Breaking Down the One Big Beautiful Bill Act: What You Need to Know
The Tax Cuts and Jobs Act of 2017 (TCJA) included lower federal income tax brackets, bigger standard deductions, and higher gift and estate tax exemptions, among other provisions. The law stipulated that some of those tax breaks would sunset at the end of 2025. If that were allowed to happen, the Tax Foundation estimated that more than 60% of tax filers would face increased taxes.1
Uncertainty around future taxes has been discussed for the past few years, impacting financial strategy considerations among individuals, families, and small business owners. However, legislation signed into law in July 2025 made many of the TCJA provisions permanent, lifting some of the uncertainty and adding a degree of clarity to future tax policy.
In addition to making many of the 2017 tax cuts permanent, the 887-page legislation included many other tax provisions, such as a senior “bonus,” larger state and local tax deductions, higher estate and gift tax exemptions, as well as breaks for tip income, overtime pay, and auto loans. It also created a new tax-advantaged savings account for children.2
Now that we have all had some time to digest the legislation signed on July 4, we would like to provide you with an overview of the tax changes included in the new law. Keep in mind that this article is for informational purposes only and is not a replacement for real-life advice. Consult your tax, legal, and accounting professionals before modifying your tax strategy.
Changes for Individuals
●
Tax Rates and Brackets2
The newly passed legislation generally makes the
tax rates from the TCJA permanent. The bill adds a year of inflation adjustment
for determining the dollar amounts at which any rate bracket higher than 12%
ends and at which any rate bracket higher than 22% begins.
●
Estate & Gift Tax Exemption3
The legislation permanently increases the estate
tax exemption and lifetime gift tax exemption to $15 million for single filers
($30 million for married filing jointly) in 2026. The exemption amount will
then be indexed for inflation.
●
Standard Deduction3
The law permanently increases the TCJA’s
standard deduction amounts. Starting in 2025, the standard deduction increases
to $15,750 for single filers, $23,625 for heads of household, and $31,500 for
married individuals filing jointly. The standard deduction will be adjusted for
inflation in the future, and the changes have been made retroactive to include
2025.
●
Bonus Deduction for Older Adults4
The new law includes a temporary $6,000 “bonus”
for Americans ages 65 and over. The full deduction is available to individuals
with up to $75,000 in modified adjusted gross income ($150,000 for married
couples filing jointly)—the bonus phases out for taxpayers who are above those
thresholds. A temporary senior deduction is in place for tax years 2025–2028.
Some speculated that this provision is in place of eliminating taxes on Social
Security, since changes to Social Security are generally not permitted in reconciliation
legislation.
●
State and Local Tax Deduction (SALT)4
The state and local tax deduction (SALT) applies
to those who itemize their taxes and provides a federal deduction for state and
local income and property taxes. Before 2018, there were no limits on the SALT
deduction, but the TCJA introduced a $10,000 SALT deduction cap. This measure
was unpopular in higher-taxed states and became an issue during negotiations on
the current law. The agreed-upon legislation temporarily lifts the SALT cap to
$40,000 starting in 2025 and phases out for taxpayers with more than $500,000
in income. The cap and income figures will increase by 1% yearly through 2029.
If not extended, the SALT limit will revert to $10,000 in 2030.
●
Alternative Minimum Tax Exemption3
The law permanently extends the TCJA’s increased
individual alternative minimum tax (AMT) exemption amounts and reverts the
exemption phaseout thresholds to their 2018 levels of $500,000 ($1 million for
married couples filing jointly). These amounts will be indexed for inflation.
However, the law increases the phaseout of the exemption amount from 25% to 50%
of the amount by which the taxpayer’s AMT income exceeds the threshold amount.
●
Child Tax Credit4
The child tax credit is intended to benefit
families with qualifying children under age 17 with a valid Social Security
number. The TCJA temporarily doubled the maximum child tax credit to $2,000
from $1,000. As with several other provisions of the 2017 law, the increase
would have sunsetted after 2025. The new legislation permanently raises the top
credit limit to $2,200 starting in 2025 and indexes it for inflation starting
next year. The higher refundable portion of the child tax credit was also made
permanent and would adjust for inflation. This part is known as the additional
child tax credit.
●
Tax Break on Tips4
For service workers, there is a temporary
federal income tax deduction of up to $25,000 per year on qualified tip income.
The tip deduction has an income limit of $150,000, or $300,000 for joint
filers, and is in effect for tax years 2025–2028.
●
Tax Break on Overtime4
The legislation also provides a temporary tax
break for overtime pay. It allows for a maximum $12,500 above-the-line
deduction for overtime pay ($25,000 for married couples filing jointly) from
2025 to 2028. The tax break begins to phase out once earnings exceed $150,000
($300,000 for joint filers).
