On July 4, 2025, the One Big Beautiful Bill (BBB) was signed into law. This sweeping legislation builds on the 2017 Tax Cuts and Jobs Act (TCJA), making many of its provisions permanent while introducing new deductions and repealing several green energy incentives. Below is a detailed summary of the tax-related provisions most relevant to individuals, businesses, and international taxpayers.
1. Permanent Extensions of TCJA Provisions
The BBB locks in several TCJA provisions that were previously set to expire after 2025. These include:
- The seven-bracket individual income tax structure (10%, 12%, 22%, 24%, 32%, 35%, and 37%) is now permanent.
- The standard deduction is increased to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers in 2025, with inflation adjustments thereafter.
- The child tax credit is permanently increased to $2,200 per child, with a refundable portion capped at $1,400. Social Security numbers are required for both the taxpayer and the child.
- The estate tax exemption is raised to $15 million for decedents dying in 2026 and beyond, indexed for inflation.
- The alternative minimum tax (AMT) retains higher exemption thresholds, but the phase-out threshold for joint filers reverts to 2018 levels.
- The qualified business income (QBI) deduction under Section 199A is made permanent.
- Bonus depreciation is restored to 100% expensing for property acquired after January 19, 2025.
- Domestic research and experimental (R&E) expenditures are once again deductible, reversing the TCJA’s amortization requirement.
2. New Individual Tax Deductions
The BBB introduces several new deductions aimed at wage earners and working families:
- A deduction for tip income is available up to $25,000, phasing out at $150,000 (single) or $300,000 (joint). This deduction does not require itemization and expires after 2028.
- A deduction for overtime pay is capped at $12,500 and phases out at $100,000 (single) or $200,000 (joint). It also expires after 2028.
- Interest on auto loans becomes deductible up to $10,000 for vehicles purchased after 2024. This provision is available through 2028.
- “Trump Accounts” are introduced as tax-favored savings accounts for newborns, seeded with $1,000 and modeled after IRAs.
- The Pease limitation on itemized deductions is reinstated for taxpayers in the 37% bracket beginning in 2026.
3. Temporary Increase in SALT Deduction Cap
The state and local tax (SALT) deduction cap is temporarily raised:
- The cap increases from $10,000 to $40,000 in 2025.
- It will grow by 1% annually through 2029 before reverting to $10,000 in 2030.
- A phase-out applies for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000 in 2025, indexed thereafter.
4. Business Tax Provisions
The BBB includes several provisions that benefit businesses of all sizes:
- Section 179 expensing limits are increased for property placed in service after 2024.
- The low-income housing tax credit is expanded to increase access and eligibility.
- Interest received by qualified lenders on rural or agricultural real property is excluded from income.
- The deduction for domestic R&E expenditures is reinstated, and small businesses with average gross receipts of $31 million or less may elect to apply the deduction retroactively to 2022.
5. International Tax Adjustments
The bill modifies several international tax provisions originally introduced under the TCJA:
- The deduction for foreign-derived intangible income (FDII) is reduced to 33.34% (from 37.5%).
- The deduction for global intangible low-taxed income (GILTI) is reduced to 40% (from 50%).
- The base erosion and anti-abuse tax (BEAT) rate is set at 10.5%, down from the scheduled 12.5%.
- These changes result in a net tax increase for multinational corporations compared to the TCJA’s post-2025 schedule.
6. Repeal of Green Energy Tax Credits
The BBB repeals or phases out most green energy tax incentives enacted under the Inflation Reduction Act:
- Credits eliminated include those for new and used clean vehicles, residential clean energy, energy-efficient home improvements, and alternative fuel refueling property.
- Most of these credits are terminated after 2025, although transition relief is provided for projects already under construction.
7. IRS Administrative Changes
The bill also includes procedural reforms affecting IRS operations:
- The IRS Direct File program is terminated within 30 days of enactment. The IRS is directed to explore public-private partnerships for free filing services.
- Penalties for promoters of fraudulent employee retention credit (ERC) schemes are capped at $1,000 per failure, with no cumulative limit.
8. Budgetary Impact and Offsets
- The estimated cost of the BBB is approximately $5 trillion over 10 years.
- The bill is partially offset by repealing green energy credits and reducing spending in non-tax areas.
- No new surtaxes or broad-based revenue raisers are included.
9. Strategic Considerations for Taxpayers
- The IRS’s shift away from Direct File may impact how taxpayers access free filing services and interact with the agency.
- Taxpayers in service industries such as hospitality and beauty may benefit from the new tip and overtime deductions.
- The auto loan interest deduction could incentivize vehicle purchases before 2029.
- High-net-worth individuals should revisit estate planning strategies in light of the $15 million exemption.
- Businesses engaged in R&E activities should evaluate the opportunity to retroactively deduct expenses from 2022.
- Renewable energy developers will need to reassess project viability due to the repeal of key credits.
Planning Ahead with Confidence
The landscape shaped by the 2025 tax reform is complex, offering substantial opportunities alongside critical phase-outs and limits. Thoughtful tax planning will be essential to fully leverage the benefits and navigate changes effectively.
At The Watermark Group, we’re actively helping our clients understand and adapt to these new provisions. If you have questions or need personalized guidance on how this legislation impacts your tax strategy, reach out to our team today. We’re here to help you plan confidently for the future.