Dear Clients,
The “One Big Beautiful Bill Act” (OBBBA) was signed into law by President Trump on July 4, 2025, bringing much needed clarity on several key tax issues (and much more).
Setting politics aside, the bill has several particularly “beautiful” parts (and some less than beautiful) that I feel are important to underscore.
Extension of Expiring Tax Provisions
Many of the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 were scheduled to expire at the end of 2025. The bedrock of the OBBBA is a permanent extension of most of these provisions.
It confuses me that this aspect was not highlighted with greater emphasis during the media frenzy surrounding this bill’s journey (from either side of the political aisle).
Among many others, these provisions include:
Lowered Income Tax Rates
The passage of the OBBBA made permanent the “lower” tax rates we have enjoyed (no, seriously) since 2017.
Had this bill failed, taxpayers earning more than $10k per year ($20k for married filing jointly) would have seen their tax rates rise over 2% on average.
Increased Standard Deduction
The passage of the OBBBA made permanent the higher standard deductions we have enjoyed since 2017.
Had this bill failed, all taxpayers claiming the standard deduction would have seen their deduction fall by roughly 46%.
To more tangibly quantify this, a single taxpayer in the 22% bracket (most of you occupy this bracket) would lose roughly $5,500 in tax deductions, equating to roughly $1,200 in additional federal income tax due per year. Taxpayers married filing jointly in the same tax bracket would lose roughly $11k in tax deductions, equating to roughly $2,400 in additional federal income tax due per year.
Increased Child Tax Credit
The passage of the OBBBA made permanent the higher child tax credit we have enjoyed since 2017.
Had this bill failed, the child tax credit would have been reduced from $2,000 per qualifying child to $1,000.
Increased Unified Estate and Gift Tax Exclusion
Although this is significantly less relevant for most of us, the passage of the OBBBA made permanent the increased estate and gift tax exclusion.
The TCJA had temporarily doubled the lifetime estate/gift tax exemption from $5 million to $10 million per taxpayer ($10 million to $20 million for married filing jointly).
Had the OBBBA failed to pass, this exemption amount was scheduled to revert to pre-TCJA levels.
New Individual Tax Provisions
This aptly titled “big” bill has too many new tax items to share in total. However, here are several particularly important ones:
Increased State and Local Tax (SALT) Deduction (Effective 2025)
It is still surreal that this provision passed. Californians are going to benefit tremendously. This does mean that tax-free states will be subsidizing our federal tax bills, but you will not see me crying about it.
The maximum amount of SALT deductible for federal income tax purposes was limited to $10k per year before the passage of the OBBBA. In California, we commonly pay significantly more than $10k between our annual property taxes and state income tax rates (the highest in the United States by far).
The OBBBA temporarily (through 2029) increases the annual SALT deduction limit from $10k to $40k.
This increase will 1) decrease the taxable income of virtually every California taxpayer who itemizes, and 2) increase the number of taxpayers who itemize. This new group of itemizers will also enjoy additional deductible items (i.e. charitable contributions).
Previously, it benefited many of you to take standard deductions instead of itemizing. That will no longer be the case for many.
Accordingly, I encourage all clients to practice special diligence in tracking all potential itemized deductions, especially those of you who believe that the SALT deduction increase will change the manner in which you file!
Charitable Contribution Update (Effective 2026)
Charitable contributions are subject to three new OBBBA provisions:
- Non-itemizers can claim a $1,000 charitable deduction ($2,000 for married taxpayers filing jointly);
- Charitable contribution itemized deductions are now subject to a one half of one percent of AGI floor, providing another limitation to claiming the deduction; and
- Taxpayers who make charitable contributions to certain scholarship granting organizations that fund scholarships for K-12 students can choose to claim either an itemized deduction or a new tax credit of up to $1,700.
Credits reduce your tax bill dollar-for-dollar, as opposed to deductions that reduce taxable income. The $1,700 tax credit mentioned above means $1,700 of actual tax dollars saved; on the other hand, a $1,700 tax deduction (assuming a 22% tax rate) generates a mere $375 of tax dollars saved. Credits are, therefore, far more valuable than deductions.
It will be particularly interesting to see what information becomes available regarding #3. There is little authoritative guidance on how exactly it will work at this time.