●
Auto Loan Interest Deduction4
The new law creates a tax deduction for car loan
interest. Qualified households could deduct up to $10,000 of annual interest on
new auto loans from their taxable income. Once again, this deduction would be
temporary, lasting from 2025 to 2028. The deduction’s value would start to
decline for individuals whose annual income exceeds $100,000 ($200,000 for
married couples filing jointly). To qualify, cars must also be assembled in the
United States.
●
529 Modifications5
The law expands allowable tax-free 529
withdrawals for expenses beyond K–12 tuition and applies to private, public,
religious, and homeschool students. 529 withdrawals can now be used to cover
the cost of curriculum materials, tutoring, or classes outside the home,
educational therapies for students with disabilities, and testing fees. For
credentials and licenses, the law also makes a range of non-college programs
eligible for 529 withdrawals.
●
Child Savings Account4
The legislation includes a new savings account
for children with a one-time deposit of $1,000 from the federal government for
U.S. citizens born in 2025–2028. Parents can contribute up to $5,000 a year,
with the account balance being invested in a fund that tracks a U.S. stock
index. Employers can also contribute up to $2,500 to an employee’s account,
which wouldn’t be counted as income to the recipient. Potential earnings would
grow tax-deferred, and qualified withdrawals would be taxed as long-term capital
gains.
●
Charitable Deductions6
Starting in 2026, the law allows for a new
charitable gift deduction for taxpayers who do not itemize up to $1,000 for
single filers or $2,000 for married couples filing jointly. Those who itemize
can only claim a tax deduction if their qualified charitable contributions
exceed 0.5% of their adjusted gross income.
Changes for Qualified Small
Businesses
In addition to individual tax changes, the new
legislation includes several provisions that may affect businesses. These
include:
●
Qualified Business Income (QBI) Deduction7
The law makes the 20% deduction for qualified
business income, which was set to expire at the end of the year, permanent.
This is targeted at pass-through entities, such as sole proprietorships,
partnerships, and S corporations.
●
Increased Expensing Limits7
The legislation raises the maximum amount a
small business can expense for qualifying property from $1 million to $2.5
million. There is also a higher phaseout threshold and inflation adjustments.
This provision is intended to allow small businesses to deduct more capital
investments immediately, which might help cash flow and encourage growth.
●
Estate Tax8
The law increases the estate tax exemption for
small business owners, which could influence decisions about passing businesses
to the next generation.
●
Restored Bonus Depreciation8
The 100% bonus depreciation, which allows
businesses to deduct the full cost of new equipment and facilities immediately,
has been reinstated.
Potential Tax Concerns of New Legislation
While the passage of the new law has averted the
consequences of tax rates and brackets reverting to pre-2017 levels, there are
concerns about some of the details and economic implications of the sweeping
legislation.
As detailed above, many of the new tax policies in the law were not made permanent, with most expiring in 2028. These limits were negotiated to reach an agreement in a closely divided Congress with divergent priorities. If a future Congress does not extend or make these policies permanent, taxpayers will see some or all of these breaks go away. That might put us back into the realm of uncertainty.
Tax Strategies Can Be
Complicated
While there are many other aspects of the legislation,
including elements that are more politically sensitive, we discuss taxes
because a well-thought-out financial strategy often considers taxes.
Tax policy changes can impact your finances, investments, estate, and small businesses, but you do not have to figure it out on your own. As financial professionals, we can coordinate with your tax advisor, estate lawyers, and accounting professionals to help your tax strategy keep pace with evolving policies.
Sources
1. CNBC, June 18, 2024
https://www.cnbc.com/2024/06/18/plan-for-expiring-trump-tax-breaks.html
2. CNBC, July 3, 2025
https://www.cnbc.com/2025/07/03/trump-big-beautiful-bill-tax-changes.html?msockid=37a2e58496ac672b39a4f4af9742667d
3. Journal of Accountancy,
July 7, 2025
https://www.journalofaccountancy.com/news/2025/jun/tax-changes-in-senate-budget-reconciliation-bill/
4. CNBC, July 4, 2025
https://www.cnbc.com/guide/what-trumps-one-big-beautiful-bill-means-for-your-money/#trumps-2017-tax-cut-extensions
5. The Wall Street Journal,
June 13, 2025
https://www.wsj.com/personal-finance/taxes/republican-tax-bill-529-college-savings-a035f7e7?mod=Searchresults_pos1&page=1
6. Fidelity, July 2025
https://www.fidelitycharitable.org/articles/obbb-tax-reform.html
7. Fortune, July 2025
https://www.msn.com/en-us/money/smallbusiness/how-the-big-beautiful-bill-is-rewriting-the-rules-for-small-business-success/ar-AA1IcHJM?ocid=BingNewsVerp
8. USA Today, July 1, 2025
https://www.usatoday.com/story/graphics/2025/07/01/winners-losers-trump-big-tax-bill-senate/84391469007/