The One Big Beautiful Bill Act

What you need to know

With the passage of the One Big Beautiful Bill Act or OBBBA, many of the temporary tax laws set to expire at the end of 2025 have been made permanent. This week's tip summarizes the changes to several of the more popular deductions and credits, while the tax tips over the next few weeks will cover individual topics to help you understand how the major changes may impact you and your situation.


For individuals
Many temporary tax provisions are made permanent
This includes:

• Tax rates: the higher tax rates expected next year will not occur.
• Higher standard deduction: There is a slight increase in these levels for 2025. They are:
• $31,500 Joint
• $23,625 Head of Household
• $15,750 all others
• Elimination of personal exemptions: This is now permanent
• Elimination of most miscellaneous itemized deductions: The main impact is not being able to deduct unreimbursed business expenses.
• Higher child tax credit: The $2,000 per person is now $2,200 per person in 2025 with the same $200,000 single and $400,000 joint phaseouts.
• Higher estate & gift exemption levels: Permanently raises exemptions to $15 million in 2026 with inflation adjustments thereafter.

Other Changes

• Above the line charitable contributions: Starting in 2026, you can deduct $1,000 of charitable contributions if single or $2,000 if filing jointly. This is available to you whether you use the standard deduction or itemize your deductions. There is also the introduction of a .5% floor for itemizing charitable contributions.
• SALT limit moves up: The itemized deduction limit for taxes (commonly known as SALT) increases from $10,000 to $40,000 through 2029 with an income phaseout of $500,000.
• The AMT stays high...but: The Alternative Minimum Tax retains the higher exemption amounts, but the phaseouts revert to 2018 levels starting in 2026. This will not impact many, but if it does you need to be prepared.
• Itemized deduction phaseout returns in 2026 for some taxpayers: The Pease limit that previously reduced up to 80% of your itemized deductions is not in play for 2025, but a revised version for top income earners will impact 2026 and beyond.
• Elimination of many energy credits: This includes the credit for purchasing electric vehicles after September, 30, 2025 and elimination of many residential energy efficient purchase credits at the end of 2025. So plan accordingly.

And several items completely new for 2025 thru 2028!

• Tax-free tips: Up to $25,000 of tips may be deducted for those working in traditionally tipped industries.
• Tax-free overtime pay: Up to $12,500 for single and $25,000 for joint filers of the premium portion of compensation is now tax-free.

Both the tip income and overtime benefits phase out when Adjusted Gross Income exceeds $150,000 or $300,000 for joint filers.

• New senior $6,000 deduction: This benefit is for both itemizers and non-itemizers and phases out when modified AGI exceeds $75,000.
• New Trump accounts: An account for each child born from the beginning of 2025 through the end of 2028 will be pre-funded with $1,000. There are IRA-style accounts available for those born outside these years, but they are not funded.

For Businesses

• The Qualified Business Income deduction, commonly, known as QBI or Section 199A, is now permanent. Further, there is also a minimum $400 deduction benefit for taxpayers who have at least $1,000 of qualified business income.
• Higher SALT: Good new for flow through entities is the increase of the ceiling for taxes as an itemized deduction from $10,000 to $40,000 through 2029, making it less important to pay your business taxes on state tax returns. But if you do, the popular technique called PTET is still available.
• Fewer 1099s: There will be fewer 1099s in the future since the minimum reporting threshold is moved from $600 to $2,000 for the Form 1099-NEC and many other 1099s. Plus the back and forth confusion on who needs to issue and receive Form 1099-Ks for third-party billing purposes moves up from $600 to $20,000 and 200 transactions, making this filing headache for most taxpayers go away.
• Capital purchase benefits. The ability to expense capital purchases retains its options with 100% bonus deprecation through 2029 and expansive Section 179 deductions of up to $2.5 million of qualified property.
• Expense R&D. Research and Development expenditures can now be written off versus amortizing the costs over five years. There is even the ability to apply these new rules retroactively to 2022, so it makes sense to review your situation.
• C corporation tax unchanged. Equally important is what was not in the bill. The C corporation tax rate did not increase as many had feared, nor was the rate lowered.


This is a lot to cover in a single tax tip. So the tips over the next several weeks will focus on individual topics to help you navigate how these changes may impact your situation.




"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.  
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA;  Janice Papais, CPA