1, 2026, are maintained and improved by the OBBBA. The Act seeks to lessen middle-class families' tax burdens by carrying on the tradition of lower rates that were first implemented with previous resolutions. Inflation-linked tax bracket changes will take effect for taxable years following December 31, 2025. Because the 39.6% tax bracket is still being eliminated, the TCJA rate extensions benefit the wealthy.
Standard Deductions: The greater TCJA standard deductions are extended, increased, and made permanent by the OBBBA. The initial plans called for the 2025 standard deductions, the final year under the TCJA, to be $15,000 for married and single taxpayers filing separately, $22,500 for heads of household, and $30,000 for married taxpayers filing jointly. However, OBBBA also uses a different prior-year basis to adjust for inflation to the 2025 rate, which will result in a considerable rise in the standard deductions for 2025. We will have to wait until the IRS completes the computation and publishes the 2025 amended amounts. Senior Tax Deduction : A $6,000 deduction per eligible individual is now available to seniors 65 and over under a temporary extra deduction. Higher income levels will phase this out, starting with taxable years prior to January 1, 2029. Its applicability is limited, though, as it only applies to taxpayers whose MAGI is less than $75,000 ($150,000 for married couples filing jointly). This deduction replaces Trump's pledge during the campaign to remove the Social Security tax. This clause goes into force in 2025.
kid Tax benefit - OBBBA strengthens family support by increasing the Child Tax Credit from $2,000 to $2,200 per qualified kid beginning in 2025, with the benefit adjusted for inflation in subsequent years. The changes also include stricter Social Security number requirements for children and parents. The credit phases off for higher-income taxpayers at a MAGI of $400,000 for married taxpayers and their surviving spouses, and $200,000 for others.
Qualified Business Income (QBI) Deduction - The QBI deduction is expanded, with phase-in amounts increasing from $50,000 to $75,000 for individuals and $100,000 to $150,000 for joint filers beginning after December 31, 2025. Minimum QBI Deduction- The OBBBA establishes a new, inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 in QBI from one or more active trades or companies in which the taxpayer materially participates. This ensures that small business owners with a specific QBI level are eligible for an enhanced baseline deduction. Both the $400 and $1,000 have been adjusted for inflation to the nearest five dollars.
The OBBBA permanently extends the estate and lifetime gift tax exemption, increasing it to $15 million for single filers ($30 million for married filers jointly) in 2026, and indexing it for inflation moving forward. That is an increase from $13.99 million in 2025. This adjustment helps to preserve more money within families. Alternative Minimum Tax (AMT) - AMT exemptions and phaseout thresholds continue to be expanded, protecting middle-income taxpayers from facing disproportionate obligations under the AMT system beginning January 1, 2026.Gambling Losses - The new law permanently extends the present regulation that restricts gambling losses to gaming income. Furthermore, beginning in 2026, the deduction for gambling losses is restricted to 90% of real losses.
Mortgage Interest - OBBBA makes the $750,000 permanent ($375,000 for married taxpayers filing separately). However, the OBBBA reinstates the deduction for some mortgage insurance premiums that expired in 2021 on house acquisition indebtedness, treating the premiums as eligible residence interest while still including them in the $750,000/$375,000 limits. No Tax on Tips - The OBBBA allows a deduction of up to $25,000 for tips earned by an individual in an employment other than a "specified trade or business" that receives tips on a regular basis, including tip sharing. The tips must be voluntary, not subject to any penalties for nonpayment, non-negotiable, and set by the payer. There is no tax on overtime, and there is a new deduction for overtime.
However, under this clause, overtime compensation is calculated as the difference between the worker's regular pay rate and the overtime pay rate, rather than the total amount earned for working extra. The maximum allowable deduction is $12,500 ($25,000 for a married couple).
The following apply to both tips and overtime deductions.
