Understanding the One Big Beautiful Bill Act: What It Means for Your Taxes

ARTICLE | July 08, 2025

Understanding the One Big Beautiful Bill Act: What It Means for Your Taxes

The One Big Beautiful Bill Act (OBBBA) arrived on the scene after a narrow Congressional vote and was signed by President Donald Trump on July 4, 2025. With roots tracing back to the 2017 Tax Cuts and Jobs Act (TCJA), this new legislation has dramatic and lasting implications for both individual and business taxpayers. Below, we’ll explore what you need to know about the Act’s key provisions and how they could affect your financial planning. We’ll also outline important steps you can take to adapt and thrive under these rules.

 Introduction

The OBBBA is, in many ways, an extension of the TCJA, but it also introduces several notable changes. The Act permanently sets or extends provisions that were at risk of expiring, and it includes innovative new tax benefits for families, entrepreneurs, and investors. In this article, we highlight the main features of the legislation—covering everything from individual tax rates and enhanced deductions to charitable giving incentives and business breaks.

Brief Legislative History

After passing the House by a razor-thin margin on July 3, 2025, the OBBBA was quickly signed into law on July 4. Much of the Act draws on the Trump administration’s priorities and makes permanent several TCJA measures that were set to expire, such as certain individual income tax rates and increased estate tax exemptions. Among lawmakers, there was significant debate around whether to continue or adjust specific TCJA provisions, particularly deductions for state and local taxes (SALT) and the treatment of overtime and tips. Ultimately, the OBBBA emerged with a mix of continuations, expansions, and brand-new initiatives designed to encourage growth and offer relief across various income levels.

Major Individual Tax Changes

Individuals stand to see significant adjustments to their returns under the OBBBA. From permanently lowered tax rates to expanded deductions, the new law solidifies many of the TCJA provisions while adding fresh opportunities.

1. Permanent Tax Rates. The OBBBA cements the seven-bracket system (10%, 12%, 22%, 24%, 32%, 35%, and 37%). These rates, initially introduced under the TCJA, are now set to remain unless changed by future legislation. Inflation adjustments will continue to shift bracket thresholds from year to year, preventing “bracket creep.”
2. Standard Deduction. The higher standard deduction amounts introduced in 2017 are now permanent. Those who do not itemize may benefit substantially from these elevated thresholds. For example, single filers can take $15,750 and married couples filing jointly are allowed $31,500 (for tax years beginning after 2024), with annual inflation adjustments going forward.
3. SALT Deduction Cap Increase. The original $10,000 SALT deduction limit is temporarily lifted to $40,000, adjusted for inflation each year until 2029. This could offer relief to taxpayers in states with high property or income taxes. However, the deduction cap reverts to $10,000 in 2030. The new law also adds phaseouts for filers whose modified adjusted gross income (MAGI) surpasses certain thresholds.
4. Senior Deduction. The Act carves out a temporary additional deduction of $6,000 for taxpayers age 65 or older from 2025 through 2028, with an income-based phaseout starting at $75,000 for single filers ($150,000 for joint taxpayers). This measure could lower taxable income for seniors during its effective years.
5. Qualified Business Income (QBI) Deduction. The OBBBA permanently extends the QBI deduction originally enacted in 2017. Although some discussions pointed to an increase in the deduction rate—potentially from 20% to 23%—the final legislative text confirms a 20% rate for most pass-through business owners. However, the Act does raise certain phase-in thresholds for specified service trades or businesses, making it more widely accessible for moderate-income earners. Additionally, a modest minimum deduction is introduced for those with a small amount of qualifying income.
6. No Tax on Tips & Overtime. From 2025 through 2028, the Act allows an above-the-line deduction on tip earnings (up to $25,000) for individuals in traditionally tipped occupations. Similarly, OBBBA provides an above-the-line deduction for qualifying overtime pay (up to $12,500 for single filers or $25,000 for joint filers). Both benefits phase out at higher income levels, and filers must report the amounts separately on official wage statements to qualify.
7. Car Loan Interest Deduction. In a nod to vehicle owners, interest on passenger vehicle loans (including SUVs, motorcycles, and certain RVs) for U.S.-assembled vehicles is deductible up to $10,000 from 2025 to 2028. This deduction phases out above certain income thresholds, so it will not be universal, but it could be a timely benefit for many taxpayers.
8. Personal Exemptions & Miscellaneous Deductions. Personal exemptions remain at zero, continuing a TCJA policy. Meanwhile, the Act permanently removes a broad category of miscellaneous itemized deductions, though it does carve out certain educator expenses and clarifies other profession-specific deductions. This simplification might reduce tax filing complexity, but also limits some smaller deductions available before 2018.

