On July 4th, President Trump signed into law H.R. 1 — the One Big Beautiful Bill Act (“BBB”), a sweeping piece of tax legislation that significantly reshapes key areas of the Internal Revenue Code. This legislation extends, modifies, and makes permanent several provisions originally introduced under the Tax Cuts and Jobs Act (TCJA), while also introducing new provisions. The following outlines some of the most impactful changes for businesses and high-net-worth individuals, along with potential strategies for navigating these shifts.
Provisions Made Permanent or Extended
- Tax Rates
The BBB makes the current income tax rates permanent, providing long-term certainty for tax planning, particularly for businesses and individuals with complex financial situations. - Increased Standard Deduction
The increases to the Standard Deduction from the TCJA are made permanent, with adjustments for inflation starting in 2025. The new limits are:- $15,750 for single filers
- $23,625 for heads of household
- $31,500 for married individuals filing jointly
- Personal Exemptions
The personal exemptions are permanently eliminated, but a $6,000 deduction remains available for taxpayers over 65. This deduction phases out at $75,000 for single taxpayers and $150,000 for married taxpayers, with the senior exemption expiring after 2028. - Qualified Business Income (QBI) Deduction
The Section 199A Qualified Business Income deduction remains permanent at 20% for qualified income. This is a major benefit for business owners seeking continued tax relief. - Estate Tax Exemption
The Estate Tax Exemption, or Lifetime Exclusion, is permanently increased to $15 million for gifts made after December 31, 2025, with future inflation adjustments. This allows high-net-worth individuals to transfer more wealth tax-free during their lifetime. - Mortgage Interest Deduction
The limitation on mortgage interest deductions for home acquisition indebtedness is permanently extended at $750,000 ($375,000 for married individuals filing separately), with no deductions for home equity indebtedness. - Bonus Depreciation
The BBB extends the Bonus Depreciation provision indefinitely, allowing businesses to deduct 100% of the cost of eligible property acquired after January 19, 2025, fostering immediate tax relief for capital expenditures.
Modified Provisions
- State and Local Tax (SALT) Deduction Cap
The SALT deduction cap is temporarily increased from $10,000 to $40,000 through December 31, 2029, with annual inflation adjustments. This change significantly benefits high-net-worth individuals in high-tax states. - Research and Experimental Expenditures
Small businesses with average gross receipts of $31 million or less can now immediately deduct domestic R&D expenses. This measure can provide a boost to innovation-focused firms, especially those in the technology and manufacturing sectors. - Business Interest Limitation
The BBB modifies the calculation for business interest expense deductions, making it easier for businesses to deduct interest by removing depreciation, amortization, and depletion from the calculation of Adjusted Taxable Income. - Section 179 Expense
The BBB increases the limit for Section 179 expensing to $2.5 million, with a phase-out beginning at $4.0 million. This change makes it easier for businesses to expense large purchases, helping to reduce taxable income and improve cash flow.
New Tax Provisions
- No Tax on Tips
A new deduction allows individuals working in tip-based industries to deduct up to $25,000 in cash tips, phased out at higher income levels. This provision benefits service workers, including those in hospitality and entertainment. - No Tax on Overtime
Employees receiving overtime pay can now deduct up to $12,500 ($25,000 for joint filers), allowing higher earnings without increasing taxable income. This applies to overtime paid above the regular rate as defined by the Fair Labor Standards Act. - Bonus Depreciation on Qualified Production Property
The BBB introduces 100% depreciation for Qualified Production Property. This includes nonresidential real property used in qualified production activities, encouraging businesses to invest in production infrastructure in the U.S.
Conclusion
The One Big Beautiful Bill brings about a wide array of tax reforms, with permanent, modified, and newly introduced provisions that could significantly affect your tax strategy. Whether you’re a business owner looking to optimize deductions or an individual managing estate tax planning, staying ahead of these changes is crucial. At Reckenen Inc., we’re here to help you navigate these updates and implement tax strategies that support your financial goals.
If you have questions or would like to discuss how these changes may impact your specific situation, don’t hesitate to contact us at Reckenen Inc. Our team of experts is here to provide personalized guidance to ensure your tax planning remains as effective as possible.
