The Trump administration and Republican-controlled Congress managed to push the so-called "One Big Beautiful Bill" past the finish line, and did so by the administration’s self-imposed July 4 deadline.
The tax and spending legislation contains major changes — both for small business and individual clients. Now that the bill has become law, it’s critical for advisors to understand the extended, enhanced and entirely new provisions that will affect clients today and in the coming years.
They also should watch for forthcoming Internal Revenue Service provisions interpreting the terms of the law itself.
Key Changes for Small-Business Clients
The 2017 tax overhaul created a 20% deduction for qualified business income for pass-through entities that was set to expire after 2025, along with many of the legislation’s provisions. The 2025 bill made the 20% 199A deduction permanent. That deduction continues to be subject to limitations, which generally do not apply to taxpayers whose earnings do not exceed an inflation-adjusted income threshold.
Once income exceeds the relevant threshold, taxpayers are subject to a phase-out of the QBI deduction in proportion of excess earnings above the threshold up to $50,000 ($100,000 for joint filers). Beginning in 2026, the phase-out range above the income threshold was increased for individuals so that they will now equal $75,000 (single filers) or $150,000 (joint returns).
Also beginning in 2026, a minimum QBI deduction for active qualified business income was established for an applicable taxpayer earning at least $1,000 in aggregate qualified business income from active qualified trades or businesses. Qualified trades or businesses are those in which the taxpayer materially participates in the business activity. The minimum deduction is $400 regardless of the otherwise required phase-out.
The revised legislation restores the 2017 formula for calculating adjusted taxable income. In removing depreciation, amortization and depletion deductions from the calculation, the 2025 bill essentially increases the amount of interest expense that businesses will be entitled to deduct.
Bonus depreciation in year one is again increased to 100% — with the provision made permanent for qualified property that is acquired and placed into service on or after Jan. 19, 2025. Another elective 100% depreciation deduction is allowed for certain “qualified production property.” This additional deduction is allowed only through 2030.
The law also increased the IRC Section 179 deduction cap from $1 million to $2.5 million for property placed in service after Dec. 31, 2024. Phase-outs under Section 179 will now begin at $4 million.
SALT Cap Compromise
The cap on the deduction for state and local taxes was a substantial sticking point during congressional negotiations. The House and Senate reached a compromise to temporarily raise the current $10,000 SALT cap to $40,000.
The cap will be adjusted annually by 1% through 2029. In 2030, the SALT cap is set to revert to $10,000.
The cap is phased out for taxpayers with modified adjusted gross income that exceeds $500,000 (with a minimum $10,000 floor regardless of income). The cap will be reduced by 30% of any excess of the taxpayer's MAGI over the threshold amount, adjusted for inflation.
Additional Individual Tax Changes
The updated legislation made the 2017 individual income tax rate brackets permanent, so the top tax rate will remain at 37%. The increased standard deduction was also made permanent and further increased the amounts to $15,750 (single returns), $23,625 (heads of households) and $31,500 (joint returns).
The law generally eliminated the personal exemption on a permanent basis, while creating a temporary exemption for older Americans. A $6,000 deduction for qualified individuals older than 65 will be available for the 2025-2028 tax years. The otherwise available senior deduction will be reduced by 6% to the extent the taxpayer’s MAGI exceeds $75,000 ($150,000 for joint returns).
The law also created a charitable deduction for taxpayers who do not itemize of up to $1,000 ($2,000 for joint returns). Taxpayers who itemize will be entitled to deduct contributions only to the extent they exceed 0.5% of the taxpayer’s AGI, with that disallowed portion able to be carried forward if the taxpayer has other charitable contribution carry-forwards for the tax year. The 2017 overhaul’s 60% AGI limit for cash charitable contributions was also made permanent.
The 2025 legislation also permanently increased the transfer tax exemption, by raising the unified credit for gift and estate taxes to $15 million, indexed for inflation going forward. This prevented a reversion of the 2017 overhaul’s $10 million base amount to the pre-2018 $5 million base amount — meaning that taxpayers will be permitted to pass even higher amounts to heirs without becoming subject to estate taxation.
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