By Ryan J. McDonell, CPA, MSA, MSLT
Tax Director

Over the Fourth of July weekend, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This sweeping reconciliation package addresses a wide range of policy areas, including tax reform, defense spending, the debt ceiling, social programs, and student loans.

On the tax front, the OBBBA makes permanent or extends several individual provisions from the Tax Cuts and Jobs Act (TCJA) that were set to expire after 2025 and raises the state and local tax (SALT) deduction cap to $40,000. The bill also incorporates key elements of the President’s campaign platform, introducing new deductions for tips, overtime pay, car loan interest, and for individuals age 65 and older.

For businesses, the legislation restores immediate expensing of domestic R&D costs, permanently increases bonus depreciation to 100% and eases the limitation on interest expense deductions. To offset its costs, the bill phases out or repeals various energy tax credits. Treasury and the IRS will now begin implementing these provisions, several of which will affect the upcoming tax filing season.

Some notable changes in the OBBBA for individual and company tax planning include the following:

• Makes permanent the TCJA individual tax brackets with top tax rate of 37%.
• Makes permanent the TCJA standard deduction increases. Increases to $15,750 single, $31,500 MFJ, and $23,625 HoH in 2025.
• Creates permanent charitable contribution deduction for non-itemizers of $1,000 single, $2,000 MFJ beginning in 2026.
• Creates $6,000 senior deduction for individuals age 65 or older by the end of 2025 through 2028. Deduction phases out for taxpayers with income over $75,000 single, $150,000 MFJ.
• Creates deduction up to $25,000 for qualified tips received between 2025 through 2028. Deduction phases out for taxpayers with income over $150,000 single, $300,000 MFJ.
• Creates deduction up to $12,500 single, $25,000 MFJ on qualified overtime compensation received between 2025 through 2028. Deduction phases out for taxpayers with income over $150,000 single, $300,000 MFJ.
• Creates deduction for automobile loan interest up to $10,000 per year 2025 through 2028. Deduction phases out for taxpayers with income over $100,000 single, $200,000 MFJ.
• Increases state and local tax (SALT) itemized deduction cap to $40,000 with phasedown for taxpayers with income over $500,000 for 2025 through 2029.
• Increases the base nonrefundable child tax credit to $2,200 in 2025.
• Increases dependent care assistance program limit to $7,500 in 2026.
• Makes permanent the 20% qualified business income (QBI) deduction with changes to phaseout of the deduction.
• Makes permanent the excess business loss limitation.
• Maintains increased alternative minimum tax exemptions.
• Creates new tax-exempt savings accounts allowing up to $5,000 of contributions per year and a $1,000 credit for children born 2025 through 2028.
• Expands 529 plan qualified expenses to include more education-related costs.
• Enhances the 1202 qualified small business stock (QSBS) exclusion with adjusted holding periods and increased dollar limit.
• Applies a $0.35-per-dollar limitation on overall itemized deductions for individuals in top tax bracket beginning in 2026.
• Permanently increases estate and gift unified exclusion to $15M beginning in 2026.
• Phases out and repeals various individual and business energy credit provisions including the clean vehicle credits.
• Makes permanent the expensing of domestic research or experimental (i.e., R&D) expenses beginning in 2025. Taxpayers with gross receipts of $31M or less may apply this change retroactively to 2022. Foreign R&D expenses must still be amortized over 15 years.
• Permanently increases bonus depreciation percentage to 100% for property acquired after January 19, 2025.
• Permanently reinstates EBITDA calculation for interest expense limitation beginning in 2025.
• Increases Section 179 maximum to $2.5M in 2025.
• Increases 1099-MISC/NEC reporting threshold to $2,000 in 2026.
• Reinstates 1099-K reporting threshold to $20,000 and 200 transactions.

We will continue to analyze the provisions of the OBBBA and assess the tax planning opportunities and considerations arising from the new law. If you have any questions about how these changes may affect your specific tax situation, please contact your G.T. Reilly advisor for more information.

See also: Tips for Hiring Independent Contractors