Key Tax Components Featured In The One Big Beautiful Bill
Below are the key tax components featured in the One Big Beautiful Bill:
Permanence and Extension of Tax Cuts and Jobs Act Provisions
The following business provisions would become permanent:
- Immediate deduction of domestic research and development (R&D) or experimental expenditures paid or incurred in tax years after Dec. 31, 2024. R&D conducted outside of the United States would still require capitalization and amortization over 15 years
- Businesses with average gross receipts under $31 million who had been capitalizing these expenses would be able to deduct qualified R&D expenses that had previously been capitalized between 2021 and 2024. All taxpayers who conducted domestic R&D would be able to choose to accelerate the remaining deductions for those expenditures over a one or two-year period.
- The bill largely maintains the status quo for PTET deductions. This allows pass-through entities (such as partnerships, LLCs, and S corporations) to continue deducting state and local taxes at the entity level, bypassing the SALT (State and Local Tax) deduction cap for individual owners
- The threshold for 1099 information-reporting for persons engaged in trades or businesses and payments or remuneration of services would increase to $2,000 in a calendar year and adjusted for inflation after 2026. Both of these thresholds currently sit at $600.
- EBITDA limitation on interest deductions; adjusted taxable income would be computed without deduction of depreciation, amortization, and depletion beginning for tax years after Dec. 31, 2024, providing additional deductions beyond the existing allowable amount.
- 100 percent bonus depreciation for property acquired and placed in service on or after January 19, 2025
- Increase asset expensing maximums to $2.5 million, reduced by the amount that the cost of qualifying property exceeds $4 million
- Increase to Advanced Manufacturing Investment Credit from 25 percent to 35 percent for property placed in service after Dec. 31, 2025
- Permanent renewal of the Opportunity Zone program to drive investment to certain communities
- Exception to percentage-of-completion requirement in Sec. 460(e) on certain residential construction contracts originated after effective date of the law
- Special depreciation allowance for qualified productions property, a benefit for manufacturing companies, subject to “definitional items” to determine the applicability to your manufacturing business
Individual Tax reform: Retention of provisions from Tax Cuts and Jobs Act
The following individual provisions would become permanent:
- Individual income tax rates remain at their current levels, ranging from 10 percent to 37 percent for the highest earners, see full rates here.
- Increase the federal deduction for state and local (SALT) taxes to $40,000 (up from $10,000) adjusted for inflation. For 2026, it would be set at $40,400 and then increase by one percent annually through 2029 before reverting to $10,000 in 2030. This change would be effective for tax years after December 31, 2025
- Increased estate and gift tax exemptions of $15 million for individuals and $30 million for joint filers, adjusted for inflation each year beginning after 2025
- Alternative minimum tax exemption amounts and phaseout limits would revert to 2018 levels and the phaseout exemption amount would increase to 50 percent of the amount that the taxpayer’s alternative minimum taxable income exceeds the limit
- Higher standard deduction amounts of $15,750 for individuals and $31,500 for joint filers (adjusted for inflation, for tax years after 2024) the increase would be effective from 2025 to 2028
- Bonus deduction of $6,000 for individual taxpayers aged 65 or older with income thresholds of $75,000 or more ($150,000 for joint filers). This would be available from 2025 to 2028
- Nonrefundable child tax credit increases to $2,200 per child (adjusted for inflation) and $1,400 for the refundable child tax credit. It would revert back to $2,000 after 2028, adjusted for inflation
- Income limits would be set at $200,000 for individuals and $400,000 for those filing jointly, which would also apply to the $500 non-refundable credit for dependents other than qualifying children
New Provisions Satisfy Trump Campaign Promises
In addition to making expiring provisions of the TCJA for both individuals and businesses permanent, the law includes new provisions and the elimination of previous legislation. The following provisions were pillars of Trump’s campaign for re-election, including:
- Temporary above-the-line tax deduction on up to $25,000 of qualified tips for individuals in a role that is expected to receive tips. The deduction will be permitted for both W-2 employees and independent contractors working under a 1099, 1099-NEC, or reporting tips on Form 4317.
- This deduction would still be available for those utilizing the standard deduction, and would phase out for those exceeding $150,000 in modified adjusted gross income or $300,000 for joint filers. It would be in place from 2025 to 2028
- Temporary above-the-line deduction on up to $12,500 of qualified overtime wages in a given tax year ($25,000 for joint filers)
- This deduction is only allowed for qualified overtime pay if the total amount of qualified overtime is reported separately on Form W-2 or 1099 if the worker is not an employee, and would only be available from 2025 to 2028
- Exclusion of qualified passenger vehicle loan interest from the definition of personal interest. Interest paid on or accrued during tax years after Dec. 31, 2024, for the purchase of an applicable passenger vehicle. Applicable vehicles are subject to many restrictions, including U.S. final assembly
The law also eliminates a significant number of clean energy tax incentives beginning as early as September 30, 2025, with the latest phase-out date of January 1, 2028.
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