Market Commentary

One Big Beautiful Bill and the Impact on Taxes

By Lance Jamerson, CFP

July 21, 2025

As most of you are aware, many of the provisions of the Tax Cuts and Jobs Act (TCJA) were scheduled to expire at the end of 2025. This, in turn, would have resulted in an increase in the federal income tax brackets, a reduction in the standard exemption, child tax credit and estate tax exemption, a continued reduction and then elimination of accelerated depreciation for businesses, an elimination of the Qualified Business Income deduction and many other provisions that would affect most American taxpayers to varying degrees. After much debate and a total of 493 amendments in Congress, President Trump signed into law the One Big Beautiful Bill Act (OBBBA) on July 4^th, 2025. While there will continue to be a need for further interpretation of the bill, the following is a summary of our current understanding of the tax provisions that may have an impact on our clients.

Extension of Personal Income Tax Rates

The personal income tax rates that were established in 2017 were set to sunset at the end of 2025 and would revert to the tax rates and brackets in place prior to the passing of the TCJA. The OBBBA maintained the TCJA tax rates and brackets and made them permanent.

So, how do these rates compare historically. As you can see below, the highest tax bracket of 40.8% (37% top bracket plus 3.8% net investment income tax) is still relatively low compared to historical standards.

Renew the Standard Deduction and Add a Senior Bonus

OBBBA increased the standard deduction and made the increase permanent. The bill also added an additional bonus to the standard deduction for Seniors over the age of 65.

Increase in the SALT Deduction and Continued Allowance of PTET

The State and Local Tax (SALT) deduction is a federal deduction that allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income. Under the TCJA, there was a $10,000 limit placed on the deduction. The OBBBA increases the SALT deduction in 2025 to $40,000 and establishes 1% inflationary increases until 2030 when the deduction permanently reverts to the $10,000 limit.

One caveat to the revised OBBBA SALT deduction, is that the additional dollars above the $10,000 are subject to phaseout provisions.

Essentially, if your MAGI rises above $300,000 for single filers and $600,000 for married filing jointly, you will only be able to use the $10,000 limit.

When the TCJA was passed and the SALT deduction was limited to $10,000, many states instituted, and the federal government allowed the use of a state-level Pass-Through Entity Tax (PTET) as a SALT cap workaround. The PTET allows pass-through entities like partnerships, LLCs and S-Corporations to pay state income taxes at the entity level as an expense which means less income flowing through to the owners’ personal tax return and effectively negating the SALT cap. Early iterations of OBBBA placed limitations on the use of PTET workarounds, but ultimately the use of PTET was preserved for small businesses going forward.

Estate Tax Rates & Exemptions

This has been a huge topic of conversation since the 2025 estate tax exemption of $13,990,000 per person was set to sunset in 2026 where the estimated exemption would have dropped to around $7,000,000 per person.

Qualified Business Income (QBI) Deduction

When C-Corporation tax rates were dropped to a flat 21% of profits, the government felt the need to provide a deduction to qualifying business owners of pass-through entities like partnerships, LLCs and S-Corporations. The TCJA introduced the QBI deduction.  The qualified business income deduction (QBI) is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. Qualified business income is defined as “the net amount of qualified items of income, gain, deduction and loss with respect to any trade or business.” The QBI deduction was set to sunset in 2026. OBBBA made the QBI deduction permanent and increased the phase-out ranges making the deduction more accessible to a broader range of pass-through business owners.

To clarify, a Specified Service Business is a business that involves law, health care, accounting, actuarial science, performing arts, consulting, athletics, financial services brokerage services, investing and trading.

Expansion of Benefits for Qualified Small Business Stock (QSBS) Exemption

The QSBS exemption under Section 1202 of the Internal Revenue Code allows individual taxpayers to exclude up to 100% of capital gains from the sale of QSBS, subject to certain conditions. The following are the key rules, limitations and exclusions related to the sale of QSBS stock.

Key Changes to Section 168 & 179 – Accelerated Depreciation

Property that is included under Section 168(k) is defined as assets with a Modified Accelerated Cost Recover System (MACRS) recover period of 20 years or less. Under the TCJA, the 100% Section 168(k) property bonus depreciation was set to phase out over the next few years. OBBBA made section 168(k) bonus depreciation permanent. The act also added Section 168(n) property, also known as Qualified Production Property (QPP), which includes non-residential real property that is integral in production, manufacturing or refining of tangible personal property in the United States. In essence, the addition of Section 168(n) property for bonus depreciation is designed to incentivize domestic manufacturing and production of goods in the United States. Section 168(n) isn’t permanent and expires January 1, 2031.

 

OBBBA also raises the Section 179 expense deduction and increases the phaseout threshold which should allow more business owners to take advantage of Section 179. Section 179 allows businesses to immediately deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, rather than depreciating it over several years. These adjustments, in combination with the Section 168 changes, should provide incentives for businesses to invest in themselves and encourage growth.

Adjustments to Charitable Deductions

The TCJA established a temporary 60% of AGI limit for cash gifts to public charities in 2017 that was set to sunset in 2026 and drop back down to a 50% of AGI limit. There was a large unintended consequence to charitable deductions that was created when the TCJA increased the standard deduction. According to a study published by the National Bureau of Economic Research, U.S. charitable giving fell by an estimated $20 billion in 2018. OBBBA made many adjustments to try to correct both of these issues but also established new limitations that may have an impact on charitable giving.

No Tax on Tips and Overtime

OBBBA established much anticipated provisions related to taxes on tips. Waiters, waitresses and bartenders have been able to take advantage of the no tax on tips for quite some time, but OBBBA expands this to include other service-oriented occupations such as hairstylists and barbers. The official list of who qualifies will be created by the Treasury Secretary within 90 days of the Bill’s enactment. OBBBA also created provisions for non-exempt employees to not be taxed on income from overtime. The following describes the provisions of both:

Other Provisions Worth Mentioning

OBBBA made many other adjustments to the tax code worth mentioning.

Overall, OBBBA extended a lot of provisions set to expire and implemented new ones that impact most taxpayers. There will be much interpretation and there may be other provisions that we didn’t mention above. As always, we welcome any feedback or any questions that you may have.

 

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