The “One Big Beautiful Bill Act” (The Act) was signed into law by President Trump on Friday, July 4, 2025, after weeks of negotiation in Congress.

There are several changes to the tax law as well as extensions of the Tax Cuts and Jobs Act provisions that were previously set to expire. Taxpayers, along with their CPAs, should begin analyzing these provisions and planning for the changes in The Act that could impact both individual taxpayers as well as their businesses.

Now that The Act has been signed into law, the Internal Revenue Service and the Department of the Treasury will be tasked with determining how the changes will be administratively implemented, incorporating them into the existing tax law, and issuing further guidance as needed. 

Below are highlights of the major changes for individual taxpayers and business entities.

Individual Provisions

Individual Tax Brackets

The previous tax law called for a reduction in the individual tax brackets, reducing the maximum rate from 39.6% to 37% and making changes in several other brackets. These were scheduled to expire at the end of 2025, which would have resulted in many individuals seeing an increase in the amount of federal taxes paid in 2026. The Act makes permanent the reduced individual tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Standard Deduction

The Act increases the amount of the standard deduction for tax years beginning in 2025 to $31,500 for joint filers, $23,625 for heads of households, and $15,750 for single taxpayers and married taxpayers filing separately. The increases to the standard deduction became permanent and will be adjusted for inflation going forward. 

Additional Standard Deduction for Seniors

As any changes made to social security could not be accomplished by a budget resolution, and striving to fulfill promises made to not tax social security, a new deduction was created for seniors. The Act created a new deduction in the amount $6,000 for taxpayers aged sixty-five or older. This deduction phases out for individuals with adjusted gross income that exceeds $75,000 (or $150,000 for joint filers) and is available for the 2025 through 2028 tax years.

 SALT Deduction

The Act increases the state and local tax deduction (SALT deduction) cap to $40,000 for 2025. This deduction will be reduced by 30% of the amount by which the taxpayer’s modified adjusted gross income exceeds $500,000 (or $250,000 for married filing separate and single filers). This amount is set to increase by 1% each year until 2029. In 2030 this cap is set to return to the $10,000/$5,000 limits.

Pass-Through Entity Tax Workaround Deductions

There was talk and even language in earlier versions of the bill that limited the pass-through entity tax workaround deductions. These limitations were not included in the final bill and the PTET deduction rules were unchanged.

Charitable Contributions

The Act creates a 0.5% floor on charitable contributions made after December 31, 2025. Only charitable contributions that in aggregate exceed 0.5% of the taxpayer’s contribution base will be permitted as a deduction. The Act also reinstates the COVID era law that entitles taxpayers that do not itemize to a charitable contribution deduction up to $1,000 ($2,000 for a joint return).

Deductions for Tip Income – “No Tax on Tips”

The Act creates a deduction for individuals who receive qualified cash tips in occupations where tipping was customary prior to January 1, 2025. The deduction is up to $25,000 per year per taxpayer. The deduction

phases out for individuals with modified adjusted gross income above $150,000 (or $300,000 for joint filers). The deduction is available to non-itemizers, meaning it can be claimed in addition to the standard deduction. This deduction is available for tax years beginning after December 31, 2024, and will expire for the tax years beginning after December 31, 2028.

Deductions for Overtime Pay – “No Tax on Overtime Income”

The Act creates a new deduction for individuals who receive "qualified overtime compensation." Taxpayers may deduct up to $12,500 per year in qualified overtime compensation ($25,000 for joint filers). The deduction

phases out for individuals with modified adjusted gross income above $150,000 (or $300,000 for joint filers). "Qualified overtime compensation" is defined as overtime pay, required under Section 7 of the FLSA, that exceeds the regular rate. The deduction is available to non-itemizers, meaning it can be claimed in addition to the standard deduction. This deduction is available for tax years beginning after December 31, 2024, and will expire for the tax years beginning after December 31, 2028.

Deduction for Car Loan Interest

There is a new temporary tax provision which allows taxpayers to deduct up to $10,000 on certain auto loans. This deduction applies to debt incurred after December 31, 2024, for the purchase of a new personal use vehicle, secured by a first lien on the vehicle, and the vehicle's original use must begin with the taxpayer. The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle, with a gross vehicle weight rating under 14,000 pounds, and final assembly of the vehicle must occur in the United States. Note that recreational vehicles, including campers, are not included. Phase-out of this deduction starts for individuals with modified adjusted gross income above $100,000 (or $200,00 for joint filers).

Itemized Deduction Phase Out – Replacement of “Pease Limitation”

The previous limitation (“Pease Limitation”) on itemized deductions was set to be reinstated for tax years beginning in 2026; however, this was repealed. The reinstatement was replaced with a new limitation on itemized deductions. Now, itemized deductions will be reduced by 2/37 of the lesser of (a) the amount of the deductions or (b) the taxable income that exceeds the dollar amount at which the 37% rate bracket begins. This applies to tax years beginning after December 31, 2025.

