The One Big Beautiful Bill Act, signed into law by President Trump on July 4, 2025, introduces sweeping changes to the federal tax system. As an update and expansion of the 2017 Tax Cuts and Jobs Act, this legislation revises deductions, credits, income thresholds, and reporting requirements. These changes affect nearly every taxpayer category, including individuals, families, hourly workers, retirees, and gig economy participants. This article breaks down the key components of the bill as they apply to individual taxpayers, helping clarify what changes are coming and how they might influence your 2025 tax return.
Continued Provisions from the 2017 TCJA
Several features introduced in the 2017 Tax Cuts and Jobs Act were set to expire at the end of 2025. The new legislation extends these provisions, avoiding a return to pre-2017 tax norms. These include:
- The higher standard deduction remains in place. This nearly doubled the deduction amount for most taxpayers and remains a central element of the reformed tax code.
- The updated tax bracket structure continues, preserving lower tax rates for most income levels.
- The repeal of the personal exemption remains in effect, keeping the simplified income tax structure intact.
These extensions offer stability and predictability for taxpayers who have grown accustomed to the tax environment created by the 2017 reforms.
State and Local Tax Deduction Cap Raised
One of the most talked-about updates is the expansion of the SALT deduction. Previously capped at 10000 under the Tax Cuts and Jobs Act, the new bill increases this limit to 40000 for married couples earning less than 500000. The benefit phases down for households earning more than that threshold, eventually reverting to the original 10000 cap for high earners.
This provision especially benefits residents of states with higher income and property taxes. By restoring some flexibility in deducting state and local taxes, the bill reduces the federal tax burden on many middle and upper-middle-income families. The new limit is also indexed for inflation through 2029, which means it could increase slightly each year.
Enhanced Deduction for Seniors
A significant temporary boost is provided to seniors in the form of an enhanced standard deduction. Beginning in 2025 and running through 2028, taxpayers aged 65 or older can claim an additional 6000 standard deduction. Previously, this amount was only 2000. The goal of this provision is to provide extra relief to older taxpayers who often have fixed incomes.
However, this extra deduction phases out for those with adjusted gross incomes above 75000 for single filers or 150000 for joint filers. The phaseout ensures the deduction is targeted at those most in need, rather than higher-income retirees.
New Deduction for Tip Income
A novel feature of the bill is a tax deduction specifically for tip income. Starting with the 2025 tax year and continuing through 2028, individuals who receive cash tips can deduct up to 25000 of that income on an above-the-line basis. This means the deduction can be claimed without itemizing, simplifying the filing process for many workers.
There are several conditions:
- Both the taxpayer and their spouse, if applicable, must have valid Social Security numbers.
- The deduction begins to phase out at a modified adjusted gross income of 150000.
- Only occupations listed by the Treasury Secretary within 90 days of the bill’s enactment will be eligible.
- Employers must report qualifying tip income and occupations on W-2 forms.
Importantly, tip income must still be reported to employers and is still subject to Social Security, Medicare, and applicable state and local taxes.
Overtime Pay Deduction
Another important change is the introduction of a deduction for overtime wages. From 2025 through 2028, hourly workers can deduct their qualifying overtime income as an above-the-line deduction. The deduction allows for up to 12500 for single filers or 25000 for married joint filers.
Key conditions include:
- The taxpayer and spouse (if filing jointly) must have valid Social Security numbers.
- The deduction phases out at 150000 for single filers or 300000 for joint filers.
- Employers must report qualifying overtime separately on W-2 forms.
The bill specifies that tips and overtime cannot be counted together for multiple deductions. This provision ensures that taxpayers do not receive overlapping tax benefits for the same income.
Changes to the Child Tax Credit
Families with children will benefit from an expanded Child Tax Credit. For tax year 2025, the credit increases to 2200 per qualifying child. Beginning in 2026, the amount will be adjusted annually for inflation, helping it retain value over time.
The refundable Additional Child Tax Credit is now permanently set at 1400 and will also be adjusted for inflation. These updates aim to provide more consistent and generous support for families.
