The tax landscape is always evolving, and the recent signing of the “One Big Beautiful Bill Act” marks a significant shift. This new legislation, approved by Congress and signed into law by President Donald Trump, extends many expiring provisions from the previous Tax Cuts and Jobs Act (TCJA) (a major tax reform bill from 2017) and introduces new tax priorities. Here at Lewis Group CPAs in Vancouver, WA, we want to help you understand what these changes mean for you, presented in an approachable and clear way.
What’s Changing for Individuals?
Many of the tax provisions for individuals are designed to provide continued relief and introduce new deductions:
- Tax Rates and Standard Deduction: Good news! The tax rates established in 2017 by the TCJA are largely made permanent. This means you can expect consistency in your tax brackets. Plus, the increased standard deduction amounts from the TCJA are also permanent. For tax years beginning after 2024, the standard deduction will increase to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. These amounts will continue to be adjusted for inflation in the years to come, and these specific changes are even retroactive to include 2025.
- State and Local Tax (SALT) Cap: For those in states with higher state and local taxes, there’s a temporary increase to the federal deduction limit for these taxes (known as the SALT cap). This cap rises from the current $10,000 to $40,000 and will be adjusted for inflation. For example, in 2026, it will be $40,400. However, this higher cap will gradually increase by 1% annually through 2029, then revert to $10,000 starting in 2030. It’s also important to note that this deduction phases down for taxpayers with a Modified Adjusted Gross Income (MAGI) (your Adjusted Gross Income plus certain deductions added back) over $500,000 (in 2025).
- Personal Exemptions and Senior Deduction: While personal exemptions are permanently set to zero, a temporary $6,000 deduction is available for individual taxpayers age 65 or older. This “senior deduction” begins to phase out when your MAGI exceeds $75,000 ($150,000 for joint filers) and is in effect for tax years 2025 through 2028.
- Child Tax Credit: The nonrefundable child tax credit increases to $2,200 per child starting in 2025 and will be indexed for inflation. The $1,400 refundable child tax credit is also made permanent and adjusted for inflation. The increased income phaseout thresholds of $200,000 ($400,000 for joint filers) are now permanent, as is the $500 nonrefundable credit for other dependents.
- No Tax on Tips and Overtime: This is a big one for many workers! The bill offers a temporary deduction of up to $25,000 for qualified tips received by individuals in tip-based occupations. This deduction is “above-the-line,” meaning it’s available whether you take the standard deduction or itemize. Similarly, there’s a temporary “above-the-line” deduction of up to $12,500 ($25,000 for joint returns) for qualified overtime compensation. Both of these deductions begin to phase out if your MAGI exceeds $150,000 ($300,000 for joint filers) and are available for tax years 2025 through 2028.
- Qualified Business Income (QBI) Deduction: The QBI deduction (a deduction for up to 20% of qualified business income for eligible self-employed and small business owners) from Section 199A is made permanent at a 20% rate. The bill also expands the income phase-in range for certain businesses, making it easier for more small business owners to qualify.
- Estate and Gift Tax Exemption: For estate planning, the bill permanently increases the estate tax exemption and lifetime gift tax exemption amounts to $15 million for single filers ($30 million for married filing jointly) in 2026, with inflation adjustments afterward.
- Child and Dependent Care Credit: This credit sees a permanent increase from 35% to 50% of qualifying expenses. The credit rate will gradually reduce for taxpayers with Adjusted Gross Income (AGI) (your gross income minus certain allowable deductions) over $15,000.
- Trump Accounts: A new type of Individual Retirement Account (IRA), “Trump Accounts,” are created for individuals under 18, with annual contribution caps of $5,000 (adjusted for inflation after 2027). These accounts have specific rules for contributions and distributions, and employer contributions will not be included in the employee’s income.
- Charitable Contributions: If you don’t itemize, you can now claim a charitable contribution deduction of up to $1,000 for single filers or $2,000 for married couples filing jointly for certain charitable donations. For those who itemize, a 0.5% floor is imposed on the charitable contribution deduction.
Key Business Provisions
The Act also brings substantial changes for businesses:
- Bonus Depreciation: The popular bonus depreciation deduction (an additional first-year depreciation allowance for qualifying business property) is permanently extended. The allowance increases to 100% for property acquired and placed in service on or after January 19, 2025.
- Section 179 Expensing: The maximum amount a taxpayer can expense under Section 179 (allowing businesses to deduct the cost of certain property as an expense rather than depreciating it) increases to $2.5 million, with a phase-out beginning when the cost of qualifying property exceeds $4 million.
- Research and Development (R&D) Expenses: Businesses can now immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Smaller businesses with average annual gross receipts of $31 million or less may even apply this change retroactively to tax years beginning after December 31, 2021.
- Advanced Manufacturing Investment Credit: The rate for the advanced manufacturing investment credit increases from 25% to 35% for property placed in service after December 31, 2025. This credit aims to incentivize domestic manufacturing, particularly in the semiconductor industry.
- Form 1099 Reporting Threshold: The information-reporting threshold for certain payments to businesses and for services increases from $600 to $2,000, with annual inflation adjustments after 2026.
This overview highlights some of the major changes in the One Big Beautiful Bill Act. As always, tax laws can be complex, and how these provisions specifically impact your unique financial situation can vary. We encourage you to reach out to us at Lewis Group CPAs to discuss these changes and how they might affect your personal or business tax planning. We’re here to help you navigate the new tax landscape with confidence!
