Tax Updates
© 2011 Todd D. Knapp, CPA, P.C.. All Rights Reserved.
SUMMARY OF THE "OBBBA" THE ONE BIG BEAUTIFUL BILL ACT EFFECTIVE JULY 4, 2025
On Friday, July 4, 2025, President Trump signed into law the Reconciliation Bill commonly known as the “One Big Beautiful Bill Act” (the “OBBBA”). Broadly speaking, the OBBBA extends many expiring provisions of the 2017 Tax Cuts and Jobs Act (the “TCJA”) applicable to businesses and individuals and amends other provisions of the Internal Revenue Code. Below we provide an overview of some of the key tax measures enacted by the OBBBA. Rule changes starting the 2025 tax year (Trump tax plan 2025).
GENERAL DEDCUCTION CHANGES
Increased deduction for seniors - Effective: 2025–2028
In addition to the standard deduction or itemized deduction, taxpayers 65 and older will be able to take an additional $6,000 off of their taxable income.
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Starts to decrease for taxpayers with a Modified Adjusted Gross Income (MAGI) over $75,000 (single) / $150,000 (joint).
Starts to decrease for taxpayers with a Modified Adjusted Gross Income (MAGI) over $75,000 (single) / $150,000 (joint).•Requires a Social Security number valid for work.
Requires a Social Security number valid for work.•Not available for those using the Married Filing Separately status.
Not available for those using the Married Filing Separately status.SALT Deduction cap bill increase - Effective: 2025–2029
The State and Local Tax (SALT) Deduction provides a federal deduction for income and property taxes paid at the local and state level.
The SALT deduction cap bill changes include the following:
•Cap raised to $40,000 for incomes under $500,000 ($250,000 for Married Filing Separately).
Cap raised to $40,000 for incomes under $500,000 ($250,000 for Married Filing Separately).•If your Modified Adjusted Gross Income (MAGI) is over $500,000, then the cap is gradually reduced by 30% (until it reaches $10,000).
If your Modified Adjusted Gross Income (MAGI) is over $500,000, then the cap is gradually reduced by 30% (until it reaches $10,000).•The cap and income threshold will increase 1% annually.
The cap and income threshold will increase 1% annually.The increased cap to the SALT deduction may change whether it makes sense for you to itemize deductions vs. claiming the standard deduction when you go to file. You may want to reevaluate your situation with these changes, especially those that were affected by the SALT limit in prior years.
Tax rules for workers and self-employed Overtime pay received deduction (No Tax on Overtime) - Effective: 2025–2028
The new “No Tax on Overtime” rule will allow certain workers to claim a dollar-for-dollar deduction for a designated amount of overtime pay covered by the Fair Labor Standards Act.
•Income eligible for the deduction is capped at $12,500 (Single) / $25,000 (Married Filing Jointly).
Income eligible for the deduction is capped at $12,500 (Single) / $25,000 (Married Filing Jointly).•Those with higher Modified Adjusted Gross Incomes (MAGI) may only be able to claim a partial deduction as the benefit begins to phase out starting at $150,000 (Single) / $300,000 (Married Filing Jointly).
Those with higher Modified Adjusted Gross Incomes (MAGI) may only be able to claim a partial deduction as the benefit begins to phase out starting at $150,000 (Single) / $300,000 (Married Filing Jointly).•The deduction is not available for people using the Married Filing Separately status. Additionally, the taxpayer receiving the overtime must have a Social Security number valid for work.
The deduction is not available for people using the Married Filing Separately status. Additionally, the taxpayer receiving the overtime must have a Social Security number valid for work.•Requires that employers designate overtime wages on the taxpayer’s Form W-2. A special rule in 2025 allows employers to approximate overtime.
Requires that employers designate overtime wages on the taxpayer’s Form W-2. A special rule in 2025 allows employers to approximate overtime.Tips received deduction (No Tax on Tips) - Effective: 2025–2028
The new “No Tax on Tips” law allows for a dollar-for-dollar deduction for a designated amount of tips earned by workers where tipping is customary.
•Income eligible for the deduction is capped at $25,000.
Income eligible for the deduction is capped at $25,000.•Higher income workers may only be able to claim a partial deduction as the benefit begins to phase out starting at a Modified Adjusted Gross Income (MAGI) of $150,000 (Single) / $300,000 Married Filing Jointly).
