One Big Beautiful Bill Act: A Tax Guide For Individuals and Businesses

If you're a taxpayer or business owner in America, the One Big Beautiful Bill Act (OBBBA) just changed your taxes. Signed into law on July 4, 2025, this law brings major tax changes. Republicans call it "the largest middle-class tax cut in American history." Democrats say it's "fiscally irresponsible favoritism." Regardless of political perspective, the financial reality is clear: OBBBA fundamentally changes tax calculations for 2025 and beyond. 

The law makes permanent the Tax Cuts and Jobs Act rates (10%-37%). These rates were set to expire December 31, 2025. OBBBA stopped what would have been the largest automatic tax increase in U.S. history.

OBBBA does more than just extend old rules. It makes tips and overtime pay tax-free. It raises the SALT deduction cap to $40,000. It creates new savings accounts for children. It provides businesses with significant tax breaks on equipment. For taxpayers and business owners, understanding these changes means the difference between paying thousands more than necessary or keeping that money working for you.

What Is the One Big Beautiful Bill Act?

OBBBA changes American tax policy in three big ways: making things permanent, making things bigger, and creating new things.

Making Things Permanent
OBBBA makes permanent almost all tax rules from the 2017 Tax Cuts and Jobs Act. These were set to expire December 31, 2025. Now they're permanent:

• Seven tax brackets (10%-37%)
• Doubled standard deductions
• 20% deduction for pass-through businesses
• $13.99 million estate tax exemption (goes to $15 million in 2026)

Making Things Bigger
The law expands existing tax breaks:

• The SALT (state and local tax) deduction cap is raised from $10,000 to $40,000 for 2025–2029.
• Child tax credit: From $2,000 to $2,200 (permanent)
• Section 179 business expensing: From $1.22 million to $2.5 million

Creating New Things
OBBBA adds brand-new tax benefits:

• No federal income tax on tips (up to $25,000 through 2028)
• No federal income tax on overtime (up to $25,000 through 2028)
• Auto loan interest deduction for American-made cars (2025-2028)
• Extra $6,000 deduction for seniors age 65+ (through 2028)
• "Trump Accounts" for kids born 2025-2028 (government puts in $1,000)

How It Affects Individual Taxpayers

The One Big Beautiful Bill Act fundamentally reshapes individual tax liability through permanent structural changes and targeted temporary relief. These provisions affect every income level differently, creating planning opportunities across multiple tax years.

Standard Deduction Increases

The 2025 standard deduction amounts represent permanent increases indexed annually for inflation. Single filers receive $15,750, head of household filers get $23,625, and married couples filing jointly claim $31,500. This represents a $1,150 increase for single filers compared to 2024's $14,600 deduction.

The permanence eliminates prior uncertainty about expiring TCJA provisions. These amounts automatically adjust upward each year based on inflation measures, protecting taxpayers from bracket creep without requiring congressional action.

Key implications:

• Fewer taxpayers benefit from itemizing deductions
• Simplified tax preparation for most households
• Predictable annual increases maintain purchasing power
• Planning certainty for long-term financial decisions

Locked-In Tax Brackets

The seven-bracket structure remains permanently at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top 37% bracket applies to taxable income exceeding $751,600 for married filers and $626,350 for single filers in 2025.?

Previously scheduled to expire December 31, 2025, these rates now continue indefinitely with inflation-adjusted thresholds. Middle-income households benefit most, as the expanded 12% and 22% brackets cover significantly more income than pre-TCJA tax law.?

State and Local Tax (SALT) Deduction Expansion

The SALT deduction cap quadruples from $10,000 to $40,000 for 2025, but only for taxpayers earning under specific income thresholds. This temporary relief runs through 2029 with annual 1% increases before reverting to $10,000 in 2030.

Timeline and limits:

• 2025: $40,000 cap (income under $500,000)
• 2026: $40,400 cap (income under $505,000)
• 2027-2029: Increases 1% annually
• 2030: Drops to $10,000 permanently. 

Key Insight:

Income Phase-Out Creates "SALT Torpedo"

The $40,000 limit phases out for modified adjusted gross income (MAGI) between $500,000 and $600,000. Within this range, taxpayers face what specialists call a "SALT torpedo"—an artificially inflated effective federal tax rate of 45.5% as the deduction disappears.

For every $1,000 of income above $500,000, the SALT cap decreases by $300 until reaching the $10,000 floor at $600,000 MAGI. This creates unusual tax planning scenarios where earning additional income between these thresholds costs more in lost deductions than typical bracket progressivity would suggest. 