Income thresholds remain at 200000 for single filers and 400000 for married couples filing jointly. These limits ensure that the benefits are directed primarily toward low and middle-income households, though higher earners may still receive partial credits depending on their specific tax situation.
Expiration of Green Energy Tax Credits
The legislation also ends several green energy tax incentives introduced in previous laws. Most notably:
- Tax credits for new and used electric vehicle purchases expire on September 30, 2025.
- Credits for energy-efficient home upgrades such as insulation, HVAC systems, and windows will expire on December 31, 2025.
These provisions were initially part of the Inflation Reduction Act and aimed at encouraging environmentally friendly investments. Their removal reflects a policy shift toward reducing targeted subsidies in favor of broad-based tax relief.
New Deduction for Car Loan Interest
A fresh benefit is offered to consumers who finance vehicle purchases. From 2025 through 2028, taxpayers can deduct up to 10000 annually in interest paid on qualified vehicle loans.
Eligibility requirements are strict:
- The vehicle must be designed for public roads.
- It must be manufactured in the United States.
- It must have at least two wheels and a valid Vehicle Identification Number (VIN).
- The deduction phases out at a modified adjusted gross income of 100000 for single filers and 200000 for joint filers.
Importantly, loans for recreational vehicles and campers do not qualify. This deduction is designed to assist everyday consumers with the cost of owning personal-use vehicles.
Updated 1099 Reporting Thresholds
Another important change affects those who earn income from side gigs, freelancing, or third-party platforms. Beginning in 2026:
- The reporting threshold for Forms 1099-NEC and 1099-MISC increases from 600 to 2000. This threshold will also adjust for inflation annually.
- For Form 1099-K, the threshold reverts to 20000 in payments and at least 200 transactions per year. This change rolls back earlier, lower reporting requirements and is aimed at reducing unnecessary paperwork for occasional sellers and hobbyists.
These updates simplify reporting for casual earners and prevent small one-off transactions from triggering additional tax forms.
These provisions collectively reshape the tax landscape for individuals in multiple income brackets and life stages. From the working-class employee to the retired homeowner, the One Big Beautiful Bill introduces changes that can significantly affect yearly tax obligations and potential refunds. We will shift focus to the bill’s impact on small businesses and the self-employed, covering permanent deductions, expanded thresholds, and bonus depreciation rules.
Introduction to the Business Provisions
The One Big Beautiful Bill Act, signed into law on July 4, 2025, brings extensive tax reforms not only for individuals but also for small businesses and self-employed taxpayers. As a legislative successor to the 2017 Tax Cuts and Jobs Act, this new law includes both extensions of previous provisions and introduction of new benefits specifically targeted toward business owners.
These include updates to the Qualified Business Income deduction, expanded deductions for investments, state and local tax flexibility, and simplified reporting requirements. We take a closer look at how these changes impact entrepreneurs, freelancers, partnerships, S corporations, and other forms of pass-through entities.
Permanent Qualified Business Income Deduction
One of the cornerstone features of the new tax law is the permanent establishment of the Qualified Business Income deduction. This provision, first introduced in 2017, allowed many small business owners to deduct up to 20 percent of their qualified business income from their taxable income.
Under the One Big Beautiful Bill:
- The 20 percent deduction remains intact, providing long-term predictability for tax planning.
- A new minimum deduction of 400 is introduced for eligible taxpayers with at least 1000 in qualified business income, ensuring that low-income earners still receive a benefit.
- The income thresholds for specified service trades or businesses are increased. Single filers see their limit rise from 50000 to 75000, while joint filers now have a threshold of 150000, up from 100000.
These updates benefit a wide range of professions previously subject to more stringent phaseouts, such as consultants, medical professionals, attorneys, and accountants.
Flexibility in State and Local Tax Workarounds
Pass-through businesses like LLCs, partnerships, and S corporations have increasingly relied on state-level workarounds to bypass the federal cap on deducting state and local taxes. Known as Pass-Through Entity Taxes, or PTETs, these workarounds let businesses pay state taxes at the entity level and then deduct them on the federal return.
