On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law, marking a significant milestone in U.S. tax legislation. This bill, which passed the Senate on July 1 and the House on July 3, introduces a wide array of tax changes affecting individuals, businesses, and green energy provisions. Here’s a detailed look at what this new legislation entails.
Legislative Journey and Name Change
The bill’s passage was marked by intense debates and negotiations in Congress. One of the final changes before its passage was the removal of its name due to Senate reconciliation rules, a common practice seen with previous bills like the Inflation Reduction Act of 2022 and the Tax Cuts and Jobs Act of 2017.
Key Individual Tax Provisions
Permanent Extensions and Modifications: The Act makes permanent many provisions from the Tax Cuts and Jobs Act (TCJA) of 2017, which were set to expire at the end of 2025. These include lower tax brackets, higher standard deductions, and the elimination of personal exemptions. Notably, the Act also introduces modifications such as treating mortgage insurance premiums as deductible and allowing unreimbursed educator expenses as itemized deductions.
Standard Deduction: The standard deduction amounts are increased for 2025 and will be adjusted for inflation thereafter. For 2025, the amounts are $31,500 for joint filers, $23,625 for heads of households, and $15,750 for single taxpayers and married taxpayers filing separately.
SALT Deduction: The controversial $10,000 cap on the deduction for state and local taxes (SALT) is increased to $40,000 for 2025, with gradual increases until 2029.
Child Tax Credit: The child tax credit is permanently increased to $2,200, with the refundable portion capped at $1,400.
Estate Taxes: The basic exclusion amount for estate taxes is increased to $15 million for decedents dying in 2026, adjusted for inflation thereafter.
New Individual Provisions
No Tax on Tips and Overtime: The Act introduces deductions for tip and overtime income, with specific caps and phase-out thresholds.
Trump Accounts: These new tax-favored accounts for newborns are seeded with $1,000 and operate under rules similar to individual retirement accounts.
Additional Provisions: The Act includes a tax credit for contributions to scholarship-granting organizations and expands 529 programs to cover elementary, secondary, and home schooling expenses.
Business Provisions
Bonus Depreciation: The Act makes 100% expensing of certain business property permanent for property acquired after January 19, 2025.
Research and Experimental Expenditures: The deduction for domestic research and experimental expenditure costs is reinstated for costs incurred after 2024.
Qualified Business Income Deduction: This deduction is made permanent, with expanded qualifications.
International Provisions
Permanent Extensions: The Act makes permanent many international provisions from the TCJA, including deductions for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).
Rate Adjustments: Changes to FDII and GILTI rates are implemented after 2025, representing a tax increase for 2026 and beyond.
Green Energy Terminations
The Act eliminates many tax credits from the Inflation Reduction Act of 2022, with varying timelines for different energy producers. This elimination is a key method of funding the new taxpayer-friendly provisions.
IRS Procedural Provisions
Termination of Direct File Program: The Act requires the termination of the IRS Direct File program within 30 days after passage, replacing it with a public-private partnership.
Penalties for ERC Promoters: The Act imposes specified penalties for fraudulent promoters of retention credit schemes, though at lower limits than initially proposed.
The One Big Beautiful Bill Act brings substantial changes to the U.S. tax landscape, with significant implications for individuals, businesses, and green energy initiatives. As these provisions come into effect, taxpayers and businesses alike will need to navigate the new rules and opportunities presented by this landmark legislation. For more information, contact us at PAAST.
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