For example: A married couple earning $520,000 MAGI in a high-tax state illustrates this effect. At $500,000, they claim the full $40,000 SALT deduction. At $520,000, their SALT cap drops to $34,000 (losing $6,000 in deductions). This $6,000 lost deduction costs them $2,220 in additional federal tax (at 37% bracket). Combined with the 37% bracket rate on the additional $20,000 income ($7,400), their total tax increase reaches $9,620—an effective rate of 48.1% on that $20,000 increment.

Enhanced Child Tax Credit

The child tax credit increases from $2,000 to $2,200 per qualifying child, representing a permanent 10% boost. The refundable portion rises to $1,700 in 2025, meaning families with little or no tax liability can receive up to $1,700 per child as a refund.

Qualification requirements:

• Child must be under age 17
• Child must have Social Security number valid for employment
• Phases out at $200,000 AGI (single) or $400,000 AGI (married filing jointly)
• Child must be claimed as dependent

A family with three qualifying children saves an additional $600 annually ($200 × 3 children) compared to prior law. The credit reduces tax liability dollar-for-dollar, making it more valuable than deductions that only reduce taxable income.

Senior Citizen Additional Deduction

Taxpayers age 65 and older qualify for an additional $6,000 deduction on top of the standard deduction for tax years 2025-2028. This temporary provision adds to existing age-based standard deduction increases ($2,000 for single seniors, $1,600 per spouse for married seniors).

Total standard deduction for seniors (2025):

• Single filer age 65+: $15,750 + $2,000 + $6,000 = $23,750 (if qualifying for new deduction)
• Married couple both 65+: $31,500 + $3,200 + $12,000 = $46,700 (if qualifying)

Phase-Out Structure

The $6,000 deduction phases out for MAGI between $75,000-$175,000 (single) and $150,000-$250,000 (married filing jointly). The deduction reduces proportionally within these ranges, disappearing entirely at the upper limits.

A single senior with $100,000 MAGI sits at the midpoint of the phase-out range, receiving approximately $3,000 of the $6,000 deduction. At a 22% tax bracket, this saves $660 in federal taxes.

Key Insight:

An estimated 48 million seniors nationwide qualify for some or all of this deduction. Retirees living on Social Security, pensions, and modest investment income below the phase-out thresholds gain the full benefit. Average tax savings range from $800-$1,400 annually depending on the tax bracket. 

Tax-Free Tips and Overtime Pay

Service industry workers can exclude up to $25,000 in qualified tips as deduction for tax years 2025-2028. Tips remain subject to Social Security and Medicare taxes, but escape federal income tax liability.?

Qualification rules:

• Maximum exclusion: $25,000 in tips annually
• Phases out for incomes exceeding $150,000 (single) or $300,000 (married filing jointly)
• Employer must designate tips on Form W-2
• Requires Social Security number valid for employment
• Not available for married filing separately
• Tips cannot be treated as qualified business income for other deductions?

Eligible occupations:

• Restaurant servers and bartenders
• Hotel and valet service workers
• Hair stylists, nail technicians, and spa workers
• Delivery drivers
• Casino workers
• Any service position receiving tips?

The law specifically adds "beauty services" to businesses eligible for FICA tip credit, expanding coverage to hair care, nail care, and spa treatments.?

No Tax on Overtime Pay

Hourly workers can exclude up to $25,000 in overtime as deduction for tax year 2025-2028. Regular wages and overtime remain subject to Social Security and Medicare taxes.

Qualification rules:

• Maximum exclusion: $25,000 in overtime annually
• Same income phase-outs as tip exclusion ($150,000/$300,000)
• Employer must separately identify overtime on Form W-2
• Highly compensated employees don't qualify
• Time-and-a-half or double-time wages qualify

Eligible workers:

• Manufacturing: Assembly line workers, machine operators, quality control technicians, warehouse staff, maintenance crews
• Healthcare: Registered nurses, licensed practical nurses, medical technicians, radiology staff, emergency room personnel
• Public Safety: Police officers, firefighters, paramedics, EMTs, correctional officers, 911 dispatchers
• Construction: Electricians, plumbers, carpenters, equipment operators, laborers, site supervisors
• Retail and Hospitality: Store associates, cashiers, stockroom workers, hotel housekeeping, food service staff

Key Insight:

Approximately 35 million American workers benefit from these temporary provisions. Workers who receive both tips and overtime can exclude up to $25,000 from each category, though income limits apply to the combined household income.

