The Big Beautiful Bill Act (BBB): What Taxpayers Should Know
Welcome to our latest tax blog post, where we delve into the “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025. This legislation introduces significant changes to the U.S. tax code, particularly affecting individual taxpayers and businesses. Building upon the 2017 Tax Cuts and Jobs Act (TCJA), the OBBBA makes several tax provisions permanent and introduces new tax benefits. Now let’s explore the key tax provisions and their implications.
Key Tax Provisions for Individual Taxpayers:
Permanent Extension of 2017 Tax Cuts: The OBBBA solidifies the individual tax rates established under the TCJA, which were previously set to expire at the end of 2025. This includes maintaining lower marginal tax rates and increasing standard deduction amounts, providing long-term tax planning certainty for individuals.
Increased Standard Deduction: For tax years beginning after 2024, the standard deduction amounts are increased to:
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- $15,750 for single filers
- $23,625 for heads of household
- $31,500 for married individuals filing jointly.
These amounts will be adjusted for inflation in subsequent years, simplifying tax filing for many and potentially reducing taxable income.
Social Security Taxation: While the OBBBA does not eliminate federal income taxes on Social Security benefits, it introduces a new tax deduction specifically for seniors
A deduction amount of $6,000 for individuals aged 65 and older; $12,000 for married couples filing jointly. Available to individuals with a modified adjusted gross income (MAGI) up to $75,000, and married couples with MAGI up to $150,000, the deduction phases out for individuals with MAGI between $75,000 and $175,000, and for married couples between $150,000 and $250,000 and applies to tax years 2025 through 2028.
This deduction is designed to reduce or eliminate the tax liability on Social Security benefits for approximately 88% of recipients, particularly benefiting middle-income seniors.
Many low-income seniors already do not pay federal income taxes on their Social Security benefits. Therefore, the new deduction is likely to have a minimal impact on this group. Seniors with incomes above the phase-out thresholds will not benefit from the new deduction and will continue to pay taxes on their Social Security benefits as they do now.
The senior tax deduction is set to expire after the 2028 tax year. Unless Congress enacts further legislation to extend or make this provision permanent, the tax treatment of Social Security benefits will revert to the previous law starting in 2029.
Tax planning considerations: First, senior taxpayers should assess their income levels to determine eligibility for the new deduction and plan accordingly to maximize tax benefits during the effective years. Secondly, given the temporary nature of the deduction, staying informed about potential legislative extensions or modifications is crucial for long-term financial planning. Finally, engaging with tax advisors can help seniors navigate the complexities of the new provisions and optimize their tax situations.
Enhanced Child Tax Credit: Beginning in tax year 2025, the child tax credit increases to $2,200 (non-refundable) per qualifying child, with the refundable portion set at $1,700. (This is reduced from the House-passed credit of $2500.) These amounts will be adjusted for inflation, beginning in 2026. The income phaseout thresholds are set at $200,000 for single filers and $400,000 for joint filers.
Temporary Increase in SALT Deduction Cap: The state and local tax (SALT) deduction cap is temporarily increased to $40,000 for taxpayers with modified adjusted gross income (MAGI) under $500,000, effective through 2029. The cap will revert to $10,000 starting in 2030.
Deductions for Tips and Overtime Pay: A temporary deduction introduced for qualified tips and overtime compensation received by individuals earning less than $150,000 annually:
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- Tips: up to $25,000 (unchanged)
- Overtime: up to $12,500 (single) / $25,000 (MFJ)
This provision is set to expire in 2028 and aims to provide tax relief to workers in industries where tips and overtime are significant components of their income.
Auto Loan Interest Deduction: Buyers of U.S.-assembled vehicles can deduct up to $10,000 per year in auto loan interest for purchases made between 2025 and 2028. The deduction phases out for individuals earning over $100,000 or couples earning over $200,000, encouraging domestic vehicle purchases.
Introduction of “Trump Accounts” for Children: The OBBBA establishes “Trump Accounts,” allowing parents to create tax-deferred accounts for their children. Each account receives a one-time $1,000 credit per child, with annual contribution limits set at $5,000 per child. These accounts are designed to promote long-term savings for children’s future expenses.
Above-the-Line Charitable Deductions: Beginning in 2026, non-itemizing taxpayers can claim an above-the-line deduction for charitable contributions. The deduction amounts are:
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- Up to $1,000 for single filers
- Up to $2,000 for married couples filing jointly
This provision aims to encourage charitable giving among taxpayers who do not itemize their deductions.
The OBBBA also introduces a temporary, nonrefundable tax credit for donations to organizations that primarily grant scholarships to private or religious elementary and secondary schools. The credit is for 100% of the gift, up to the lesser of $5,000 or 10% of the taxpayer’s adjusted gross income (AGI). This provision is effective until 2029.
The above-the-line deduction provides a direct tax benefit to non-itemizers, potentially encouraging more taxpayers to make charitable contributions. This tax credit for scholarship contributions is designed to bolster funding for private and religious schools, aligning with certain educational policy objectives. While these provisions offer new opportunities for tax savings, they also add complexity to tax planning. Taxpayers should carefully document their contributions and consult with tax professionals to maximize benefits and ensure compliance.
Charitable deductions of Itemizers must meet a floor of 0.5% of AGI to qualify.
