Key Tax Law Changes for Individuals and Businesses Under the OBBBA

 

On July 4, President Trump signed into law a sweeping new measure titled the One Big Beautiful Bill Act (OBBBA). As anticipated, this legislation extends and enhances several provisions introduced under the Tax Cuts and Jobs Act (TCJA). It also incorporates various campaign pledges from the Trump administration — although some of these are only temporary — and repeals a number of clean energy-related tax incentives. Here’s an overview of the most significant changes you’ll want to consider as you prepare for the 2025 tax year.

Updates for Individual Taxpayers

 

  • Permanent Individual Tax Rates: Solidifies the TCJA’s marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

  • Standard Deduction Boost: Permanently retains the expanded standard deduction and increases it for 2025 to:

    • $15,750 for single filers

    • $23,625 for heads of households

    • $31,500 for joint filers
      These amounts will continue to be adjusted annually for inflation.

  • Enhanced Child Tax Credit: Keeps the increased child tax credit from the TCJA in place, and raises it to $2,200 for 2025, with inflation adjustments going forward.

  • Temporary SALT Cap Relief: Raises the State and Local Tax (SALT) deduction limit to $40,000 for 2025, with a 1% annual increase through 2029. The cap will revert to $10,000 thereafter.

  • Expanded 529 Plan Uses: Broadens the scope of qualified education expenses for tax-free Section 529 plan withdrawals. Changes take effect either July 5, 2025, or January 1, 2026, depending on the type of expense.

  • Estate and Gift Tax Exemption Increase: Sets the federal gift and estate tax exemption at $15 million per individual (or $30 million per couple) starting in 2026, with future inflation indexing.

  • Tip Income Deduction (2025–2028): Allows a new deduction of up to $25,000 for tip income in eligible industries, subject to income thresholds.

  • Overtime Pay Deduction (2025–2028): Creates a deduction of up to $12,500 (single) or $25,000 (joint) for qualified overtime compensation, subject to income-based phaseouts.

  • Vehicle Loan Interest Deduction (2025–2028): Offers an above-the-line deduction of up to $10,000 on interest paid for loans on certain American-made passenger vehicles, with income limitations.

  • Senior Taxpayer Deduction (2025–2028): Introduces a new deduction of up to $6,000 for those aged 65 and older, also subject to phaseouts based on income.

  • Repeal of Clean Energy Credits: Sunsets several clean energy tax incentives — including the energy-efficient home improvement credit, residential clean energy credit, and both new and used clean vehicle credits — generally by the end of 2025, with clean vehicle credits ending after September 30, 2025.

Changes for Businesses

 

  • Expanded Sec. 199A Deduction: Makes permanent and broadens the 20% deduction for qualified business income (QBI) for owners of pass-through entities like partnerships, LLCs, S corporations, and sole proprietors.

  • Full Bonus Depreciation: Permanently authorizes 100% bonus depreciation for eligible new and used assets purchased after January 19, 2025.

  • Sec. 179 Expensing Limit Increase: Increases the Section 179 expensing threshold to $2.5 million, with a phaseout starting at $4 million for 2025. Both figures will adjust annually for inflation.

  • Immediate R&D Deduction: Permits the immediate deduction of domestic research and experimentation costs, retroactively effective to 2022 for qualified small businesses.

  • Termination of Clean Energy Incentives: Phases out various green tax breaks:

    • Ends the alternative fuel vehicle refueling property credit and the Section 179D deduction for energy-efficient commercial properties after June 30, 2026.

    • Eliminates the qualified commercial clean vehicle credit after September 30, 2025.

What Does This Mean for You?

Though the above list is extensive, it only scratches the surface of the 870-page OBBBA. Reach out to our office with any questions about how these updates may specifically impact your individual or business tax planning. We’re here to help you navigate the transition smoothly.