Higher income workers may only be able to claim a partial deduction as the benefit begins to phase out starting at a Modified Adjusted Gross Income (MAGI) of $150,000 (Single) / $300,000 Married Filing Jointly).•The deduction is not available for people using the Married Filing Separately status. Additionally, the rules require the taxpayer receiving the tips to have a Social Security number valid for work and employer designation on a W-2 or similar form.
The deduction is not available for people using the Married Filing Separately status. Additionally, the rules require the taxpayer receiving the tips to have a Social Security number valid for work and employer designation on a W-2 or similar form.Form 1099-K reporting threshold- Effective: 2025 and beyond
If you receive payments from third-party apps or platforms, you may be aware that the rules have changed in recent years. Starting in 2025 and beyond, those entities are only required to send you a Form 1099-K if your total payments are over $20,000 and you received over 200 transactions on any one platform in a given year. You’re still required to report the income even if you do not receive a form showing the payments you received.
TAX BENEFITS FOR PARENTS AND FAMILIES
Increased Child Tax Credit - Effective: 2025 and beyond
The higher value of the Child Tax Credit (CTC) set by the TCJA is now permanent and slightly increased to $2,200 per child. Additionally, the amount of the CTC and related refundable credit of S1,400 will be adjusted for inflation annually.
•Credit increased from $2,000 to $2,200 per child.
Credit increased from $2,000 to $2,200 per child.•Permanent phaseout thresholds: $200,000 (Single) / $400,000 (Married Filing Jointly).
Permanent phaseout thresholds: $200,000 (Single) / $400,000 (Married Filing Jointly).•A Social Security number will be required for the taxpayer (or at least one spouse for joint filers) who is claiming the credit and for the child.
A Social Security number will be required for the taxpayer (or at least one spouse for joint filers) who is claiming the credit and for the child.Other Dependent Credit made permanent - Effective: 2025 and beyond
Families with dependents who do not qualify for the Child Tax Credit, such as parents or adult relatives, may qualify for the Other Dependent Credit. With the new bill, the value of the credit remains $500 and has been made permanent.
Adoption Credit refundability - Effective: 2025 and beyond
Those who previously claimed the Adoption Tax Credit were able to reduce their tax liability to zero. With the new tax plan, a portion of the credit is now refundable, meaning dollars could be returned to you as a refund.
•Up to $5,000 of the adoption credit becomes refundable. This amount will be adjusted for inflation.
Up to $5,000 of the adoption credit becomes refundable. This amount will be adjusted for inflation.•The total credit remains up to $17,280 in 2025.
The total credit remains up to $17,280 in 2025.529 Plan expansion - Effective: 2025 and beyond
For those who are taking a withdrawal from a 529 Plan or considering starting a plan, you now have more options for what qualifies as an eligible expense. Specifically, the new bill allows tax-exempt distributions:•
Up to $20,000 to pay for K-12 expenses (up from the previous $10,000).
•For additional non-tuition qualified expenses for K-12 costs, such as books, online learning materials, and tutoring fees.
For additional non-tuition qualified expenses for K-12 costs, such as books, online learning materials, and tutoring fees.•For additional post-secondary educational costs such as tuition, fees, books, supplies, and equipment for credentialed programs (e.g., testing fees in pursuit of a post-secondary credential or fees for continuing education requirements).
For additional post-secondary educational costs such as tuition, fees, books, supplies, and equipment for credentialed programs (e.g., testing fees in pursuit of a post-secondary credential or fees for continuing education requirements).VEHICLE AND HOME-RELATED TAX BENEFITS AND RULES
Car Loan Interest Deduction (No tax on car loan interest) - Effective: 2025–2028
Buying a new car soon? This new tax deduction could help your bottom line. If you’re purchasing a new car and taking out a loan, the OBBBA Car Loan Interest Deduction may help lower your tax bill by allowing you to deduct your loan interest.
•The deduction is limited to $10,000 of qualified interest.
The deduction is limited to $10,000 of qualified interest.•Vehicle must have a “final assembly” in the U.S.
Vehicle must have a “final assembly” in the U.S.•Vehicle Identification Number (VIN) must be included on the tax return.
Vehicle Identification Number (VIN) must be included on the tax return.•Phased out at 20% for Modified Adjusted Gross Income (MAGI) over $100,000 (Single) / $200,000 (Married Filing Jointly).