Residential Solar Tax Credit Changes:
Accelerated Phase-Out of the 30% Residential Clean Energy Credit: The OBBBA accelerates the expiration of the 30% Residential Clean Energy Credit for solar installations. Previously extended through 2034 under the IRA, this credit will now expire on December 31, 2025. Homeowners must install and place their solar systems in service by this date to qualify.
Elimination of Tax Credits for Leased Solar Systems: The legislation removes eligibility for tax credits on leased residential solar systems, beginning in 2028. This change affects homeowners who opt for leasing arrangements, a common financing method that previously allowed access to tax benefits without upfront costs. Leased and PPA solar systems remain eligible for the credit if installed and in service by December 31, 2027.
Impact on Battery Storage Incentives: Tax credits for residential battery storage systems, which were previously eligible under the IRA, are also set to expire at the end of 2025. This affects homeowners looking to enhance energy resilience through storage solutions. Commercial/grid-scale battery storage remains eligible if in service by December 31, 2027.
Commercial Solar and Clean Energy Incentives:
Revised Timelines for Investment and Production Tax Credits: Commercial solar projects must now begin construction within 60 days of the bill’s enactment and be placed in service by December 31, 2028, to qualify for the Investment Tax Credit (ITC) and Production Tax Credit (PTC). This accelerates the timeline compared to previous provisions.
Restrictions on Foreign Entities of Concern (FEOCs): The OBBBA introduces limitations on projects involving materials or components sourced from entities identified as FEOCs, particularly those from China. Projects utilizing such components may be disqualified from receiving tax credits, which could impact supply chains and project planning.
Changes to Transferability of Tax Credits: The bill restricts, but does not repeal, the ability to transfer certain clean energy tax credits. The timelines are now shorter and there are FEOC-related exclusions.
Implications and Considerations:
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- For Homeowners:
- To benefit from existing tax credits, homeowners should aim to complete solar installations by the end of 2025.
- Those considering leasing options should be aware that the associated tax benefits are being eliminated after 2027.
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- For Businesses:
- Commercial entities planning solar projects need to adhere to the new construction and service timelines to qualify for tax incentives.
- Supply chain assessments are crucial to ensure compliance with FEOC-related restrictions.
Key Tax Provisions for Business Taxpayers:
Qualified Business Income (QBI) Deduction Made Permanent: The BBB tax bill makes permanent the 20% §199A deduction for eligible pass-through businesses such as sole proprietorships, partnerships, S corporations, and some trusts and estates. It also expands the SSTB phase-out band to $75,000 (single)/ $150,000 (joint), indexed.
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- Example: If you operate an LLC generating $200,000 in qualified business income, your deduction of $40,000 is now available permanently.
Bonus Depreciation Reinstated to 100%: The BBB bill reinstates 100% bonus depreciation for qualified property acquired and placed in service between January 20, 2025, and January 1, 2030. This allows businesses to immediately expense the entire cost of new (and eligible used) equipment, technology, and machinery in the year they’re placed in service.
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- Example: If your business purchases $500,000 in machinery in 2025, you can write off the full amount that year, rather than depreciating it over 5 to 7 years.
Immediate Expensing of Research & Experimental (R&E) Costs: The BBB bill repeals the requirement to amortize R&E expenses over 5 years—a rule that began in 2022 under prior law—and allows immediate expensing of such costs for a temporary period.
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- Benefits for Innovative Businesses: Boosts cash flow for businesses heavily engaged in R&D, encourages innovation by reducing the after-tax cost of experimentation and development, and is a critical win for startups, software firms, biotech companies, and engineering-driven industries.
Paid Family and Medical Leave Credit Made Permanent: The Section 45S tax credit, originally temporary, is now permanent under the BBB bill. This provision allows employers to receive a credit of up to 25% of wages paid during periods of qualified family and medical leave.
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- Why This Matters: Encourages businesses to offer or continue offering paid leave programs, helps employers compete in tight labor markets with family-friendly policies, and reduces the effective cost of paid leave benefits.
Expanded Employer-Provided Child Care Credit: The BBB bill significantly expands the tax credit for employer-sponsored childcare.
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- Credit rate increased from 25% to 40%.
- Maximum credit raised from $150,000 to $500,000 for general businesses, and up to $600,000 for eligible small businesses.
- Indexed for inflation in future years.
- Benefits: Supports working parents, especially in dual-income households, positions companies as family-focused employers, and offers significant relief in industries hit hardest by the childcare shortage.
Final Thoughts: Strategy and Compliance: The BBB Tax Bill presents business taxpayers with significant opportunities, but these opportunities also come with corresponding responsibilities.
Key Action Steps:
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- Tax Planning: Review your depreciation strategies and capital expenditure plans to align with the return of 100% bonus depreciation.
- Entity Review: Reassess whether your business structure is optimized to benefit from the enhanced QBI deduction.
- R&D Audit: Document all eligible research expenses carefully to ensure full expensing and IRS compliance.
- HR Policies: Update leave and childcare policies to ensure they qualify for new and enhanced credits.
- Long-Term Investment: Evaluate manufacturing and infrastructure projects to benefit from the new 35% credit.
As always, consult your tax advisor to help tailor a proactive strategy that aligns your business goals with the latest federal tax benefits.
Bottom Line: The BBB Tax Bill is a powerful package of incentives for American businesses. Whether you’re a startup innovator, an established manufacturer, or a small service-based S corporation, the time to plan is now.