One Big Beautiful Bill Act tax provisions for individuals and businesses
icon July 07, 2025
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Tax Law Updates, Business Tax Planning, Individual Tax Strategies, Legislative News

One Big Beautiful Bill Act tax provisions for individuals and businesses are set to reshape the U.S. tax code starting in 2025. This landmark legislation permanently extends key elements of the 2017 Tax Cuts and Jobs Act while introducing new deductions, adjustments, and relief measures designed to benefit taxpayers across the country.

Provisions for Individuals

Permanent Extension of Individual Income Tax Rates

The One Big Beautiful Bill Act (OBBBA) permanently extends the individual income tax rates and brackets that were originally enacted by the TCJA. Without this extension, these rates would have expired after 2025, resulting in higher taxes for many Americans. The law maintains the seven-bracket structure, with rates at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Importantly, the thresholds for these brackets are increased, so the top rate now applies at much higher income levels, such as $751,600 for joint filers. This change provides certainty for long-term financial planning and ensures that most taxpayers will continue to benefit from lower rates.

Enhanced Standard Deduction and Elimination of Personal Exemptions

The OBBBA makes the TCJA’s larger standard deduction permanent. For 2025, the standard deduction is set at $31,500 for married couples filing jointly and $15,750 for most other filers. The law also permanently eliminates personal exemptions, simplifying the tax calculation for many households.

Adjustments to Tax Brackets and Inflation Indexing

The Act adds an extra year of inflation adjustments to the 10% and 12% tax brackets, which increases the income threshold at which the 22% bracket begins. This means more income is taxed at lower rates, protecting taxpayers from “bracket creep” due to inflation. All brackets and the standard deduction will continue to be indexed for inflation in future years.

State and Local Tax Deduction (SALT) Cap Increase

A major provision for taxpayers in high-tax states is the temporary increase in the cap on the state and local tax (SALT) deduction. From 2025 through 2029, the cap is set at $40,000, with a 1% annual increase. In 2030, the cap reverts to $10,000. For high-income earners, the cap phases out, but it never drops below $10,000. This adjustment allows many taxpayers to deduct more of their state and local taxes, providing significant relief for those living in states with higher tax rates.

Temporary Deductions for Tips and Overtime

The OBBBA introduces two temporary deductions aimed at workers in service and hourly industries:

  • Tip Income Deduction: From 2025 through 2028, workers in occupations that customarily receive tips can deduct up to $25,000 of tip income annually. This deduction applies to both employees and independent contractors and is taken “above the line,” meaning it reduces adjusted gross income directly. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) above $300,000 for joint filers and $150,000 for other filers.
  • Overtime Pay Deduction: Also for 2025 through 2028, individuals can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime compensation. Like the tip deduction, this is an above-the-line deduction and phases out at the same income levels.

These deductions are designed to provide targeted relief to workers who rely on tips or overtime, especially in industries like hospitality and retail.

Senior “Bonus” Deduction

Seniors aged 65 and older receive a temporary “bonus” deduction of $6,000 per year. This provision is intended to offset Social Security taxes and provide additional relief to retirees living on fixed incomes.

Charitable Contributions

The OBBBA expands the charitable deduction in two key ways:

  • Above-the-Line Deduction: Taxpayers can now claim an above-the-line deduction of $1,000 ($2,000 for joint filers) for charitable contributions, even if they do not itemize deductions.
  • Itemized Deduction Floor: The Act introduces a 0.5% floor on charitable contributions for itemizers, meaning only contributions above this threshold are deductible.

These changes encourage charitable giving and ensure that more taxpayers benefit from supporting nonprofit organizations.

Estate and Gift Tax Exemption

The Act permanently increases the estate and gift tax exemption to $15 million per person, indexed for inflation starting in 2026. This provision provides significant relief for families, small business owners, and farmers seeking to transfer wealth across generations without facing large federal estate taxes.

Alternative Minimum Tax (AMT)

The OBBBA retains the TCJA’s increased AMT exemption amounts, now set at $137,000 for married couples filing jointly and $88,100 for single filers. However, the phaseout thresholds are slightly reduced to $1,000,000 for joint filers and $500,000 for single filers, with both indexed for inflation. The AMT is designed to ensure that high-income taxpayers pay a minimum level of tax, but these changes protect most middle-income families from being affected.