American-Made Auto Loan Interest Deduction

For the first time since 1986, taxpayers can deduct interest paid on auto loans for tax years 2025-2028. This temporary provision applies only to American-made vehicles used for personal purposes.

Qualification requirements:

• Vehicle must be manufactured in the United States
• Cars, trucks, and SUVs all qualify
• One vehicle deduction per tax return (married couples filing jointly get one vehicle total) 
• Personal use (not business use, which already qualifies for other deductions)
• Maximum deduction amounts apply
• Phases out for higher-income taxpayers.

Note: Although the values are not yet confirmed, phases out for MAGI may come between $100,000-$150,000 (single) and $200,000-$250,000 (married filing jointly). Within the phase-out range, the deduction reduces proportionally, the rate is $200 for every $1000. 

The deduction works for both purchase loans and leases, though lease interest deduction calculations differ. Only the interest portion of payments qualifies—principal repayment doesn't generate deductions.

Try this for your next purchase: Middle-class families purchasing American-made vehicles during 2025-2028 should maintain detailed records of loan interest paid. Those itemizing deductions may find this reduces AGI (above-the-line deduction), creating additional tax savings. 

Trump Accounts for Children

Parents can establish special tax-deferred accounts for children born between 2025 and 2028. The federal government seeds each account with $1,000 (parents may decline this contribution).

Contribution parameters:

• Annual maximum: $5,000 per child (indexed for inflation)
• Contributions allowed until child turns 18
• Contributions made with after-tax dollars (no upfront deduction)
• Investment growth tax-deferred until withdrawal
• Total potential contributions: $90,000 over 18 years (before inflation adjustments)

 A child born in 2025 receives a $1,000 government seed contribution. Parents can make additional contributions that grow tax-deferred. Upon withdrawal after age 18, earnings face taxation at the child's income tax rate. Early withdrawals before age 18 trigger penalties plus ordinary income tax on earnings. 

Estate and Gift Tax Relief

The estate tax exemption rises to $15 million per individual starting in 2026, indexed annually for inflation. Married couples can shield $30 million using portability provisions, allowing the deceased spouse's unused exemption to transfer to the surviving spouse.

Comparison to prior law:

• 2025 exemption: $13.99 million
• 2026+ exemption: $15 million (base amount, increasing with inflation)
• Pre-TCJA exemption: $5.49 million (2017)

This permanent change dramatically reduces the number of estates subject to federal estate tax. Only the wealthiest 0.1% of households now face estate tax liability.

Gift Tax Parity

The lifetime gift tax exemption matches the estate tax exemption at $15 million. This unified credit allows substantial wealth transfers during life without gift tax consequences.

The annual gift tax exclusion remains $19,000 per recipient in 2025. Married couples can jointly gift $38,000 per recipient annually without those gifts counting against the lifetime $15 million exemption. These annual gifts bypass the estate entirely while reducing the taxable estate.

Estate planning implications:

• Increased exemption allows more assets to pass tax-free to he
• Trusts structured under old exemption amounts should be reviewed
• Gifting strategies can accelerate wealth transfer while both spouses are living
• Generation-skipping transfer tax also uses $15 million exemption
• State estate taxes may still apply (varies by state)

How It Affects Business Taxes

Business tax provisions emphasize capital investment, immediate cash flow relief, and permanent structural advantages. These changes fundamentally alter depreciation strategy, entity structure analysis, and international tax planning.

100% Bonus Depreciation Reinstatement

The most significant business provision restores 100% bonus depreciation for qualified property placed in service after January 19, 2025. This reverses the scheduled phase-down that had reduced bonus depreciation to 60% in 2024 and would have dropped to 40% in 2025.
The 100% rate continues through at least 2028 under current law, with strong legislative support for permanent extension. Unlike the prior scheduled phase-down, businesses can plan capital investments with multi-year certainty that immediate full expensing remains available.

Eligible assets for 100% bonus depreciation include:

• Equipment and machinery (manufacturing, construction, agricultural)
• Computers, servers, and software
• Furniture and fixtures
• Vehicles (cars, trucks, vans, heavy equipment)
• Qualified improvement property (QIP)—interior improvements to nonresidential buildings placed in service after the building's initial occupancy, excluding structural framework, elevators, or internal structural framework
• Building components (HVAC, roofing, security systems with proper cost segregation)

Both new and used property qualify if the asset is new to the purchasing business and placed in service during the tax year. Used equipment purchased from unrelated parties receives the same treatment as new purchases.

Key Insight:

Businesses can combine Section 179 expense with bonus depreciation, but must apply Section 179. This strategy works for companies exceeding the Section 179 spending cap.