Child Tax Credit

The Act permanently increases the base amount of the child tax credit to $2,200. This amount is now subject to annual inflation increases. The refundable portion of the child tax credit (the “additional child tax credit”) remains unchanged at $1,400, adjusted for inflation in future tax years.

 Estate Taxes

The estate tax exclusion amount is increased to $15 million for decedents dying after December 31, 2025. This amount is adjusted for inflation in tax years after 2026.

Green Energy Credit Terminations

The Act terminates various green energy credits applicable to both businesses and individuals. Under the bill, some tax credits that will be terminated after 2025 include: 

• previously owned clean vehicle credit,

• clean vehicle credit,

• alternative fuel refueling property credit,

• energy efficient home improvement credit, and

• residential clean energy credit.

Other Provisions Extended

The Act also extends a number of other provisions that were set to expire:

• The repeal of general personal exemptions.

• Termination of deductions for moving expenses and miscellaneous itemized deductions.

• Limitation on the casualty loss deduction.

• Makes permanent the $750,000 mortgage interest deduction limit (unless grandfathered in) and adds mortgage insurance premiums as qualified interest.

• The exclusion for bicycle commuting reimbursements.

• Extended increased Alternative Minimum Tax exemption amounts and phase-out thresholds.

• Makes excess business loss limitations permanent and removes inflation adjustments.

Business Provisions

Bonus Depreciation

Bonus depreciation was beginning to sunset under the Tax Cuts and Jobs Act and was set to be at 40% in 2025. The Act makes 100% bonus depreciation permanent for property acquired after January 19, 2025.

The Act also allows an election to take 100% bonus depreciation for any portion of non-residential real property that is “qualified production property” with construction beginning after January 19, 2025, and before January 1, 2029 (and placed into service before the end of 2030). “Qualified production property” is property used as an integral part of the manufacturing, production (agricultural and chemical only), or refining of a qualified product (qualified production activities). A qualified product is tangible personal property, other than food or beverages prepared in the same building as a retail outlet that sells those products. It does not include property used for a variety of functions unrelated to qualified production activities, such as offices for sales or research activities.

Research and Experimental Expenditures – Section 174 Expenses

For years beginning after December 31, 2021, taxpayers were required to capitalize and amortize research and experimental expenditures. The Act permanently reinstates the deduction for domestic research and experimental expenditure costs incurred after 2024. 

Small businesseswith average annual gross receipts of $31 million (for 2025) or less would be able to elect to amend previous years’ tax returns and claim the deductions for those years. Businesses that are not small business taxpayers will be allowed to take the unamortized amounts incurred in calendar years 2022, 2023, and 2024 in either the first tax year beginning after 2024, or ratably over the first two tax years beginning after 2024. The business will also be able to continue to amortize the unamortized portion of research and experimentalexpenditures over the remaining five-year period.

The above rules are only for domestic research and experimental expenditures. Foreign research and experimental expenditures will be capitalized and amortized over a 15-year period.

Qualified Business Income Deduction

The Act permanently extends the qualified business income deduction. This was set to expire after 2025. There were additional changes made under this bill that expand qualifications for the deduction and adjust the phaseouts. The Act also created a minimum deduction of $400 for those who have at least $1,000 in qualified income.

Section 163(j) Interest Deduction Limitation

The Act reinstates the adding back of depreciation and amortization for purposes of calculating the Section 163(j) business interest expense limitation. This applies to tax years beginning after December 31, 2024. The Act also disallows capitalizing interest to subvert the Section 163(j) limitation rules.

Corporate Charitable Contribution Deductions

Corporate charitable contribution deductions remain limited to 10% of the corporation’s taxable income. The Act also puts in place a 1% floor on charitable contribution deductions for corporations. The Act provides that any otherwise allowable charitable contribution by a corporate taxpayer for any tax year will be allowed only to the extent that the aggregate of such contributions exceeds 1% of the taxpayer's taxable income for the tax year. Charitable contributions disallowed, either for exceeding the 10% maximum or failing to reach the 1% threshold, can be carried forward for five years. This will begin for tax years after December 31, 2025.

Employer Retention Tax Credits

The Act makes several changes to the employee retention credit (ERC). The Act prohibits paying any ERC refunds for claims filed after January 31, 2024. It also extends the statute of limitations on ERC claims to six years and increases the penalties on preparers and promoters for fraudulent ERC claims. 

Increased Section 179 Expensing Limits

The Act increases the annual expensing limit under Section 179 to $2,500,000 and increases the phase-out threshold to $4,000,000. This provision is effective for property placed in service in tax years beginning after December 31, 2024.

Some of what is included in this new legislation extends or makes permanent what was already in place for the past couple of tax years. However, there are new provisions as well as changes made to the already existing provisions that are being extended. There are various other provisions and nuances included in the “One Big Beautiful Bill” that are not mentioned above. It is especially important to contact one of the tax professionals at Dermody, Burke, and Brown, CPAs, LLC to discuss and understand how these tax provisions will affect your individual tax situation as well as your business. There may also be planning opportunities available to utilize some of these provisions to mitigate the amount of taxes you are paying. Please reach out to us today with questions.