Family & Estate Tax Provisions

Families and individuals planning their estates will want to pay close attention to new or expanded credits, deductions, and thresholds.

1. Child Tax Credit. The credit increases to $2,200 per qualifying child, providing enhanced relief for many households. The refundable portion begins at $1,400, with both amounts set to rise over time in line with inflation. Adjusted gross income phaseouts remain, though they have been lifted slightly in some cases.
2. Adoption Credit. Recognizing the financial weight of adoption, the Act makes a portion—up to $5,000—of the adoption credit refundable. Annual inflation adjustments will also apply, offering a more robust safety net for adoptive parents.
3. Trump Accounts. Introduced as a novel savings mechanism for minors, these accounts allow parents to receive a one-time $1,000 government contribution for children born from 2025 to 2028. Parents may also contribute up to $5,000 annually for children under age 18; funds grow tax-deferred and may be accessed once the child turns 18.
4. Estate & Gift Tax Exemption. The estate tax exemption climbs to $15 million per individual ($30 million for married couples) in 2026. Like many of the other provisions, it is pegged to inflation for subsequent years. This higher threshold offers a wide margin for estate planning, particularly useful for those seeking to transfer wealth using lifetime gifts.

Charitable Contributions & Philanthropy

The OBBBA not only extends and updates existing opportunities for charitable giving but also creates new types of credits. These changes could be relevant for both itemizers and non-itemizers.

Non-itemizers can benefit from a modest charitable contribution deduction of up to $1,000 for single filers ($2,000 for joint filers). There is also a new Sec. 25F credit for contributions to scholarship-granting organizations, subject to an annual dollar cap, which will be distributed on a first-come, first-served basis. Meanwhile, the Act replaces the old Pease limitation with a new rule that calculates a potential reduction to itemized deductions based on a taxpayer’s income. Although that exact formula can be intricate, the overall approach is intended to keep higher earners from receiving a disproportionate benefit on deductions.

Key Business Tax Changes

From bonus depreciation to research and development (R&D) expensing, businesses of all sizes will discover new planning options and accelerated write-offs under the OBBBA.

1. Expanded Section 179. The Act raises the cap on immediate expensing of capital investments, encouraging companies to purchase critical machinery, technology, or vehicles. This boost is especially significant for small and mid-sized businesses looking to modernize.
2. Bonus Depreciation Extended. The popular 100% bonus depreciation provision is back and extended until January 1, 2031, facilitating fast cost recovery for qualifying property. Combined with expanded Section 179 limits, this sets up a favorable environment for business investment.
3. R&D Expensing Restored. The new law reverses recent rules requiring the amortization of domestic research expenses. This marks a return to immediate expensing for domestic R&D, which can be a game-changer for tech start-ups and manufacturing firms prioritizing innovation.
4. Enhanced IRC Sec. 1202 Stock. Entrepreneurs and investors holding qualified small business C corporation stock may see an expanded exclusion on gain from stock sales, offering a compelling reason to consider a C corp structure under the proper circumstances.
5. IRC Sec. 199A Made Permanent. The QBI deduction for pass-through entities is firmly secured, guaranteeing that many sole proprietors, partnerships, and S corporations can continue to deduct a portion of their business income over the long haul. This also intersects with new threshold adjustments mentioned in the individual tax changes.
6. Opportunity Zones & Manufacturing Deductions. The timeline for certain Opportunity Zone investments is extended, and strategic expansions now include cutbacks on the taxation of gains. At the same time, businesses that launch or expand manufacturing facilities receive immediate expensing opportunities, positioning domestic production on firmer competitive footing.

How Pugh CPAs Can Help

We understand every taxpayer’s situation is unique and we are here to help you navigate these changes.   Of course, we will update as more details surface.  In the meantime, reach out if you need assistance or have questions.