Phased out at 20% for Modified Adjusted Gross Income (MAGI) over $100,000 (Single) / $200,000 (Married Filing Jointly).Clean Vehicle Credits repealed (EV tax credits) - Effective: September 30,2025
The bill permanently eliminates the following clean vehicle credits for vehicles acquired after September 30, 2025:
•New Clean Vehicle Credit
New Clean Vehicle Credit•Used Clean Vehicle Credit
Used Clean Vehicle Credit•Qualified Commercial Clean Vehicle Credit (for businesses)
Qualified Commercial Clean Vehicle Credit (for businesses)Residential energy credits repealed - Effective: 2025
The residential energy credits are generally terminated and will not be available for energy-efficient home improvements after 2025. This includes the Energy Efficiency Home Improvement Credit and the Residential Clean Energy Credit.
Disaster-related personal casualty losses - Effective: 2025 (see timing details)
The rules for how you might claim a disaster-related loss are based on when the disaster happened. The new bill extends the rules from the Federal Disaster Relief Act of 2023 to disasters occurring on or before July 4, 2025, and that are declared within 60 days of July 4, 2025.
If you experienced a federally declared disaster during that timeframe and seek to claim a deduction for qualified disaster losses, the losses do not have to exceed 10% of Adjusted Gross Income (AGI) and you may claim a disaster loss as an additional standard deduction instead of as an itemized deduction.
Rule changes starting the 2026 tax year (Trump tax plan 2026)
The One Big Beautiful Bill Act didn’t just make changes that impact your 2025 taxes. There are several changes that won’t apply until 2026 and in some cases after 2026. Read on to understand what may impact you in the future.
TAX BENEFITS AND PARENTS, FAMILIES, AND INDIVIDUALS
Trump Child Savings Accounts (Trump Accounts, Child Savings, Child IRA accounts) - Effective: 2026-2028
A new type of savings account for children under the age of 18 was created under the bill.
•The contribution limit will be up to $5,000 per tax year (adjusted for inflation after 2027).
The contribution limit will be up to $5,000 per tax year (adjusted for inflation after 2027).Employers may also contribute up to $2,500 per year to an employee or dependent of an employee.
•Contributions in the account are not tax deductible until the child turns 18.
Contributions in the account are not tax deductible until the child turns 18.•Trump savings accounts are tax-deferred, meaning earnings on the investments inside the account are not subject to tax until withdrawn.
Trump savings accounts are tax-deferred, meaning earnings on the investments inside the account are not subject to tax until withdrawn.•Children cannot make withdrawals until they reach the age of 18.
Children cannot make withdrawals until they reach the age of 18.Trump accounts will automatically be funded for babies born between 2025-2028:
•The federal government will make a one-time $1,000 contribution per child to a Trump Account for U.S. citizens born during this time.
The federal government will make a one-time $1,000 contribution per child to a Trump Account for U.S. citizens born during this time.•The child must be a U.S. citizen to receive the funding.
The child must be a U.S. citizen to receive the funding.•An account will be automatically created by the federal government if an account is not previously created by the parents.
An account will be automatically created by the federal government if an account is not previously created by the parents. Child and Dependent Care Credit expansion - Effective: 2026 and beyond
The maximum percentage of expenses that you can claim for this credit has increased to 50%, but the threshold of expenses remains the same at 50% of $3,000 (1 person) or $6,000 (2+ persons).
Additionally, the phase down ranges are at much higher income levels (Adjusted Gross Income) than prior rules.
For single taxpayers with an adjusted gross income:
• Between $0 and $15,000, the credit percentage is 50%.
• Between $15,000 and $45,000, the credit phases down from 50% to 35%.
• Between $45,000 through $75,000, the credit percentage is 35%.
• Between $75,000 and $105,000, the credit percentage phases down from 35% to 20%.
• Over $105,000, the credit percentage is 20%.
For taxpayers filing Married Filing Jointly with an adjusted gross income:
• Between $0 and $15,000, the credit percentage is 50%.
• Between $15,000 and $45,000, the credit phases down from 50% to 35%.
• Between $45,000 through $150,000, the credit percentage is 35%.
• Between $150,000 and $210,000, the credit percentage phases down from 35% to 20%.
• Over $210,000, the credit percentage is 20%.
Premium Tax Credit changes - Effective: 2026 and beyond. See bullets for specific starting years.
Changes to premium tax credit rules and underlying Marketplace eligibility and insurer options may decrease the number of individuals with health insurance coverage through the Marketplace. Specific changes include:
• Expanded repayment scenarios (starts in 2026): The new law expands the situations where an individual may be required to repay the full amount of any excess advance premium tax credit received during the year.
• Household income changes and eligibility (starts in 2026): Eliminates eligibility for the premium tax credit for individuals who enroll in marketplace coverage during a special enrollment period due solely to a change in household income.