Section 179 has an income limitation (cannot create a loss), while bonus depreciation can generate or increase net operating losses. This makes bonus depreciation valuable for startup companies or businesses expanding during low-profit years.

Section 179 Limit Increase

The Section 179 expense limit rises from $1.22 million to $2.5 million for qualifying equipment. This doubles the amount small and mid-sized businesses can immediately expense without using bonus depreciation.

Key differences from bonus depreciation:

• Section 179 cannot exceed business taxable income (cannot create a loss)
• Section 179 has spending phase-out (reduces dollar-for-dollar once total purchases exceed threshold)
• Section 179 offers flexibility to select which assets to expense
• Section 179 can apply to some vehicle types not eligible for bonus depreciation

Confirmed for 2025:

• $2,500,000 expense limit?
• $4,000,000 phase-out threshold?
• Complete phase-out at $6.5 million ($2.5M + $4M)

Note: Some sources show pre-OBBBA limits ($1,250,000/$3,130,000), but IRS Rev. Proc. 2025-32 confirms OBBBA raised limits to $2.5M/$4M

Full R&D Expense Deduction

Research and development expenses become immediately deductible when incurred, reversing the 2022 requirement to amortize R&D costs over 5 years (15 years for foreign R&D) . This permanent change restores immediate spending that existed before 2022.

Qualifying R&D activities:

• Product development and prototyping
• Software development and testing
• Process improvement research
• Scientific and technological experimentation
• Clinical trials and testing
• Engineering design and refinement

Both successful and unsuccessful research qualifies. Expenses need not result in a patentable invention or commercially viable product to qualify for immediate deduction.

20% Pass-Through Deduction Permanence

The 20% deduction for qualified business income (QBI) from pass-through entities becomes permanent with enhanced phase-in ranges. This benefits sole proprietorships, partnerships, S corporations, and LLCs taxed as pass-throughs.

Expanded threshold ranges:
The income levels where limitations begin have increased:

• Single filers: $75,000 threshold (raised from previous law)
• Married filing jointly: $150,000 threshold (raised from previous law)

Below these thresholds, the full 20% deduction applies regardless of business type or W-2 wages paid. Above these thresholds, limitations based on W-2 wages and qualified property gradually reduce the deduction.

Business Type Impact Analysis

Service businesses: Specified service trade or businesses (SSTBs)—including health, law, accounting, consulting, financial services, and brokerage—face additional restrictions above threshold income levels. However, the raised thresholds mean more service business owners qualify for the full deduction.

Non-service businesses: Companies in manufacturing, construction, retail, technology, and other non-SSTB industries receive more favorable treatment. The deduction phases are based on W-2 wages paid and unadjusted basis of qualified property.

International Tax Changes

The Base Erosion and Anti-Abuse Tax (BEAT) rate rises to 10.5% starting in 2026. This increases the minimum tax on certain payments to foreign related parties.

BEAT applies to corporations with:

• Average annual gross receipts of $500 million or more
• Base erosion percentage of 3% or higher (2% for banks and securities dealers)

The increased rate from the prior 10% level means multinational corporations paying deductible amounts to foreign affiliates face higher minimum tax liability. This particularly affects companies with:

• Royalty payments to foreign parent companies
• Management fees to foreign affiliates
• Interest payments on related-party debt
• Cost-sharing arrangements for R&D

Reduced FDII and GILTI Deductions

Foreign-Derived Intangible Income (FDII) deduction:
Reduces from 37.5% to 33.34% of FDII in 2026. This increases the effective tax rate on income from selling goods and services to foreign customers from 13.125% to 14% (assuming 21% corporate rate).

FDII incentivizes domestic companies to locate intellectual property and operations in the United States. The reduced deduction lessens but doesn't eliminate this incentive.

Global Intangible Low-Taxed Income (GILTI) deduction:
Decreases from 50% to 40% in 2026. This raises the effective U.S. tax rate on foreign subsidiary income from 10.5% to 12.6% (before foreign tax credits).

GILTI requires U.S. shareholders of controlled foreign corporations to include a portion of the foreign subsidiary's income in U.S. taxable income annually. The reduced deduction increases U.S. tax on foreign operations.

Look-Through Rule Permanence

The look-through rule for payments between related controlled foreign corporations becomes permanent. This provision treats certain payments between foreign subsidiaries as not creating Subpart F income.

The permanent status allows multinational groups to structure foreign operations without concern about related-party payment recharacterization. This facilitates regional operating models where foreign subsidiaries provide services to each other.

