Now that President Trump has signed another major tax bill, the rest of America gets to figure out what the bill is actually changing (or not changing). Since the Tax Cuts and Jobs Act (TCJA) of 2017, many temporary provisions were established that were set to expire at the end of 2025. On July 4th, Congress passed the One Big Beautiful Bill Act (OBBBA) that updated many of these provisions, some made permanent and some removed. While this new tax bill could be good for some small business owners, understanding exactly what is changing will be a process for CPAs over the next year or so. For now, here is a high-level overview of the major updates that could apply to you:
1. Federal Income Tax Brackets are Now Permanent.
Perhaps the most wide-reaching update is that the Federal Income Tax Brackets will remain the same as in recent years. Many of the brackets were set to increase, some as much as 4-5%. The top 37% tax bracket was set to increase to 39.6%, which easily could mean the difference between tens of thousands in taxes. Obviously, nearly every American who pays federal income tax would be affected if the bill had never gone through. Fortunately, the 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets will carry on, and let Americans focus on the other changes of the tax bill. While the OBBBA made these brackets permanent, the probability that a future Congress will change the tax rates again is high, so take that into consideration for future tax planning.
2. Standard Deduction is Made Permanent.
Back in 2017, with the TCJA, the standard deduction was doubled in an effort to get more people to file using the standard deduction. This provision was set to expire in 2025 and essentially cut the standard deduction in half back to pre-TCJA levels, but adjusted for inflation. However, the OBBBA has made the increased Standard Deduction permanent as well. For 2025, the standard deduction will be $15,750 for a single filer and $31,500 for married filing jointly. The act also created an additional “extra deduction” for those over 65 for the next few years, until 2028. Taxpayers who make less than $75,000 may be qualified to receive an extra $6,000 senior deduction regardless of whether they itemize or not.
3. Qualified Business Income is Permanent
This provision may have saved the tax bill the most for small business owners. The OBBBA has now made permanent the Qualified Business Income (QBI) deduction. For small companies that are pass-through entities (sole proprietors, partnerships, S-Corporations), there has been a 20% deduction available on the profits of the business. That is a massive deduction that was potentially going away next year. Thanks to OBBBA, the QBI deduction is now permanent, and owners can continue to receive the deduction. This means there will still be tax planning each year around maximizing QBI.
4. Temporary increase to the cap on state and local tax deductions
Sometimes referred to as the SALT deduction, since TCJA, there has been a $10,000 limit for how much you could deduct from your federal taxes for paying state and local taxes. The OBBBA has temporarily increased this limit to $40,000 from 2025 to 2029 and will adjust slightly each year with inflation. Congress did set an income limit for this increase, so only those making less than $500,000 can benefit. All the high earners will remain at the standard $10,000 cap. While the change is welcoming, many small business owners may still want to pay taxes through their business (think PTET, or Pass-Through Entity Taxes).
5. 100% Bonus Depreciation is Back
TCJA created a 100% bonus depreciation for qualified property, which began to phase out over the last few years (another one of the temporary provisions). Before the recent bill, only 40% of Bonus Depreciation was allowed for 2025, dropping by 20% next year until it phased out in 2027. The OBBBA has reinstated the full 100% bonus depreciation for short-lived investments. Combined with cost segregation studies, this could have major implications for real estate investors and owners buying property for the business. This can also affect the tax implications of investment projects you have already started, or plan to in 2025. This provision will certainly be one to confirm with your CPA to see what you can fully deduct successfully.
6. No Tax on Tips or Overtime
For owners with employees who earn either tips or overtime, the OBBBA has made those earnings tax-free, depending on the level of income of the employee. Both incomes are not taxed up to $25,000. Technically, tips and overtime will now be a deduction on the employee’s individual tax return. So, in theory, not much changes from a payroll tax perspective. However, there will likely be some changes to reporting the level of tips or overtime, such as on W-2s each year. There is likely more to come about what jobs receive the deduction and what time is considered overtime.
7. Permanent Estate Tax Exemption
TCJA raised the exemption back in 2017, and now the OBBBA has made the new level permanent. For 2025, $15 million can be excluded from a person’s federal estate, and $30 million for a married couple. There was a healthy fear that this would revert back to somewhere around 6 or 7 million if the bill was not passed, causing many small business owners to edit their estate plan dramatically. While having a solid estate plan is still important, this provides some small clarity and stability in estate planning for the next few years.
Many Moving Pieces
There are many more provisions of OBBBA that have changed the tax code. While I tried to cover some of the big changes to know, there are many more that we will have to wrestle with over the coming months. Especially before the end of the year, it is vital to work with your accountant and advisor to make sure you have a solid tax plan given the recent changes. New changes can lead to new opportunities to save on taxes, depending on the situation. More will come on the OBBBA, but for now, mostly positive news for most small business owners out there.
TC Falkner 