Car Loan Interest - From 2025 to 2028, the new tax bill provides a temporary interest deduction for qualifying passenger vehicles such as automobiles, minivans, vans, SUVs, pickup trucks, and motorcycles. This excludes campers and leisure vehicles. The $10,000 maximum deduction begins to phase out when the taxpayer's MAGI exceeds $100,000 ($200,000 for married couples filing jointly), and it is completely phased out at $150,000 ($250,000 for married couples filing jointly). The financing cannot be with a connected party, and the car must be constructed in the United States and weigh no more than 14,000 pounds.
Trump Accounts - The Act establishes "Trump accounts," tax-advantaged savings accounts for children born between 2025 and 2028 that require a $1,000 initial federal contribution. U.S. citizen children can receive up to $5,000 per year from their parents and $2,500 from their employers, which can be placed in a diversified US stock index. Earnings grow tax-deferred, and qualifying withdrawals are taxed as long-term capital gains. Some experts prefer 529 college savings programs because of their larger contribution limits and tax advantages. To open a Trump account, the user must be under the age of 18 by the conclusion of the calendar year.
State and Local Tax (SALT) Deduction - The OBBBA establishes additional limits on the SALT deduction, initially restricting it at $40,000 beginning in 2025. The cap is increased by a tiny amount each year until it reaches $41,624 in 2029. Then in 2030, it reverts to $10,000. For married taxpayers filing separately, half of these amounts apply. The deduction is also subject to a MAGI inflation-adjusted phaseout barrier of $500,000 in 2025, beyond which the yearly SALT limit is lowered by 30% of the difference between the threshold and the actual AGI, but not less than $10,000.
Casualty Loss Deduction- Under the TCJA, casualty loss deductions were suspended, with the exception of those encountered in a federally declared disaster region. OBBBA maintains and strengthens that restriction, with one exception. The casualty loss deduction is increased to encompass both state and federally designated catastrophes.
Pease Limitation - Prior to 2018, itemized deductions were limited, which harmed higher-income taxpayers. The TCJA lifted the limitation until 2025. For tax years beginning after 2025, OBBBA permanently repeals the Pease limitation and replaces it with a new overall cap on itemized deductions that affects taxpayers in the 37% tax bracket.
Adoption Credit - The OBBBA makes $5,000 of the adoption credit refundable beginning in taxable years following 2025. Dependent Care aid- The OBBBA raises the existing limit for dependent care aid from $5,000 to $7,500. For taxpayers filing separately, it rises from $2,500 to $3,750. Bonus depreciation is primarily applicable to tangible property with a recovery period of 20 years or less. OBBBA reinstates 100% bonus depreciation after January 19, 2025. Energy Credit Terminations- Under previous law, clean car and associated tax credits did not expire until beyond 2032. OBBBA accelerates sunsets.
Credit for previously owned clean vehicles ends September 30, 2025.
Clean Vehicle Credit till September 30, 2025.
Energy Efficient Home Improvement Credit: After December 31, 2025.
Residential Clean Energy (including solar): After December 31, 2025.
Contributions to Scholarship Granting Organizations - The OBBBA provides a tax credit (dollar for dollar) up to a maximum of $1,700 for contributions to qualified organizations that award scholarships to eligible students. Unused credit can be carried forward for five years. Includes eligibility requirements for award recipients and scholarship-granting organizations. Effective for tax years starting after 2025. Charitable Contribution Non-itemizerscan now claim cash contributions to qualifying charities of up to $1,000 ($2,000 for joint filers). Effective in tax years beginning after 2025.
The One Big Beautiful Bill Act has several key measures that will have a substantial impact on individuals and small businesses. Understanding these changes is critical for improving your tax approach and staying compliant. As these laws are implemented, it is critical to keep educated about how they may influence your financial status. We invite you to call our office if you have any questions or want to set up a planning appointment. Our staff is here to guide you through this ever-changing landscape, enabling you to confidently and clearly handle tax requirements.