How Does the One Big Beautiful Bill Impact You?

Recently, Congress passed a bill that introduces significant changes to the Tax Cuts and Jobs Act of 2017 (TCJA) and offers new tax breaks and planning opportunities.

This new legislation, called The One Big Beautiful Bill Act (OBBBA), extends many of the 2017 TCJA tax cuts that were set to expire at the end of 2025. It also introduces a range of new tax provisions impacting individuals and businesses alike. 

Key Highlights of OBBBA: Extension and Permanence 

One of the central tenets of OBBBA is the extension and in some cases, permanence, of key provisions from the 2017 TCJA. This provides much-needed clarity and stability for taxpayers. 

• Tax Rate Permanence: The lower individual and corporate income tax rates are now permanent. This includes individual income tax brackets ranging from 10% to 37% and a corporate income tax rate of 21%. 

• Increased Standard Deduction: The standard deduction has been increased further simplifying tax filing for many. Specifically, it is now $15,750 for single filers and $31,500 for joint filers, with annual inflation adjustments. 

• Enhanced Child Tax Credit: The child tax credit has been expanded from $2,000 to $2,200 per child. 

• Higher Estate and Gift Tax Exemptions: Estate and gift tax exemptions have been increased, now standing at $15 million per person. This provides significant estate planning opportunities.

• Permanent QBI Deduction: The Qualified Business Income (QBI) deduction, which allows a 20% deduction for individuals with qualified business income, has been made permanent. 

• Reinstated 100% Bonus Depreciation: The bill reinstates 100% bonus depreciation on qualifying assets, retroactive to January 20, 2025. This is a significant change, as bonus depreciation had been gradually phased out from 2022-2027. This is also made permanent, as opposed to the current graduated reduction of 20% per year starting in 2023. 

• Itemized Deductions: The legislation permanently eliminates miscellaneous itemized deductions and permanently limits the mortgage interest deduction to $750,000 of mortgage debt. Casualty loss deductions are now limited to federally declared disasters. 

New Tax Breaks: What You Need to Know 

Beyond extending existing provisions, OBBBA introduces several new tax breaks for individuals and businesses. 

For Individuals: 

• Tax-Free Tips: You can now receive up to $25,000 in tips tax-free. While still requiring reporting, this is treated as an above-the-line deduction. 

• Tax-Free Overtime Pay: Overtime pay up to $12,500 is now tax-free, also as an above-the-line deduction that must still be reported. 

• Senior Bonus Exemption: Seniors receive a $6,000 bonus exemption per person. This provision also reduces the taxable portion of social security benefits. Phase-out ranges for this exemption are $75,000-$175,000 for single filers and $150,000-$250,000 for joint filers. Seniors also receive an additional deduction of $1,600 along with the bonus exemption. 

• Charitable Deduction for Standard Deduction Filers: A charitable “above-the-line” deduction is now available for those taking the standard deduction limited to $1,000 for single filers and $2,000 for joint filers. 

• Deductible Car Loan Interest: Interest on car loans for new, U.S. assembled vehicles is now deductible “above-the-line,” capped at $10,000. 

For Businesses: 

• Enhanced Deductions: The bill provides enhanced deductions for businesses. 

• Bonus Depreciation Expansion: In addition to reinstating 100% bonus depreciation, a new category of assets now qualifies, including nonresidential real property like factories, improvements to existing industrial buildings, and manufacturing facilities. These assets were formerly depreciated using the straight-line method over 39 years. 

• Increased Section 179 Expensing Limits: Limits on Section 179 expensing have been increased and will be annually adjusted for inflation. The deduction limit is now $2.5 million (up from $1.22 million), and the phase-out threshold begins at $4 million on qualifying purchases (up from $3.05 million). 

• Increased QBI Deduction: The QBI income deduction for pass-through entity shareholders and sole proprietors has been made permanent at 20%. Phase-in thresholds for Specified Service Trade or Businesses (SSTBs) have also been raised. 

Navigating the SALT Deduction and Planning Opportunities 

The State and Local Tax (SALT) deduction has also seen adjustments under this new legislation. 

• Increased SALT Deduction Limit: The deductible amount for State and Local Taxes on Schedule A increases from $10,000 to $40,000. This primarily benefits high-income taxpayers in high-taxed states. 

• PTE Tax Workaround: While states have used Pass-Through Entity (PTE) tax elections as a workaround for the SALT cap, OBBBA provides planning opportunities with the increased deduction at the individual level. 

Strategic Tax Planning with Milton Law Group 

The passing of OBBBA presents numerous tax planning opportunities. Our team at Milton Law Group is prepared to help you maximize these benefits. 

• Roth Conversions: For seniors with lower tax rates due to the additional bonus exemption, or individuals experiencing low-rate tax years, Roth conversions can be a strategic move to pay little to no tax on the conversion. 

• Capital Gains Harvesting: With favorable long-term capital gains rates, now is an opportune time to harvest these gains. 

• Estate Planning: The increased estate and gift tax exemption to $15 million per person provides a critical window for estate planning. Gifting, trust funding, and utilizing this exemption can lock in the higher threshold before any future changes. 

• Employer-Paid Student Loan Benefits: Employer-paid student loan benefits are now permanently excluded from taxable income, up to $5,250 per year. 

• “Trump Accounts”: For children born between 2025 and 2028, “Trump Accounts” offer tax-advantaged savings with an initial federal government contribution of up to $1,000 and additional private contributions of up to $5,000 per year. These can be accessed as early as age 18 for qualified expenses, with full access at 31. 

• Expanded 529 Plan Eligibility: Eligible expenses for 529 plans have been expanded to include standardized test fees, workforce training, professional credentials, and continuing education. 

OBBBA introduces a dynamic shift in tax law, offering both extensions of popular provisions and new avenues for tax savings. At Milton Law Group, our commitment to staying current with these complex changes ensures that our clients receive the most informed and effective tax strategies.

Contact us today to discuss how these new provisions impact your individual or business tax situation and to develop a personalized tax plan.