New Deductions (Effective 2025)
Three brand new deductions for individual taxpayers are available starting in 2025.
These deductions may be known better by what they have been called in the news:
- No tax on tips
- No tax on overtime
- No tax on qualified car loan interest
For each of these items, new income tax deductions are available for taxpayers who receive certain tip income, are paid overtime by their employers, and who incur interest on the purchase of a new vehicle assembled in the United States.
Each of these provisions contains multiple limitations and fine print. Please look for a more detailed follow-up email on these three new items.
Personal Exemption for Seniors (Effective 2025)
One of President Trump’s campaign promises was to end tax on Social Security benefits.
This is not that.
There are various rules prohibiting the enactment of Social Security changes through budget reconciliation. Since the OBBBA was passed through the reconciliation process, legislators were unable to include any direct Social Security provisions.
However, the OBBBA did grant up to a $6k personal exemption deduction to taxpayers who are age 65 and older by the end of the taxable year, subject to modified adjusted gross income (MAGI) limitations.
Individual taxpayers meeting the age requirement may claim up to the maximum $6k additional deduction if their MAGI is $75k-$175k. The $6k deduction phases out by 6% of the amount (if any) by which a taxpayer’s MAGI exceeds $75k, phasing out completely when the excess reaches $100K (6% of $100k = $6k).
Married filing jointly taxpayers receive a higher deduction ($12k) and a higher MAGI range ($150k – $350k) when both spouses meet the age requirement. If only one spouse meets the age requirement, the deduction amount remains the same ($6k) but a higher MAGI range ($150k – $250k) is given.
The purpose of this provision is clear. While this provision does not “end tax on Social Security benefits”, it will help to offset some of the taxes paid on Social Security benefits by those seniors who rely on Social Security as a primary source of income.
New Business Tax Provisions
In addition to the many individual tax provisions, the OBBBA contains many business provisions including:
100% Bonus Depreciation (Effective January 19, 2025)
This is a big deal for our corporate clients.
The OBBBA brought back and permanently extends 100% bonus depreciation for qualifying property acquired after January 19, 2025. This means businesses may deduct 100% of the total cost of certain machinery, equipment, vehicles (6,000+ lbs. GVW), and commercial property improvements in the year of acquisition.
Research and Development (R&D) Deductions and Credits (Effective 2025)
The OBBBA permanently allows full deduction of domestic specified research or experimental expenditures (SREs) beginning with the 2025 taxable year.
Additionally, the bill also contains a provision for “small taxpayers”, defined as those businesses with average gross receipts of $31 million or less, to fully deduct SREs retroactively for taxable years beginning after December 31, 2021. This provision resurrects the ability for certain entities to claim highly lucrative R&D tax credits.
The Ugly
Repeal of Energy Credits
Speaking from a tax perspective, this is the ugliest part of the tax bill.
The OBBBA repeals many energy credits, including all three clean vehicle credits for vehicles acquired after September 30, 2025.
Additionally, both energy credits available to homeowners are being repealed. This includes: certain energy efficient improvements, solar installation, home batteries, and heat pumps, among other items.
Please look for a forthcoming separate email with a timeline of energy credit expirations.
Partial Repeal of Employee Retention Credit
No Employee Retention Credit (ERC) claim will be allowed or refunds processed after July 4,
2025 (the date of OBBBA’s enactment) for claims filed after January 31, 2024, that are related to wages paid after June 30, 2021.
In English, if you are waiting for an ERC relating to either Q3 or Q4 of 2021, and you filed your claim after January 31, 2024, you can stop waiting. The credit will never be processed.
This is a decision driven by the tremendous backlog of unprocessed claims still sitting within the IRS. This same IRS put a moratorium on ERC processing from September 14, 2023, through October 10, 2024, creating said backlog.
I do not believe that legitimate credit claims should be denied to bail the IRS out of a problem they created. But no one asked me.
Closing
Thank you all for allowing me time to read and digest this new bill. I know many of you have been waiting for this memo, and I thank you for your patience.
The two promised follow-ups (regarding the new deductions and the energy credit expiration) will be sent out shortly.
Thank you all for your continued trust in our firm. We remain resolutely committed to saving you the maximum amount of tax dollars legally possible.
God Bless,
Leo Kanzelberger, CPA