• Eligibility restrictions: Decreases in eligibility for certain lawfully present individuals (starts in 2027), including those who have income below 100% of the federal poverty level (starts in 2026).
• Expanded documentation requirements (starts 2028): Requires additional verification of specific insurance application information including household income, immigration status, and family size.
EDUCATION TAX BENEFITS
American Opportunity Credit, Lifetime Learning Credit and Student loan debt cancellation requirements -Effective: 2026 and beyond
You can claim the following education-related tax benefits provided the qualifying individual has a valid Social Security number for work:
•Student loan debt cancelation debt exclusion: If student loan is discharged due to disability or death, you can exclude the amount from your gross income.
Student loan debt cancelation debt exclusion: If student loan is discharged due to disability or death, you can exclude the amount from your gross income. •American Opportunity Credit (AOC) and Lifetime Learning Credit (LLC): For those with qualifying expenses, these credits allow students and families to reduce their taxable income. Additionally, for the AOC, you must now have the institution’s Employer Identification Number (EIN).
American Opportunity Credit (AOC) and Lifetime Learning Credit (LLC): For those with qualifying expenses, these credits allow students and families to reduce their taxable income. Additionally, for the AOC, you must now have the institution’s Employer Identification Number (EIN).Employer contributions to student loans - Effective: 2026 and beyond
The rule that allowed employers to help pay student loans has been made permanent. Employers can provide up to $5,250 for payment of principal and interest on an employee’s qualified education loans. The allowable amount will be adjusted for inflation annually.
Educator Expense Deduction expansion
The Educator Expense Deduction allows people in certain education professions to reduce their taxes with a $300 deduction. The legislation expands the types of educators and items eligible for unreimbursed educator expenses. These now include coaches and sports-related equipment used for instructional purposes. On top of the existing $300 above-the-line deduction, there’s an additional deduction available for those who itemize.
Tax credit for contributions to scholarship funds - Effective: 2027 and beyond
If you contribute to certain scholarship granting organizations, you may be able to claim a tax credit for your contribution.
•Maximum credit amount of $1,700.
Maximum credit amount of $1,700.•Your federal credit amount will be reduced by any amount you’re allowed to claim on your state tax return.
Your federal credit amount will be reduced by any amount you’re allowed to claim on your state tax return.Vehicle and home tax benefits
Qualified residence interest deduction - Effective: 2026 and beyond
The limit set in 2017 on the Mortgage Interest Deduction for home acquisition debt is now permanent. The threshold will continue to be $750,000 ($375,000 for Married Filing Separately).
•Mortgage interest premiums, known as PMI, associated with acquisition debt may now be treated as mortgage interest.
Mortgage interest premiums, known as PMI, associated with acquisition debt may now be treated as mortgage interest.•Interest on home equity loans remains excluded from the definition of “qualified residence interest” and therefore continues to not be deductible.
Interest on home equity loans remains excluded from the definition of “qualified residence interest” and therefore continues to not be deductible.Qualified alternative fuel vehicle refueling credit - Effective: June 30, 2026
The alternative fuel vehicle refueling property credit is terminated for property placed in service after June 30, 2026.
Reporting and deduction threshold changes 1099-NEC and 1099-MISC reporting threshold increase - Effective: 2026 and beyond
If you’re receiving income for work outside of a W-2 job, you may receive a tax form if the new thresholds below are met. You’re still required to report the income even if you do not receive a form.
•Form 1099-NEC and some items on Form 1099-MISC: threshold raised to $2,000 from $600.
Form 1099-NEC and some items on Form 1099-MISC: threshold raised to $2,000 from $600.•The threshold amount will be adjusted for inflation.
The threshold amount will be adjusted for inflation.Itemized Deductions cap for high earners - Effective: 2026 and beyond
The rule impacts taxpayers in the highest tax bracket. Under the cap, their itemized deductions are limited to a tax benefit equal to 35 cents for every $1 they deduct.
Wagering Loss Deduction limitation - Effective: 2026 and beyond
For those who have a gambling loss, the new legislation limits how much of your loss can be claimed on your taxes each year.
•Only 90% of wagering losses are now deductible, up to the amount of their winnings.
Only 90% of wagering losses are now deductible, up to the amount of their winnings.•Depending on the amount of net gains and losses, this may result in taxes owed for a portion of gains.
Depending on the amount of net gains and losses, this may result in taxes owed for a portion of gains.General tax rule changes - Charitable Deduction expanded to non-itemizers - Effective: 2026 and beyond
With the new law, taxpayers who claim the Standard Deduction—meaning they don’t itemize their deductions — will be able also to claim a Charitable Deduction for cash contributions. This rule does not apply to property contributions made to a charity.