The One Big Beautiful Bill preserves and expands this mechanism by:
- Raising the SALT deduction cap for individuals to 40000 through 2029, indexed for inflation.
- Ensuring that all pass-through business owners, regardless of industry, may benefit from PTET strategies.
- Removing previous limitations that excluded specified service trades from participating in certain state-level SALT workarounds.
This expansion means that professionals in high-tax states will have broader access to deductions that reduce their overall federal tax liability.
100 Percent Bonus Depreciation Restored
The ability to immediately deduct the full cost of certain business investments has long been a favored tax strategy. The new legislation revives 100 percent bonus depreciation for qualified property placed in service between January 20, 2025, and December 31, 2029.
Eligible property includes:
- Machinery and equipment
- Qualified improvement property
- Certain vehicles used in business
- Computers and software
To qualify, the property must be used more than 50 percent for business purposes and meet applicable IRS criteria. This provision encourages reinvestment in business growth by reducing the upfront tax cost of capital expenditures.
Expanded Depreciation for Used Property
Unlike previous versions of bonus depreciation rules that favored new assets, the updated law allows for depreciation of used property as well. This adjustment provides smaller businesses and startups more flexibility in purchasing secondhand equipment without sacrificing tax benefits.
Requirements for eligibility include:
- The property must be new to the taxpayer, even if not new to the market.
- The purchase cannot be from a related party.
- The property must be placed in service during the applicable time frame.
This change further levels the playing field between large and small firms, enabling broader access to key deductions.
Enhancements to Section 179 Expensing
Although bonus depreciation is generous, Section 179 remains another important tool for immediate expensing of business property. Under the One Big Beautiful Bill, Section 179 limits have been increased and expanded:
- The maximum deduction amount is raised to 1.5 million per year.
- The phaseout threshold now begins at 4 million.
- More property types qualify, including roofs, HVAC units, and non-residential security systems.
Section 179 allows for more granular control over depreciation and is especially beneficial to smaller businesses making targeted equipment purchases.
More Favorable Rules for Vehicle Deductions
The new law includes more generous depreciation limits for passenger vehicles used in business. These caps had previously limited deductions for cars and light trucks. The changes now include:
- A higher annual depreciation limit for qualifying vehicles.
- The ability to use bonus depreciation for vehicles above certain weight thresholds.
- Greater clarity on what constitutes business use versus personal use.
Vehicles used more than 50 percent for business purposes qualify for the maximum deduction benefits, provided detailed usage logs are maintained.
Simplified Accounting Method Requirements
The One Big Beautiful Bill raises the gross receipts threshold under which businesses may use the cash method of accounting. This threshold increases from 25 million to 35 million in average gross receipts over a three-year period.
This change allows more businesses to:
- Use cash accounting for simplicity and cash flow advantages
- Avoid inventory capitalization rules
- Skip the uniform capitalization rules
Businesses that fall under the new threshold can switch methods without applying for IRS approval, making compliance easier and less costly.
Streamlined Home Office Deduction Guidance
Although not introducing new provisions, the bill clarifies and simplifies the rules regarding home office deductions for self-employed individuals and partners.
Key updates include:
- Expanded definitions of qualifying home office space
- Allowance for prorated utility costs beyond standard square footage calculations
- Simplified recordkeeping requirements for the simplified home office deduction method
These clarifications make the deduction more accessible, especially for remote workers and digital entrepreneurs who operate from a home workspace.
Changes to Reporting Rules for Contractors and Freelancers
Many business owners work with contractors and freelancers and must file 1099 forms to report payments. Beginning in 2026, the thresholds for issuing and receiving 1099 forms will change:
- The threshold for issuing Form 1099-NEC or 1099-MISC increases to 2000, up from the long-standing 600.
- This amount will adjust for inflation annually.
- The threshold for Form 1099-K returns to 20000 and 200 transactions per year.
These changes reduce administrative burdens on businesses and provide more flexibility in managing low-volume transactions.
Expanded Start-Up Expense Deduction
To encourage entrepreneurship, the legislation increases the deduction for start-up expenses. Previously limited to 5000, the new law raises the limit to 15000. This can be used to deduct costs such as:
- Market research
- Legal and professional fees
- Advertising and promotional expenses
The deduction phases out when total start-up costs exceed 50000. This enhancement makes starting a new business more financially feasible by recovering initial expenses more quickly.
