Latest OBBB Tax Changes

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One Big Beautiful Bill Tax Changes

One Big Beautiful Bill Act.

Dear Clients,

On July 4, 2025 the President signed the new 2025 Tax Bill, known as the One Big Beautiful Bill Act or OBBB. There are tons of rumors going around about what changes and what doesn’t, but here is the correct information that will affect you and most Americans.

What happened to the standard deduction and personal exemptions?

  • The standard deduction is permanently increased (for 2025: $15,750 for single, $31,500 for married filing jointly, $23,625 for head of household), while personal and dependent exemptions remain eliminated, except for some seniors.

Are credits and deductions changing for families?

  • The Child Tax Credit increases to $2,200 per child under 17, with annual adjustments for inflation, which is a significant change many families want to understand.

What about the State and Local Tax (SALT) deduction?

  • The cap rises significantly—to $40,000 for incomes under $500,000 (and gradually reduced above that)—affecting how much in state and property taxes you can deduct federally.

Are there any new deductions or perks?

  • Yes, including a major temporary deduction for tips received by workers (deductible up to $25,000, with phaseouts at higher incomes), and a $6,000 extra deduction for seniors over 65, phased out at higher incomes.

1. Tax Rates and Brackets

  • The individual tax rates introduced by the 2017 Tax Cuts and Jobs Act (TCJA)—10%, 12%, 22%, 24%, 32%, 35%, and 37%—are now permanent.

  • Inflation adjustments will continue, especially for the lower two brackets starting in 2026.

  • The Alternative Minimum Tax (AMT) retains a higher exemption amount ($137,000 for joint filers, $88,100 for single), but begins phasing out at $1,000,000 for joint filers and $500,000 for single filers.

2. Standard Deduction and Exemptions

  • The larger standard deduction is permanently extended: $15,750 (single), $23,625 (head of household), and $31,500 (married filing jointly) for 2025, with annual adjustments for inflation.

  • Personal and dependent exemptions remain eliminated, except for certain seniors who have a separate additional deduction.

3. Credits and Deductions for Families

  • The Child Tax Credit increases to $2,200 per child under 17, with the credit and refund portion (up to $1,400) indexed for inflation. The phaseout thresholds ($200,000 single/$400,000 joint) hold.

  • The Other Dependent Credit ($500) and new partial refundability of the adoption credit (up to $5,000, for a total of $17,280 in 2025) are both made permanent, with inflation adjustments.

  • 529 education plan withdrawals for K-12 expenses are doubled (now up to $20,000), expanding what counts as qualified educational expenses.

4. State and Local Tax (SALT) Deduction

  • The cap jumps to $40,000 for those earning under $500,000, with the cap increasing by 1% per year through 2029. For higher earners, the cap phases out.

5. New and Temporary Deductions

  • “No tax on tips”: Taxpayers in tip-earning jobs can deduct up to $25,000 of tips from their taxable income each year, with high-income phaseouts ($150,000 for singles, $300,000 for joint, phased out fully by $400,000/$550,000). Applies from 2025–2028.

  • Special deduction for overtime: Up to $12,500/year ($25,000 for joint filers) for qualified overtime pay. Also phases out with higher incomes and applies through 2028.

  • Additional deduction for seniors: $6,000 above the standard deduction for those over 65, subject to income-based phaseout.

6. Itemized Deductions and Other Changes

  • The elimination of unreimbursed employee and most miscellaneous itemized deductions is now permanent, affecting teachers, certain professionals, and investment fund managers.

  • Some green/energy credits are phased out or eliminated, while the Clean Fuel Production Credit is extended and certain foreign-entity restrictions are added to energy incentives.

  • Expanded bonus depreciation and business expensing are made permanent—100% expensing applies to many short-lived assets and certain structures through 2031.

7. Business Tax Changes

  • The Qualified Business Income (QBI) 20% deduction is now permanent.

  • More types of business stock and R&D expenses can be immediately deducted, and companies face new rules on charitable deduction floors (corporate donations must now exceed 1% of income to be deducted).

8. Compliance and Penalties

  • New or expanded reporting and documentation requirements apply for claiming credits, deductions for tips/overtime, and green incentives.

  • The IRS has increased penalty powers for non-compliance, especially for higher-income filers and businesses.

9. Timing and Implementation

  • Most provisions take effect for the 2025 tax year (filed in 2026), with certain credits and temporary deductions set to expire by 2029, and some clean energy changes phasing in and out between 2025-2031.

Please feel free to reach out to us with any questions.

Sincerely,

Your Trusted Advisors - ABL&Co.