“One Big Beautiful Bill Act” Officially signed into law
On July 4th last week, President Trump signed into law what may be the biggest law he will sign in his entire second term, the “One Big Beautiful Bill” (OBBB). There’s been a lot of back and forth in the crafting of this law, and several proposals that passed the House of Representatives were removed in order to allow the bill to be passed in the Senate in a way that avoids the filibuster. Let’s break down the provisions that will affect your business:
The biggest impact of the law isn’t truly a change in policy, it’s a continuation. The 2017 “Tax Cuts and Jobs Act” (TCJA) signed by Trump in his first term lowered the federal income tax rate for every bracket, but only for 8 years. If no bill had passed, all of those cuts would have expired and everyone paying income taxes would have seen an increase next year. The seven brackets stay the same (ranging from 10% to 37%), and the income threshold for each will continue to increase every year based on inflation. The doubling of the standard deduction is also made permanent, and increased even further, to $15,750/$31,500 for individual/joint filers, and will also increase annually based on inflation.
The State and Local Tax (SALT) deduction has been increased as well. This was one of the most controversial parts of the 2017 law, which capped the amount of SALT that could be deducted from federal income taxes to $10,000–a problem for states with high property taxes like New Jersey. The cap still exists, but has been increased to $40,000. However, once income reaches $250,000/$500,000 for individual/joint filers, it begins phasing out back down to $10,000. This cap increase expires in 2030, at which point the cap is scheduled to go back to $10k for everyone.
The exemption from the Estate Tax (Death Tax) has been made permanent and expanded further. In 2001, only the first $675,000 of an estate was exempt from the federal tax, and the top rate was 55%. This law makes the first $15 million exempt (per individual, $30 million per couple). The exemption will also increase based on inflation. This change allows more small and medium-sized business owners to pass on the full value of their business without fear of massive tax burdens.
The bill also makes permanent the Section 199A pass-through deduction at a rate of 20% for qualified business income. This blanket 20% deduction was created in 2017 as a matter of fairness for pass-though entities (s-corps and LLCs, which most small businesses are), because that law cut the corporate tax rate paid by c-corps. While the corporate cut was permanent from the start, this deduction was set to expire. When the House passed its bill, it increased this deduction to 23%, however that expansion did not survive the Senate, so the final law remains 20%.
The OBBB also restores and makes permanent the ability of businesses to deduct 100% of the cost of certain investments made for the business in the year the cost was incurred, rather than spreading it out over several years, including 100% for investments made since January 20th of this year.
The law also creates new deductions that can be taken even if a person is taking the standard deduction. One is a $6,000 deduction for those aged 65 and older, though the rate phases down after $75,000/$150,000 in income for individual/joint filers. The other is a $1,000/$2,000 deduction for charitable donations.
Some of your employees may now benefit from a new deduction relating to overtime pay. Up to $12,500 of the premium portion of overtime compensation will be deductible through 2028, phasing out when income exceeds $150,000/$300,000 for individual/joint filers.
Other notable provisions in the bill allow for a $25,000 deduction for tipped workers, only if they work in “traditionally and customarily tipped” industries as determined by the IRS. The interest on an auto loan on new vehicles will be deductible if the car’s final assembly was in the US. The child tax credit is expanded to $2,200 per child. Children born this year or through 2028 will receive a $1,000 “Trump account” deposit.
On EV policy, the law eliminates the federal tax credit of up to $7,500 per EV effective on September 30th this year. Though the House version of the bill created a federal registration fee for EVs, that provision was removed in the Senate.
The main attempt to cut spending in this bill is a series of new work requirements for access to Medicaid and food stamps (SNAP). However they don’t come close to offsetting the reductions in revenue from the tax cuts, and the annual deficit is expected to increase from the already massive $1.8 trillion last year to over $3 trillion in 2035. Total US national debt is currently $37 trillion. Last year the federal government spent more than $878 billion in interest payments on the current debt, more than it spent on defense and 13% of all spending.
You can view a highly detailed list of all the changes in the law and their cost/savings HERE.
Our representatives in DC voted along party lines with both Senators and all 9 Democratic members of the House voting No, and all 3 Republican members of the House voting in favor.
.jpg)