Increased Retirement Plan Contribution Limits
The bill raises contribution limits for business-sponsored retirement plans, making it easier for business owners to save for retirement and offer competitive benefits to employees. Updates include:
- Higher deferral limits for 401(k), SIMPLE IRA, and SEP plans
- Expanded catch-up contributions for individuals aged 60 and over
- Flexibility to make retroactive plan contributions under certain conditions
These changes allow small business owners to enhance their retirement savings strategies while offering valuable tax-deferred benefits.
Enhanced Net Operating Loss Carryback Rules
To offer flexibility during economic fluctuations, the bill reinstates a two-year carryback provision for net operating losses incurred in tax years 2025 through 2028. Businesses may:
- Apply NOLs to previous tax years to generate refunds
- Carry losses forward indefinitely to offset future income
- Avoid certain limitations that previously applied under the 2017 law
This provision benefits businesses that experience uneven income streams or cyclical downturns, improving cash flow management.
Expanded Meal and Entertainment Deductions
Under the revised tax law, the deduction for business meals is restored to 100 percent for meals provided at restaurants, through 2028. Additionally, some entertainment expenses are once again partially deductible:
- Meals directly related to business discussions are 100 percent deductible
- Tickets for client events, such as sports games, are 50 percent deductible
- Club memberships remain non-deductible
These changes aim to support service industries and restore traditional business development practices.
Increased De Minimis Safe Harbor Threshold
For businesses that expense lower-cost items directly, the safe harbor limit under the de minimis rule is increased. The new threshold rises from 2500 to 5000 per item, reducing the need for capitalization of small asset purchases.
Eligibility remains limited to businesses that:
- Maintain applicable financial statements
- Have a written accounting policy in place
This rule simplifies recordkeeping and aligns tax treatment more closely with operational reality.
Modernization of Research and Development Expensing
The legislation delays mandatory capitalization and amortization of domestic R&D expenditures until 2030. Businesses may continue to expense qualified R&D costs in the year incurred. This provision affects:
- Technology startups
- Manufacturing companies
- Product development firms
This change helps preserve cash for reinvestment into innovation and development.
Favorable Changes for Farming and Agricultural Businesses
Farming operations benefit from several targeted provisions:
- Expanded availability of cash accounting
- Greater flexibility in deducting equipment and breeding stock
- Improved treatment of cooperative distributions
These adjustments recognize the seasonal and capital-intensive nature of agriculture.
Enhanced Flexibility for Qualified Opportunity Funds
The bill extends key deadlines and eligibility requirements for investments in Qualified Opportunity Zones. These updates allow:
- Additional time to reinvest capital gains
- Expanded definitions of qualifying improvements
- Flexibility in reporting and compliance rules
Investors and developers in underserved areas benefit from prolonged access to this incentive-driven program.
Understanding the Broader Impact of Tax Reform
With the One Big Beautiful Bill now signed into law, the tax landscape is undergoing a dramatic shift. Beyond the specific provisions for individuals and business owners, we explored the broader implications of the legislation, the strategic opportunities it introduces, and how different taxpayer profiles can prepare and adjust. From financial planning to future legislative risks, understanding the ripple effects of these reforms is essential.
Financial Planning in a Post-Reform Era
Evaluating Long-Term Tax Liability
The tax cuts and new deductions introduced by the legislation provide substantial short-term benefits, but it’s critical to evaluate how these affect long-term financial plans. For example, the temporary nature of certain deductions—such as those for tip income, overtime pay, and car loan interest—requires forward-looking planning. Taxpayers should assess their projected income, lifestyle changes, and retirement timelines to anticipate shifts in tax obligations as these deductions phase out between 2028 and 2030.
Rebalancing Investments and Asset Classes
Certain changes, such as the elimination of green energy credits, may alter the attractiveness of environmentally focused investments. Similarly, the reinstatement of 100% bonus depreciation could influence decisions around business asset purchases. Individuals managing portfolios that include real estate, energy-related assets, or small business holdings may need to revisit their asset allocation strategies in response to these reforms.
