Understanding the One Big Beautiful Bill: Key Tax Changes for Businesses and Individuals

For Businesses

1. Restoration of 100% Bonus Depreciation
The OBBB reinstates 100% bonus depreciation for federal tax purposes on a permanent basis for qualifying property placed in service after January 19, 2025. This allows businesses to immediately expense the full cost of eligible capital assets — such as machinery and equipment — for federal tax purposes instead of depreciating them over time.  

Note: Many states do not conform to this federal provision and still require assets to be depreciated over time for state tax purposes.

2. Immediate Expensing of U.S.-Based R&D Costs
Businesses may now fully deduct domestic research and experimental (R&E) expenditures in the year incurred.  Businesses with annual gross receipts of $31 million or less are allowed to apply this change retroactively for tax years beginning after Dec. 31, 2021. Impacted businesses could either amend their prior year returns (if beneficial) or can elect to accelerate the remaining deductions over a one- or two-year period. 

3. Section 199A Deduction Made Permanent
The Section 199A pass-through deduction has been made permanent, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-in window from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly).  Lastly, it creates a minimum deduction of $400 for taxpayers with $1,000 or more of qualified business income (QBI) for material participants.

4. Pass-Through Entity Tax Deduction Preserved
The final law retains full deductibility of state and local taxes paid through state-enacted pass-through entity taxes in over 30 states, a critical win for pass-through businesses.  This, coupled with the enhanced SALT deduction, provides a potential double benefit (more on the enhanced SALT deduction below).

5. Section 1202 Qualified Small Business Stock (QSBS) Enhancement
The OBBB modifies the existing 100% exclusion of gain on QSBS stock held at least 5 years and now includes both a 50% exclusion for stock held with at least a 3-year holding period and a 75% exclusion for stock held with at least a 4-year holding period. This provision is effective for QSBS issued after the enactment date. The amount of gain that can be excluded is increased from $10 million to $15 million. 

6. Higher 1099 Filing Threshold
Starting in 2026, the 1099 reporting threshold increases from $600 to $2,000, indexed for inflation. Businesses issuing payments to contractors or service providers should plan for the updated thresholds.

For a comparison of OBBB provisions to prior tax law see the summary table on our blog.

For Individuals

1. Personal Tax Rates Made Permanent
The OBBB makes the expiring rate and bracket changes permanent and increases the inflation adjustment by an extra year for 10 percent, 12 percent, and 22 percent brackets.

2. Increase in Standard Deduction
Beginning in 2025, the standard deduction has been increased and indexed for inflation:

• $15,750 for single filers

• $31,500 for married couples filing jointly

3. Child Tax Credit Expansion
The Child Tax Credit increases to $2,200 per qualifying child starting in 2025.

4. SALT Deduction Cap Increase
From 2025–2029, the cap on state and local tax (SALT) deductions increases from $10,000 to $40,000 indexed for inflation. The SALT deduction is reduced for taxpayers with Modified Adjusted Gross income in excess of $500,000 but will never reduce below $10,000. 

5. Deduction for Overtime Pay
From 2025–2028, a deduction of up to $12,500 (or $25,000 for joint filers) is allowed for qualified overtime compensation.

• Phaseout thresholds: $150,000 (single) / $300,000 (joint)

• Applies to hourly (non-exempt) employees receiving pay exceeding the standard rate under the Fair Labor Standards Act

• IRS guidance on anti-abuse rules is forthcoming

6. Deduction for Tip Income
From 2025–2028, a separate above-the-line deduction of up to $25,000 is available for qualified tips.

• Phaseout thresholds: $150,000 (single) / $300,000 (joint)

• To qualify, tips must be:

  • Voluntary (not negotiated or required)

  • Paid to workers in occupations that customarily receive tips as of 12/31/24 

  • The IRS will publish a list of eligible occupations to prevent abuse

7. Enhanced Standard Deduction for Seniors
Taxpayers aged 65 and older qualify for an additional deduction of $6,000.

This provision reduces taxable income and aims to limit the number of seniors who owe federal income tax on Social Security benefits.

This deduction starts phasing out at $75,000 for a single taxpayer and $150,000 for a married taxpayer. This exemption for seniors is set to expire after December 31, 2028.

8. Interest on Domestic Auto Purchases 
From 2025–2028, taxpayers may deduct up to $10,000 of interest paid on loans for American-made passenger vehicles.

• Phaseout thresholds: $100,000 (single) / $200,000 (joint)

9. “Trump Accounts” for Children
Starting in 2026, parents may contribute up to $5,000 per year (indexed for inflation) to new tax-advantaged savings accounts for children under 8.

• Funds must be used for qualifying expenses by age 31

• A $1,000 federal seed contribution is available for children born 2025–2028

• Child must be a U.S. citizen at birth and possess a valid SSN

10. Clean Energy Credits
The OBBB permanently repeals the following individual energy credits:

• New and used clean vehicle credits (terminates after 9/30/2025)

• Residential clean energy credit (terminates after 12/31/2025)

• Energy-efficient home improvement credit (terminates after 12/31/2025)

• New energy-efficient home credit (terminates 6/30/2026)

11. Charitable Contributions
Beginning in 2026, non-itemizing taxpayers can claim a deduction of up to $1,000 if a single filer ($2,000, married filing jointly) for certain charitable contributions.

We will continue monitoring developments and will keep you updated as further guidance becomes available.

— The Scale CPA Team

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