On our nation’s 249th birthday, President Trump signed into law the “One Big Beautiful Bill Act” which extended many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire in 2025 and added some new tax breaks for individuals and small businesses.
Here are some of the more relevant changes that affect our clients:
Business Tax Highlights:
100% Bonus Depreciation Reinstated
- Equipment, certain business vehicles, and qualified improvements placed in service on or after Jan 19, 2025, can be fully expensed.
- Applies to qualified production property (manufacturing, agriculture, refining) through 2030.
Immediate Deduction for Research Activities (Section 174)
- Domestic research & experimental (R&E) expenses are now fully deductible again.
- Small businesses (under $31 million average receipts) can amend 2022, 2023 and 2024 returns to retroactively claim missed deductions.
Section 199A Pass-Through Deduction Made Permanent
- The 20% deduction for qualified business income (QBI) from S-corps, partnerships, and sole proprietorships is now permanent.
- Phase-out threshold raised to $150,000 married filing joint (MFJ) / $75,000 all others.
Pass-through Entity Elective Tax (PEET) Deduction Preserved
- California’s pass-through entity workaround remains intact — no federal limits imposed.
- Note – with the increased SALT deduction cap (see note below), participation in the PEET strategy may no longer make sense for smaller businesses. Proper planning is necessary to make this determination.
Excess Business Loss Limitation (EBL) Made Permanent
- EBL remains in place, but now excess losses are converted to net operating losses (NOLs) for future use.
Employee Retention Credit (ERC) Claims Restricted
- ERC claims for Q3–Q4 2021 filed after Jan 31, 2024 will be disallowed. The statute of limitations for IRS assessment is extended to 6 years.
Individual Tax Highlights:
Tax Brackets Made Permanent
- TCJA-era rates (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent.
Standard Deduction Increased
- New standard deduction: $31,500 MFJ / $15,750 single (indexed for inflation starting 2025).
State and Local Tax (SALT) Deduction Cap Increased to $40,000
- SALT deduction cap rises to $40,000 through 2029, with income-based phaseouts over $500,000 modified adjusted gross income (MAGI).
- Reverts to $10,000 in 2030.
Charitable Deduction for Non-Itemizers
- Up to $2,000 MFJ / $1,000 others in charitable contributions are now deductible above the line.
Tip & Overtime Deduction (New)
- Up to $25,000 in tips and $12,500 in overtime is deductible through 2028.
- Phased out at $150,000 single / $300,000 MFJ.
- IRS will define which “tip-earning” jobs qualify (e.g., servers, barbers).
Estate & Gift Tax Exemption Increased
- New lifetime exemption: $15 million per person / $30 million per couple, indexed for inflation.
Social Security Tax Claims Misreported
- Despite some headlines, the law does not eliminate taxes on Social Security benefits — only expands the standard deduction for seniors.
Car Loan Interest Deduction
- Deduction of up to $10,000 for interest paid on post-2024 loan for the purchase of a qualified passenger vehicle for personal use.
- Phased out starting at taxable income of $200,000 MFJ / $100,000 all others.
- Qualified vehicles must meet certain requirements, including final assembly in the US.
Child Tax Credit
- Credit increased to $2,200 (indexed for inflation).
Limitation on Itemized Deduction for Higher Incomes
- Taxpayers in the 37% tax bracket will see a return of the limitation on itemized deductions.
IRC Section 1202 Qualified Small Business Stock (QSBS) Exclusion Expanded
- Provides a tiered gain exclusion: 50% for QSBS held for three years, 75% for four years, and 100% for five+ years.
- Exclusion increased to $15 million, adjusted annually for inflation.
- Changes generally apply to stock issued on or after 7/4/25.
We will provide additional updates as we learn more about the tax law changes and receive implementation guidance from the IRS.