Planning for Inflation Adjustments
Several provisions in the law are tied to inflation adjustments. This includes the SALT deduction cap and the Child Tax Credit. Taxpayers should understand how these annual changes affect their eligibility and benefit size. For families with growing incomes or retirees managing fixed portfolios, inflation-linked components may impact year-to-year tax variability and refund predictability.
Strategic Moves for Retirees and Seniors
Leveraging the Increased Senior Deduction
Seniors can take advantage of the expanded standard deduction from 2025 to 2028. This window creates opportunities to optimize retirement income strategies, such as timing IRA withdrawals or converting portions of traditional IRAs into Roth accounts without bumping into higher tax brackets. Utilizing these deductions strategically over a four-year period may enhance long-term tax efficiency.
Medicare and Tax Coordination
The phaseout of the senior deduction at $75,000 for single filers and $150,000 for joint filers overlaps with thresholds that can trigger increased Medicare premiums. Taxpayers approaching this income range should consider tax-efficient withdrawal strategies and income deferral tactics to avoid additional healthcare costs linked to higher AGI levels.
Considerations for Gig Workers and Hourly Employees
Optimizing for Tip and Overtime Deductions
Gig workers and those in tip-earning roles must track income sources accurately. Ensuring that tips and overtime wages are properly recorded by employers on Form W-2 is essential for claiming the full value of above-the-line deductions. Workers should also be aware of the deduction phaseouts at higher income levels and plan earnings distribution or hours accordingly to stay within benefit ranges.
Forecasting Changes in 1099 Reporting
Starting in 2026, third-party payment platforms will return to the older threshold of $20,000 in total payments and at least 200 transactions for Form 1099-K issuance. This change reduces the burden on gig workers with minimal income from occasional work. However, those nearing the thresholds must continue maintaining records, as reporting standards still apply for income, even without a form.
Vehicle Purchases and Financing Decisions
Timing Vehicle Loans to Maximize Interest Deductions
From 2025 to 2028, the ability to deduct up to $10,000 per year in interest on vehicle loans presents an incentive for strategic borrowing. Taxpayers planning to buy new cars, trucks, or motorcycles should ensure their vehicles meet eligibility criteria—especially domestic assembly and valid VIN requirements. Buying early in the deduction window allows for maximum cumulative benefit over multiple tax years.
Weighing the Expiring EV Credit
The expiration of electric vehicle tax credits in late 2025 could influence the timing of eco-conscious vehicle purchases. Buyers interested in leveraging the incentive should aim to complete purchases before September 30, 2025. After that point, consumers must weigh long-term savings from energy efficiency against the loss of federal tax benefits.
Real Estate and Homeownership Impacts
Adjustments in SALT Cap and Property Tax Strategy
Homeowners in high-tax states stand to benefit from the increased SALT cap, which reaches $40,000 for joint filers. This adjustment makes it more viable to itemize deductions for state income and property taxes, at least through 2029. Taxpayers considering refinancing or large home improvements that affect property tax assessments may time these changes to coincide with years when higher deductions are available.
Home Improvement Planning Before Credits Expire
The expiration of home energy efficiency tax credits at the end of 2025 has implications for homeowners planning upgrades. Projects involving HVAC systems, insulation, or windows may be more financially advantageous if completed before the end of the credit period. Aligning construction or renovation timelines with eligibility deadlines can reduce overall out-of-pocket costs.
Business Owner Outlook Beyond the Basics
Taking Full Advantage of Bonus Depreciation
The return of 100% bonus depreciation allows business owners to immediately write off the full cost of qualifying assets placed in service through the end of 2029. This provision offers an opportunity to accelerate investment in machinery, vehicles, and office equipment. Careful planning around the timing of large purchases and business expansions can lead to major upfront tax savings.
Strategic Use of QBI Deduction
With the Qualified Business Income deduction now permanent, business owners have long-term clarity for planning. Service-based businesses benefit from expanded income thresholds, which makes the deduction more accessible. Entrepreneurs should consider entity structure reviews and income-splitting strategies to fully capitalize on the deduction.
