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Impact of the One Big Beautiful Bill

Impact of the One Big Beautiful Bill

Impact of the “One Big Beautiful Bill”: Major Tax Changes for Individuals and Businesses

The “One Big Beautiful Bill” Act (OBBB), signed into law in July 2025, represents a comprehensive overhaul of the US tax code, making many temporary provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent while introducing significant new deductions and credits.1 Here’s a breakdown of the key tax changes impacting American taxpayers.

Individual Income Tax Changes

Tax Rates and Standard Deduction

  • Tax Rates: The seven existing federal income tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) have been made permanent, preventing the scheduled reversion to higher rates.2
  • Standard Deduction: The significantly increased standard deduction amounts, originally set to expire, are also made permanent.3 For example, the standard deduction for married couples filing jointly is increased.4 For tax year 2026, it rises to $32,200.
  • Itemized Deductions: The elimination of most miscellaneous itemized deductions (those subject to the 2% floor) is made permanent.5 A new limitation on itemized deductions effectively caps the benefit at 35% of the deduction amount for certain high-income taxpayers.

State and Local Tax (SALT) Deduction

The $10,000 cap on the SALT deduction (for state and local income, sales, and property taxes) is temporarily increased to $40,000 for taxpayers with a modified adjusted gross income (MAGI) below $500,000. 6The cap is phased down for those above the MAGI threshold and is scheduled to revert to $10,000 in 2030.7

Child and Family Credits

  • Child Tax Credit (CTC): The maximum Child Tax Credit is permanently increased to $2,200 per qualifying child, up from the previous TCJA amount of $2,000, and is indexed for inflation. 8The refundable portion is capped at $1,700 for 2025.9
  • Childcare (Dependent Care Flexible Spending Accounts): The bill modifies rules related to Dependent Care Flexible Spending Accounts (FSAs).10

New Temporary Tax Deductions

The OBBB introduces four new temporary “above-the-line” deductions (available even if you don’t itemize) from 2025 through 2028:

  1. “No Tax on Tips”: A deduction of up to $25,000 annually for qualified tips received by individuals in customary tipped occupations, subject to income phase-outs.11
  2. “No Tax on Overtime”: A deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime pay, subject to income phase-outs.12
  3. Car Loan Interest: A deduction of up to $10,000 for interest paid on a loan used to purchase a new, personal use, US-assembled vehicle, subject to income phase-outs.13
  4. Deduction for Seniors: An additional deduction of $6,000 for individuals age 65 and older, in addition to the existing senior standard deduction, subject to income phase-outs.14

Other Individual Tax Provisions

  • Donations (Charitable Contributions): The OBBB includes a new, permanent tax credit for donations to Scholarship-Granting Organizations, though the credit is relatively small at $1,700.15
  • Education (Qualified Tuition Programs): The law expands the eligibility and contribution limits for 529 accounts (Qualified Tuition Programs).16
  • Adoption: The adoption tax credit is permanently extended and indexed for inflation.17
  • Gambling: The deduction for gambling losses is made permanent and remains limited to the amount of gambling winnings.18

Changes for non-itemizers

Universal deduction: For the first time since the pandemic, taxpayers who take the standard deduction can claim an “above-the-line” deduction for cash donations to operating charities.

  • Limits: The deduction is limited to $1,000 for single filers and $2,000 for married couples filing jointly.
  • Exclusions: Donations to Donor-Advised Funds (DAFs) or private foundations do not qualify for this deduction. 

Rules remaining in effect for 2025 and beyond

Several key provisions established by the Tax Cuts and Jobs Act (TCJA) were made permanent, including AGI limitations for cash gifts and the five-year carryover rule. 
AGI limits for deductions

Cash contributions: A deduction of up to 60% of your AGI is allowed for cash gifts to qualified public charities. This is a permanent extension of a previous temporary rule.

Non-cash contributions: Deductions for appreciated non-cash assets, such as stocks, are limited to 30% of your AGI.

Carryover provision: If your total charitable contributions exceed your annual AGI limit, you can carry over the excess amount for up to five subsequent tax years. 

Rules for Qualified Charitable Distributions (QCDs)
Qualified Charitable Distributions from IRAs offer a major tax advantage for eligible seniors and are unaffected by the 2026 itemization rules. 
  • Eligibility: You must be 70½ or older to make a QCD.
  • Annual limit: The maximum annual QCD amount is $108,000 per individual for the 2025 tax year and is excluded from your adjusted gross income.
  • One-time option: A one-time election is available for up to $54,000 to be contributed to certain split-interest entities, like a Charitable Remainder Trust.
  • Excluded recipients: QCDs cannot be sent to Donor-Advised Funds, private foundations, or supporting organizations. 
Rules for non-cash contributions
The rules for donating non-cash property, like vehicles or household items, continue to require proper valuation and documentation. 
  • Documentation: A written acknowledgment from the charity is required for any contribution of $250 or more.
  • Form 8283: Non-cash contributions valued at more than $500 require you to file Form 8283.
  • Qualified appraisal: A qualified appraisal is needed for non-cash donations over $5,000.
  • Vehicle donations: The deduction for a donated vehicle is limited to the amount the charity receives from its sale, unless it is used by the charity in its mission. 
How to approach 2025 charitable giving
Since the rules for itemizers will tighten in 2026, financial advisors are recommending that high-income donors consider “front-loading” their charitable gifts in 2025. 
  • Bunching strategy: Combine several years’ worth of donations into a single contribution to exceed the standard deduction threshold for 2025 and itemize that year, then take the standard deduction in 2026.
  • Donor-Advised Fund (DAF): A DAF can be used to implement a bunching strategy by making a large contribution in 2025 to get the full tax benefit, and then granting the funds to charities over time. 19, 20

Estate Tax and Special Accounts

  • Estate Tax: The law makes the increased Estate and Gift Tax exclusion amount permanent, raising it to $15 million per individual (indexed for inflation), offering relief to large estates.21
  • Trump Accounts: A new savings vehicle called “Trump Accounts” is established.21 These are tax-deferred accounts for minors, including a $1,000 government-provided baby bonus for children born in the first four years of the program and allowing contributions up to $5,000 annually.21

Business and International Tax Changes

Business Taxes

  • Research & Development (R&D): The law permanently restores the ability for domestic R&D costs to be immediately expensed (deducted in the year incurred) rather than amortized over five years.22
  • Investments (Bonus Depreciation/Section 179): The bill permanently restores 100% first-year “bonus depreciation” for short-lived assets and increases the cap for the Section 179 deduction to $2.5 million.23
  • Pass-Through Entities: The 20% Qualified Business Income (QBI) Deduction (Section 199A) for pass-through entities (like S-corps, partnerships, and sole proprietorships) is made permanent.24
  • Form 1099s: The OBBB includes provisions that would modify the reporting requirements for Form 1099s, though specific details and thresholds may require further guidance.

Green Energy Tax

The OBBB makes significant changes to renewable/clean energy tax credits, primarily by accelerating the phase-outs for some credits (e.g., electric vehicles) and introducing foreign-entity restrictions to others, curtailing some of the clean energy incentives from prior legislation.25

New Tax to Deter Non-Citizens from Sending Money Abroad

A significant international tax provision is the imposition of a 1% excise tax on certain cross-border transfer transactions (remittances).26 This “remittance tax” is intended to deter non-citizens from sending money abroad by taxing the transfer of funds out of the US by certain individuals.

Exempt Groups

While the bill primarily focuses on individual and business taxes, it includes changes that impact tax-exempt groups, such as a tax hike on investment income from large college endowments.27

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