The new deduction amounts are capped at:
•$1,000 (Single)
$1,000 (Single)•$2,000 (Married Filing Jointly)
$2,000 (Married Filing Jointly)Charitable Deduction change for itemizers - Effective: 2026 and beyond
If you claim an itemized deduction for a charitable contribution, you will be required to reduce your deduction by 0.5% of something called your contribution base which is generally your adjusted gross income.
Casualty Loss Deduction - Effective: 2026 and beyond
The change from 2017’s Tax Cuts and Jobs Act (TCJA) that limits itemized deductions for personal casualty losses to federally declared disasters is now permanent. The rule has also been expanded to include certain state-declared disasters.
Miscellaneous itemized deductions - Effective: 2026 and beyond
The new bill permanently eliminates miscellaneous itemized deductions, which were temporarily suspended under the TCJA.
1% Tax on foreign transfers - Effective: 2026 and beyond
Money transfers going to foreign locations are subject to a 1% excise tax. Examples of transfers include money orders and cashier’s checks.
How does the One Big Beautiful Bill impact small business taxes?
One Big Beautiful Bill Act small business provisions – Key takeaways
•The One Big Beautiful Bill Act (OBBBA), part of President Trump’s 2025 tax plan, was passed by Congress on July 3, 2025.
The One Big Beautiful Bill Act (OBBBA), part of President Trump’s 2025 tax plan, was passed by Congress on July 3, 2025.•The One Big Beautiful Bill small business provisions make QBI tax deductions permanent, simplify reporting thresholds, and create new employee deductions for overtime and tips.
The One Big Beautiful Bill small business provisions make QBI tax deductions permanent, simplify reporting thresholds, and create new employee deductions for overtime and tips.KEY SMALL BUSINESS TAX CHANGES IN THE ONE BIG BEAUTIFUL BILL ACT
The Qualified Business Income Deduction (QBI) is now permanent
The QBI deduction (Qualified Business Income Deduction)—originally part of the 2017 Tax Cuts and Jobs Act—has been made permanent as part of the Trump tax plan in 2025. This allows eligible pass-through entities to deduct up to 20% of their qualified income. This includes entities like sole proprietors, partnerships, and S-corps. The income thresholds that guide the Qualified Business Income Deduction will track with inflation, increasing from year to year. There are still phaseout levels for service-based businesses. There is also a minimum deduction of $400 for businesses with at least $1,000 of qualified business income. The changes to the Qualified Business Income deduction are effective for tax year 2026.
100% immediate expensing is back
Businesses may once again fully expense certain capital investments in the year they are made due to changes announced in the One Big Beautiful Bill. For example, instead of depreciating the cost of major purchases over several years, a business owner may now choose to account for the cost entirely in the year it is placed into service. This applies to investments such as machinery, equipment, and technology upgrades. So, if you’re looking to modernize or invest in these things, you now have this option.
Higher 1099 reporting thresholds
Starting in 2026, as part of the Trump tax plan of 2025, businesses only need to issue a 1099-NEC or 1099-MISC if they pay an independent contractor, freelancer, or other non-employee $2,000 or more. Previous to the One Big Beautiful Bill Act, the 1099-NEC and 1099-MISC reporting threshold sat at $600. Furthermore, the changes to the 1099-K reporting threshold have been reversed entirely. Reporting thresholds for third-party payment platforms such as Venmo and PayPal will revert to the previous $20,000 level and require at least 200 transactions. If you deal with 1099-Ks, 1099-NECs, or 1099-MISCs these changes will likely reduce how much paperwork you send out or receive at tax time. However, it is important to note that taxpayers, including self-employed people, must always report all the income they receive.
New deductions for overtime and tips
One of the most talked-about One Big Beautiful Bill small business provisions relates to employee compensation. Employees may be able to deduct some or all the tips and overtime pay they receive beginning tax year 2025, with income caps to prevent high earners from benefiting disproportionately. Employee deductions include up to $25,000 per individual employee for tips and up to $12,500 ($25,000 for joint filers) for overtime. Phaseouts begin for employees whose MAGI (Modified Adjusted Gross Income) is more than $150,000 ($300,000 for joint filers). If you have employees, this change as part of the Trump tax plan in 2025 may impact payroll reporting processes – so be aware. The U.S. Treasury has released a list of the proposed occupations that may qualify for the overtime and tips deduction.
