One Big Beautiful Bill: What It Means for Your 2025 Taxes (Part 5 of 5)
This is Part 5 of our five-part series on the One Big Beautiful Bill Act (OBBBA). The law changes several federal tax rules for individuals, families, and small businesses.
Your 2025 tax return will be filed in 2026. Some provisions affect the return directly. Others are intended for future tax planning.
The most important step is to organize your records and identify which changes apply to your situation.
The Main Takeaways
The OBBBA:
- Makes several Tax Cuts and Jobs Act provisions permanent.
- Increases the 2025 standard deduction.
- Temporarily increases the federal state and local tax deduction cap.
- Creates deductions for certain qualified tips and overtime pay.
- Increases the Child Tax Credit.
- Creates Trump Accounts for eligible children.
- Makes the 20% Qualified Business Income deduction permanent after 2025.
- Restores 100% bonus depreciation for qualifying property.
- Increases Section 179 expensing limits for qualifying business assets.
The details depend on your filing status, income, work, family circumstances, and business structure.
For official guidance, review the IRS summary of One Big Beautiful Bill Act provisions.
Permanent Tax Rules
The OBBBA extends or makes permanent several provisions that were scheduled to change after 2025.
For individual taxpayers, the familiar federal income tax rate structure remains in place. The seven tax rates are still 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds for each bracket continue to be adjusted for inflation.
The expanded standard deduction also continues. For tax year 2025, the standard deduction is:
- $15,750 for single taxpayers and married taxpayers filing separately
- $23,625 for heads of household
- $31,500 for married couples filing jointly and qualifying surviving spouses
The personal exemption remains unavailable under current law.
These rules may simplify filing for taxpayers who do not itemize deductions. However, itemizing may still be beneficial if you have significant mortgage interest, charitable contributions, deductible medical expenses, or state and local taxes.
Individual Changes for 2025
Higher SALT Deduction Cap
The federal deduction for state and local taxes, commonly called the SALT deduction, is temporarily increased.
For 2025, the general cap is:
- $40,000 for most taxpayers
- $20,000 for married taxpayers filing separately
The higher cap applies from 2025 through 2029. The cap is scheduled to return to $10,000 in 2030.
The enhanced deduction is subject to an income-based phaseout. Taxpayers with higher modified adjusted gross income may receive a reduced benefit. Whether itemizing is worthwhile depends on your total deductions and filing status.
Keep your state income tax records, property tax statements, and other deductible tax documents. These records will help determine whether itemizing provides a benefit.
Deduction for Qualified Tips
The law creates a temporary federal income tax deduction for certain qualified tips received during tax years 2025 through 2028.
The deduction may be available to employees and self-employed individuals who work in occupations that customarily and regularly receive tips. Qualified tips must still be reported as income. The provision creates a deduction; it does not make tip income disappear from your wage or business records.
The deduction is subject to eligibility requirements, income limits, and IRS reporting rules. Keep W-2s, Forms 1099, pay statements, and tip records that support the amount reported.
Deduction for Qualified Overtime
Eligible taxpayers may also claim a deduction for qualified overtime pay received during tax years 2025 through 2028.
The deduction is generally limited to:
- $12,500 for single taxpayers and most other filers
- $25,000 for married couples filing jointly
The deduction phases out at higher income levels. Qualified overtime remains part of your wage income, but the allowable deduction may reduce taxable income.
Review your year-end pay statements carefully. Employers may not show all information needed to calculate the deduction in the same place on your W-2. Additional payroll records may be needed.
Family Changes
Child Tax Credit
Beginning with tax year 2025, the maximum Child Tax Credit increases to $2,200 per qualifying child under age 17.
The credit remains subject to income limitations and other eligibility requirements. The child must generally meet residency, relationship, age, and identification requirements.
Before filing, gather:
- Social Security numbers for qualifying children
- Birth dates
- Childcare and dependent care information
- School, medical, or other records that may support residency
- Prior-year tax returns if your family situation has changed
A new child, change in custody, marriage, divorce, or change in household income may affect your eligibility.
Trump Accounts
The law creates a new type of tax-advantaged account for eligible children under age 18. These accounts are intended for long-term savings and investment.
Eligible children born during 2025 through 2028 may qualify for a one-time $1,000 federal contribution after an account is established. Contributions to the accounts cannot begin before July 4, 2026.