Form 1099 Reporting Threshold Increase

The threshold for Form 1099-NEC and Form 1099-MISC reporting rises from $600 to $2,000 for payments made after January 1, 2026. This indexed amount increases with inflation in future years.

Impact on business compliance:
Businesses issuing payments to independent contractors and service providers face dramatically reduced reporting obligations. A company working with 50 contractors previously required to issue Forms 1099 for payments as small as $600 may now only need to report on the 15-20 contractors receiving over $2,000.

Administrative savings:
Each Form 1099 requires:

• Collecting Form W-9 from payee
• Maintaining accurate payment records
• Preparing and mailing forms by January 31
• Filing copies with 
• Potential backup withholding if W-9 not provided

Reducing the number of forms by 60-70% creates meaningful time and cost savings, particularly for small businesses without dedicated accounting staff.

Contractor implications:
Independent contractors receiving payments under $2,000 from individual payers still must report all income. However, without Forms 1099, income tracking and documentation becomes more important to substantiate tax return positions during examinations.

What Individuals Should Do Next

Update Your Withholding

Review your W-4 immediately. The higher standard deduction means you likely need less withheld from each paycheck. File a new W-4 with your employer to avoid giving the IRS an interest-free loan throughout the year.

Maximize Available Deductions

Track qualifying expenses carefully. Document all tips and overtime if you're in service or hourly work. Keep records of auto loan interest for American-made vehicles. If you're 65+ earning under the phase-out limits, ensure you claim the $6,000 senior deduction.

Strategic Tax Planning

Consider opening Trump Accounts for children born between 2025-2028. If you live in a high-tax state, calculate whether itemizing now makes sense with the raised SALT cap. You might benefit from prepaying state taxes in December if it increases your deduction for 2025.

Estate Considerations

Wealthy families should review estate plans with the new $15 million exemption. The higher threshold creates gifting opportunities and may warrant updating trusts and wills. Consult an estate attorney to restructure wealth transfer strategies.

What Business Owners Should Do Next

Accelerate Equipment Purchases

Plan major equipment acquisitions before year-end to capture 100% bonus depreciation. Property placed in service after January 19, 2025, qualifies for immediate full write-off. This applies to machinery, vehicles, computers, and furniture—both new and used.

Evaluate Business Structure

Analyze whether your current entity type optimizes the permanent 20% pass-through deduction. The choice between C-Corp, S-Corp, and LLC significantly impacts your tax liability. Schedule a consultation with your tax advisor to assess potential restructuring benefits.

Document R&D Activities

Implement robust tracking systems for research and development expenses. These costs are now fully deductible when incurred rather than amortized. Properly documenting qualified activities ensures you capture this substantial deduction.

Prepare Payroll Systems

Update payroll processing to properly track and report tips and overtime on W-2 forms. Communicate the new tax-free benefits to employees and establish systems to monitor the $25,000 limits and income-based phase-outs.

International Tax Review

Companies with foreign operations should conduct comprehensive analysis before 2026. The higher BEAT rate and reduced FDII/GILTI deductions require proactive transfer pricing reviews and possible operational restructuring.

How NSKT Global Can Help

NSKT Global delivers expert guidance through every OBBBA provision. Our team calculates your exact SALT deduction benefit, projects multi-year tax scenarios for 2025-2030, and optimizes withholding to match your liability. We identify which temporary provisions (expiring 2028) deliver maximum value and create strategies to prepare for the SALT cap reverting to $10,000 in 2030.

Business Implementation Support

We help businesses capitalize on 100% bonus depreciation through strategic equipment purchase timing and Section 179 optimization. Our advisors review your entity structure to maximize the pass-through deduction, implement R&D expense documentation systems, and handle complex international tax changes, including BEAT, FDII, and GILTI calculations.

Specialized Services

For high-net-worth clients, we coordinate with estate attorneys to leverage the $15 million exemption through trust updates and gifting strategies. Parents receive guidance on establishing Trump Accounts for eligible children. Service industry businesses get payroll system updates, ensuring proper tip and overtime tracking.

Compliance Excellence

Our team ensures accurate filing of 2025 returns, incorporating all new provisions. We claim every available deduction, properly report income exclusions, handle complex phase-out calculations, and e-file on time. Day-to-day support includes staff training, accounting system updates, and meticulous recordkeeping to withstand IRS scrutiny.

Whether you're seeking maximum tax savings or navigating intricate regulatory changes, NSKT Global's expertise ensures you fully benefit from OBBBA while maintaining complete compliance.