Miscellaneous Individual Provisions

  • Permanency of Miscellaneous Itemized Deduction Elimination: The TCJA’s elimination of miscellaneous itemized deductions is now permanent.
  • Education and Retirement Savings: The Act expands the use of 529 education savings accounts and increases contribution limits for retirement accounts, supporting long-term financial security for families.

Provisions for Businesses

The One Big Beautiful Bill Act tax provisions also deliver significant changes for businesses, both large and small. These updates are designed to foster economic growth, incentivize investment, and provide long-term certainty for business planning.

Permanent Qualified Business Income (QBI) Deduction

The OBBBA makes the Section 199A qualified business income deduction permanent. This deduction allows owners of pass-through entities (such as S corporations, partnerships, and sole proprietorships) to deduct up to 20% of their qualified business income. The Act also introduces a minimum $400 deduction for those with at least $1,000 in active QBI, indexed for inflation. Material participation is required to claim the deduction, ensuring it benefits active business owners.

Restoration and Expansion of Bonus Depreciation

For “qualified property” acquired on or after January 20, 2025, the Act restores permanent 100% bonus depreciation, which was originally set to phase out under the TCJA. This provision allows businesses to immediately deduct the full cost of qualifying property, such as equipment and machinery, rather than depreciating it over several years. The Act also introduces 100% bonus depreciation for certain “qualified production property” used in manufacturing, with specific timelines for construction and service placement.

Limitation on Interest Deductibility

The OBBBA modifies the limitation on interest deductibility under Section 163(j), affecting how much interest expense businesses can deduct. This change impacts highly leveraged companies and aims to prevent excessive interest deductions that could erode the tax base.

State and Local Tax (SALT) Deduction for Businesses

While the main SALT cap increase applies to individuals, certain pass-through entities may benefit from state-level workaround provisions, depending on state law. The OBBBA does not directly alter the deductibility of SALT for C corporations, which remain fully deductible as business expenses.

Qualified Small Business Stock (QSBS) Exclusion

The Act expands the exclusion for gain recognized on the sale of qualified small business stock, making it easier for investors and entrepreneurs to benefit from favorable capital gains treatment when investing in small businesses.

Charitable Contributions by Corporations

Corporate charitable contribution deductions are limited to 1% of taxable income, encouraging philanthropy while maintaining fiscal responsibility. This cap prevents large corporations from using excessive charitable contributions to significantly reduce their tax bills.

Itemized Deduction Limitations for Top Bracket Taxpayers

For taxpayers in the top bracket, the value of itemized deductions is capped at 35 cents on the dollar. This limitation ensures a more equitable tax system by preventing high-income individuals and businesses from disproportionately benefiting from deductions.

Employee Retention Tax Credit (ERTC) Changes

The Act introduces several changes to the Employee Retention Tax Credit:

  • Expanded Penalty: A new 20% penalty applies to erroneous ERTC refund claims.
  • Stricter Eligibility: Credit promoters must meet stricter diligence standards.
  • Refund Bar: The IRS is barred from issuing refunds for certain late ERTC claims.
  • Extended Statute of Limitations: The statute of limitations for ERTC refunds is extended to six years.

These changes are intended to reduce fraud and ensure the credit is used appropriately.

Repeal of Certain Credits

The OBBBA repeals several consumer tax credits related to clean energy, including the $7,500 credit for new electric vehicles and the $4,000 credit for used EVs, effective after September 30, 2025. Tax incentives for home energy efficiency improvements are also eliminated after December 31, 2025. These credits were originally established or extended by the Inflation Reduction Act of 2022.

Additional Business Provisions

  • Research and Experimental (R&E) Expenditures: The Act addresses the treatment of R&E expenditures, allowing for immediate expensing in some cases.
  • Depreciation and Expensing: The bill modifies depreciation schedules for certain assets, allowing businesses to recover costs more quickly.
  • International Business Provisions: While detailed international rules are covered in Part 2, it is important to note that businesses with international operations will be affected by changes to the global tax framework.

Planning Ahead

Given the scope and complexity of the One Big Beautiful Bill Act tax provisions, individuals and businesses are encouraged to review their tax strategies and consult with qualified tax professionals. The permanent extension of many TCJA provisions, new deductions for tips and overtime, expanded bonus depreciation, and changes to charitable deductions all present opportunities for tax savings and compliance simplification.

Staying informed and proactive is essential for maximizing benefits and minimizing risks under the new law. As the IRS and Treasury issue guidance on these provisions, taxpayers should monitor updates and adjust their planning accordingly.

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