The recently passed legislation is wide-reaching, and this article highlights just some of the key changes that may affect your business.

Signed into law on July 4, 2025, the One Big Beautiful Bill (OBBB) introduces substantial updates to the tax code that will affect individuals beginning in 2025 and beyond. Whether planning for year-end or preparing for next year’s filing, now is the time to assess how these changes may impact your personal tax strategy.

TCJA Provisions Permanently Extended

The legislation permanently extends several major components of the 2017 Tax Cuts and Jobs Act (TCJA) that were originally set to expire after 2025. Among these are the enhanced standard deduction, the current individual income tax brackets, including the top marginal rate of 37%, and the increased Alternative Minimum Tax (AMT) exemption and phaseout thresholds.

Additionally, the expanded Child Tax Credit is extended and increased to $2,200 per qualifying child, with up to $1,700 remaining refundable. Beginning in 2026, the credit will be indexed for inflation; however, both the qualifying child and the taxpayer (or spouse, if filing jointly) must have valid Social Security numbers to claim the credit.

New Deductions for 2025 – 2028

The OBBB introduces several deductions that can be claimed without itemizing, providing valuable opportunities for taxpayers who typically take the standard deduction.

Tips and Overtime: Effective for 2025 through 2028, taxpayers may deduct qualified tip income, up to $25,000 per taxable year. This applies to voluntarily made tips in industries where tipping was customary before January 1, 2025. Additionally, a deduction is available for qualified overtime compensation, up to $12,500 per year ($25,000 for joint filers). This includes overtime pay as defined by the Fair Labor Standards Act (FLSA) – generally, compensation paid that is more than the regular employment rate.

Both deductions are subject to income phaseouts beginning at $150,000 for single filers and $300,000 for joint filers. The deduction is reduced by $100 for every $1,000 of modified adjusted gross income (MAGI) above the threshold.

Personal Auto Loan Interest: For personal use vehicles financed between 2025 and 2028, taxpayers can deduct up to $10,000 of interest paid per year on loans used to purchase new U.S.-assembled vehicles weighing less than 14,000 pounds. The deduction begins to phase out at a modified adjusted gross income (MAGI) of $100,000 for single filers and $200,000 for joint filers, and is not available for used vehicle purchases or leased vehicles.

Senior Deduction: For tax years 2025 through 2028, taxpayers age 65 or older can claim a $6,000 deduction per qualifying individual. This deduction begins to phase out for taxpayers with adjusted gross income (AGI) over $75,000, or $150,000 for joint filers.

Itemized Deduction Changes

The OBBB modifies several itemized deduction rules, potentially making itemizing beneficial for taxpayers who previously claimed the standard deduction, while introducing new limitations for high earners.

SALT Deduction: Beginning in 2025, the cap on the State and Local Tax (SALT) deduction will increase from $10,000 to $40,000, with annual increases of 1% through 2029. However, the cap is scheduled to revert to $10,000 in 2030. Importantly, income limitations apply: starting in 2025, the enhanced deduction begins to phase out for taxpayers with a modified adjusted gross income (MAGI) of $500,000 or more.

Charitable Deduction: Beginning in 2026, high-income taxpayers will be subject to new limits on itemized charitable deductions due to a new AGI-based cap that effectively creates a minimum floor of 0.5% before taxpayers benefit. However, for those who do not itemize, charitable deduction will be available up to $1,000 for single filers and $2,000 for married couples filing jointly.

New Overall Reduction: Beginning in 2026, taxpayers subject to the top 37% tax bracket will see their itemized deductions reduced by 2/37 of the amount that exceeds the threshold for the highest marginal rate. This effectively limits the benefit of itemized deductions for high earners, reducing their overall tax savings.

Expiring Credits

The OBBB phases out several existing credits, creating time-sensitive opportunities for taxpayers to act before they expire.

Electric Vehicle (EV) Credit: A credit worth up to $7,500 for qualifying new vehicles and $4,000 for qualifying used vehicles will no longer be available for vehicles placed in service after September 30, 2025. Taxpayers planning an EV purchase should complete both the purchase and delivery before this deadline.

Energy Credits Expiring: The Residential Clean Energy Credit, which offers a 30% credit for qualifying improvements such as solar panels, battery storage, and geothermal systems, is set to expire at the end of 2025. The Energy Efficient Home Improvement Credit, worth up to $1,200 annually for eligible upgrades like insulation, energy-efficient windows, and home energy audits, will also expire.

What This Means for You

With many provisions taking effect this year and others sunsetting soon, proactive planning is essential. Contact us to discuss how these changes may impact your 2025 tax return, planning opportunities, or overall tax position moving forward.