Trump Accounts are not a deduction you claim on your 2025 income tax return. For 2025, the main planning issue is determining whether your child may qualify in the future and keeping the account information organized when the program becomes available.
Small Business Changes
The OBBBA also affects sole proprietors, partnerships, S corporations, and other pass-through businesses.
Qualified Business Income Deduction
The 20% Qualified Business Income deduction, also called the Section 199A deduction, is made permanent for eligible pass-through business owners.
The deduction may apply to qualified income from:
- Sole proprietorships
- Partnerships
- S corporations
- Certain LLCs
The calculation can be limited by taxable income, W-2 wages, qualified property, and the type of business. Some professional service businesses may face additional restrictions at higher income levels.
The permanent change is especially important for long-term planning. However, some changes to thresholds and calculation rules generally apply to tax years beginning after December 31, 2025. Your 2025 return may still require the existing QBI calculation and documentation.
100% Bonus Depreciation
The law restores 100% bonus depreciation for eligible property acquired after January 19, 2025, subject to the applicable requirements.
This may allow a business to deduct the full cost of qualifying property in the year it is placed in service. Eligible property generally includes certain tangible business property with a recovery period of 20 years or less.
Examples may include equipment, computers, furniture, and certain other business assets. The timing matters. Property must be acquired and placed in service according to the rules.
Do not rely on the purchase date alone. Keep invoices, financing documents, delivery records, and the date the asset became ready and available for business use.
Section 179 Expensing
The Section 179 deduction limits are increased for qualifying business property.
For tax years beginning after December 31, 2024, the maximum deduction is generally $2.5 million, with a phaseout beginning when qualifying property placed in service exceeds $4 million.
Section 179 may apply to equipment, off-the-shelf software, certain improvements, and other qualifying property. The deduction is subject to business income and other limitations.
Bonus depreciation and Section 179 do not automatically produce the same result for every business. The best choice may depend on profitability, prior deductions, ownership structure, and future tax expectations.
What This Means for Your 2025 Return
The OBBBA does not create one simple tax result for everyone.
For your 2025 filing, you may need to:
- Use the updated standard deduction or compare it with itemized deductions.
- Review whether the higher SALT cap affects your deduction.
- Report tips and overtime correctly before claiming any available deduction.
- Recalculate the Child Tax Credit using the 2025 amount.
- Report business income and expenses using the correct depreciation and QBI rules.
- Separate 2025 tax return provisions from future planning provisions, such as Trump Accounts.
Your tax documents may not identify every new deduction clearly. A review of your wage statements, business records, and prior-year return can help prevent missed information.
Practical Next Steps
Gather Your Documents
Collect your W-2s, Forms 1099, mortgage interest statement, property tax records, charitable contribution receipts, business income records, expense receipts, mileage logs, and prior-year return.
If you received tips or overtime, also gather detailed payroll records.
Business owners should organize asset purchase documents and records showing when property was placed in service.
Review Withholding
Compare the federal withholding shown on your 2025 W-2s and 1099s with your expected tax liability. If your income, deductions, family situation, or employment has changed, review your current withholding for 2026 as well.
A tax professional can help you determine whether your withholding is reasonable for your circumstances.
Plan Estimated Payments
Self-employed individuals and business owners should review estimated tax payments for both 2025 and 2026. New deductions may change the amount due, but income, self-employment tax, and other obligations still need to be considered.
Do not wait until the filing deadline to identify a possible balance due.
Schedule a Tax Consultation
Statewide Tax Services is accepting individual and business tax and accounting clients for the 2025 tax year. We provide convenient virtual tax preparation, e-filing, accounting support, and consultations based on your situation.
You can schedule an appointment through our calendar or review our individual tax preparation services and business tax preparation services.
E-filing will be paused starting December 26 and is expected to resume in mid to late January. You may still contact us to organize your documents and plan your filing.
Final Review
The One Big Beautiful Bill Act affects tax rates, deductions, credits, family planning, and business write-offs.
The most useful action is to identify which provisions apply to you before preparing the return. Gather complete records, review withholding and estimated payments, and ask for help when the rules overlap.
Statewide Tax Services provides accurate, affordable, and personalized virtual tax and accounting support for individuals and businesses.
Office: 425-413-2244
Cell: 206-579-5579
Email: curtis@statewidetaxservices.com
Schedule: www.statewidetaxservices.com/calendar