Navigating the New Tax Landscape: Key Changes for Individuals and Small Businesses in the One Big Beautiful Bill Act

Learning lots of new tax law was not top of my summer plans. Luckily, in my career as a financial advisor, I now only work with individuals and small businesses and no longer have the complications I had as a young CPA out of college working with large corporate clients and having to understand all the large business and international implications of a new law. To that point, this blog post focuses on small business and individual tax law changes.

‍

When I grew up, time was broken out into B.C. (Before Christ) and A.D. (After Death). In my adolescence, it became B.C.E. and C.E. (Before Common Era and Common Era). Now for another curveball, we can call it BOBBB “Before One Big Beautiful Bill” and AOBBB “After One Big Beautiful Bill.”

‍

Joking aside, I want to give credit to Andrew Lautz and the images I place at the end of this blog post giving a before and after with the tax law changes and the projected budget impact. The images are interesting to me, at least.

‍

Getting right to the tax law changes…

Key Changes for Individuals

• Personal Income Tax Rates
  • What’s New: The tax rates and brackets enacted by the TCJA are now permanent.
  • Commentary: Most notably, without this law, the 12% bracket was going to revert to the old 15% bracket, the 22% bracket was going to revert to the old 25% bracket, and the 24% bracket was going to revert to the old 28% bracket. The top rate will stay at 37% instead of reverting to 39.6%.
  • 2026 Tax Brackets if the TCJA Expires
• State and Local Tax (“SALT”) Deduction Cap Increase (Temporary)
  • What’s New: The SALT deduction cap, previously set at $10,000 ($5,000 for married individuals filing separately), is increased to $40,000 ($20,000 for married separate filers) for tax years beginning after December 31, 2024. This cap is indexed for inflation through 2029, after which it reverts to $10,000.
  • Commentary: For high-tax state residents, this temporary increase provides significant relief, allowing larger deductions for state and local taxes paid via state income and real estate taxes. However, a phase-down applies for taxpayers with modified adjusted gross income (“AGI”) over $500,000, reducing the $40,000 cap by 30% of the excess AGI, but not below $10,000.
• Standard Deduction Made Permanent and Increased
  • What’s New: The TCJA’s standard deductions are made permanent and increased starting in 2026 to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly, with inflation adjustments thereafter.
  • Commentary: This increase benefits taxpayers who do not itemize, providing a higher baseline deduction and simplifying tax filing.
• Charitable Contribution Deductions Enhanced
  • What’s New: Starting in 2025, non-itemizers can claim a charitable deduction of up to $1,000.
  • Commentary: These changes encourage charitable giving, particularly for non-itemizers who previously had no such deduction.
• Tips and Overtime Pay Deductions (Temporary)
  • What’s New: Introduces above-the-line deductions for 2025–2028 tax years, up to certain dollar amounts, for tips ($25,000 per individual) and overtime compensation ($12,500 per individual or $25,000 for joint filers), phased out at certain adjusted gross income levels.
  • Commentary: Workers in tip-heavy industries (e.g., restaurants, hospitality) and those earning overtime compensation gain temporary tax relief, reducing taxable income.
• Trump Savings Accounts for Children
  • What’s New: Creates a new type of tax-favored account designed to benefit children under age 18 for education, small business investments and first home purchases. The annual contribution limitation to the accounts would be $5,000. This provision also includes a one-time government-funded $1,000 deposit for qualifying children born between Dec. 31, 2024, and Jan. 1, 2029, and enables employers to make tax-free contributions to such accounts annually.
  • Commentary: These accounts, designed for education, small business investments, or first home purchases, offer a new savings vehicle for families. The government’s one-time contribution is a unique incentive for qualifying children.
• Personal Exemptions and AMT Adjustments
  • What’s New: Personal exemptions are permanently eliminated, except for a temporary $6,000 senior deduction for individuals over 65, with phaseouts for AGI exceeding $75,000 ($150,000 for joint filers). The Alternative Minimum Tax (“AMT”) exemption and phaseout thresholds are made permanent, but phaseout thresholds revert to 2018 levels ($500,000 for single filers, $1,000,000 for joint filers), indexed for inflation.
  • Commentary: The loss of personal exemptions simplifies tax filings but may increase taxable income for some. The AMT changes maintain relief for most taxpayers, but could affect higher earners as thresholds revert.
• Other Notable Changes
  • The Child Tax Credit increased to $2,200 per child (up $200) and will be adjusted annually for inflation.  This is a permanent change.
  • Miscellaneous Itemized Deductions are disallowed permanently.  This means employee unreimbursed expenses will stay nondeductible.
  • “No Tax on Social Security” is effective 2025 through 2028.  This isn’t really no tax on Social Security, but instead a deduction of an additional $6,000 per individual that is age 65 or older by the end of the tax year.
  • Car loan interest deduction is in effect 2025-2028.  The additional deduction is up to $10,000 of interest and you do not need to itemize.  This deduction phases out between $200,000-250,000 of income for a married couple.
  • The estate tax lifetime exemptions in the higher amounts of TCJA are made permanent.  This is currently $13.99 million per taxpayer and is adjusted by inflation.

‍

Key Changes for Small Businesses

• 199A Pass-Through Deduction Made Permanent
  • What’s New: Makes permanent the section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitations and phase outs.
  • Commentary: Permanence of the 20% deduction provides long-term certainty for pass-through entities (e.g., S corporations, partnerships, sole proprietorships) that were about to see their taxes go up significantly.
• 100% Bonus Depreciation Made Permanent
  • What’s New: The OBBBA makes 100% bonus depreciation under Section 168(k) permanent for property acquired and placed in service after January 19, 2025.
  • Commentary: Permanent bonus depreciation allows small businesses to immediately deduct the full cost of qualifying assets, improving cash flow for investments in equipment or property.
• Qualified Small Business Stock (“QSBS”) Enhancements
  • What’s New: The QSBS gain exclusion under Section 1202 is expanded with a tiered system: 50% exclusion for stock held over three years, 75% for four years, and 100% for five years or more. The per-issuer cap increases from $10 million to $15 million, and the corporate gross assets ceiling rises from $50 million to $75 million, both indexed for inflation starting in 2027.
  • Commentary: These changes make QSBS and C-Corp structures more attractive and more accessible, especially for small businesses seeking investors, by reducing the holding period for partial exclusions and increasing eligibility thresholds
• Qualified Production Property Bonus Depreciation (“QPP”)
  • What’s New: Effectively there is a 100% bonus depreciation allowance for the construction of manufacturing facilities expanding bonus depreciation to the actual structure.
  • Commentary: Construction must have begun after January 19, 2025 and done by January 1, 2031.  The QPP provision incentivizes U.S. manufacturing

‍

Thank you for reading. Please review our disclosures.

‍