Navigating SALT Workaround Options
The legislation reinforces state-level pass-through entity tax (PTET) arrangements. Businesses structured as partnerships, S corporations, or LLCs may elect to pay state taxes at the entity level to preserve the full deduction at the federal level. The continuation of this workaround, even for service-based businesses, provides a reliable method to manage overall tax exposure through 2029.
Children, Dependents, and Family Planning
Maximizing the Child Tax Credit Window
With the credit increasing to $2,200 per child in 2025 and adjusting annually for inflation, families should evaluate their eligibility based on income levels and the number of dependents. Planning the timing of childcare expenses, filing status, and even family expansion (such as adoption or childbirth timing) could influence tax outcomes under the expanded credit.
Dependents and Education Planning
Although the new law does not directly address education-related tax credits, families may align use of the increased child credit with education savings strategies. Coordinating 529 plan contributions, dependent care costs, and higher education savings incentives with updated tax liabilities ensures better resource allocation for future academic expenses.
Adjusting to Legislative Risk and Uncertainty
Preparing for the End of Temporary Provisions
Many of the deductions and credits under the new law are not permanent. Seniors, hourly workers, and car buyers must anticipate the expiration of benefits after 2028 or 2029. Taxpayers can take proactive steps by modeling future scenarios and adjusting income timing, retirement savings plans, and family support strategies to align with the changing landscape.
Monitoring Potential Repeals or Adjustments
With future administrations or Congressional compositions, provisions of the One Big Beautiful Bill could be altered, extended, or repealed. Keeping informed about proposed changes, particularly those affecting SALT deductions, child credits, or business depreciation rules, allows for nimble tax planning. Staying alert to policy discussions helps taxpayers pivot quickly when reforms are amended.
Building in Flexibility and Optionality
One of the best ways to navigate uncertainty is by maintaining financial flexibility. Taxpayers should avoid locking into long-term decisions solely based on short-term tax law. Diversifying income sources, preserving liquidity, and using accounts that offer both tax-deferred and tax-free benefits (such as HSAs, IRAs, and Roth accounts) builds optionality in responding to shifting rules.
Conclusion
The One Big Beautiful Bill represents one of the most extensive tax reforms since the 2017 Tax Cuts and Jobs Act, with far-reaching effects on individuals, families, gig workers, retirees, and business owners alike. Its provisions reflect a continued push to simplify tax obligations, reduce burdens on working and middle-class households, and provide lasting certainty for small businesses.
For individual taxpayers, the extension of TCJA provisions means that the higher standard deduction and restructured tax brackets will continue to define the landscape for years to come. The expanded SALT deduction cap, extra standard deduction for seniors, and new above-the-line deductions for tip income, overtime pay, and car loan interest aim to provide meaningful relief for working-class and lower-to-middle-income households. At the same time, the elimination of green energy credits and changes to gig worker reporting thresholds signal a shift in policy priorities that taxpayers must account for when planning major purchases or managing side income.
Business owners stand to benefit significantly from the permanence of the QBI deduction, the restoration of 100% bonus depreciation, and a broadened scope of the SALT workaround. These measures not only provide critical tax savings but also encourage reinvestment, hiring, and operational expansion. Additionally, updates to 1099 reporting thresholds offer greater clarity and reduce paperwork burdens, particularly for those operating in the gig or freelance economy.
However, the real challenge for many taxpayers will be adapting to these changes in real time. While some provisions are straightforward, others such as the qualified thresholds for new deductions and phasing rules require close attention to income levels and compliance details. Those who plan ahead will have the best chance to take full advantage of what the bill offers, whether that means adjusting withholding, making timely investments, or tracking eligible deductions with greater diligence.
Ultimately, the One Big Beautiful Bill aims to modernize the tax code while offering targeted support to key demographics. Whether it achieves its full potential will depend not only on how it’s implemented, but also on how taxpayers respond, plan, and prepare. As with any major reform, staying informed and proactive will be essential to navigating the road ahead with confidence.