The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, is the most important update for tax law since The Tax Cuts and Jobs Act (TCJA) of 2017. Most OBBB tax provisions take effect for years beginning after December 31, 2025, aligning with the TCJA’s expiration to ensure ease of continuity. However, several aspects begin during 2025 to provide immediate relief or phase out existing benefits. This article aims to inform you of the most relevant changes affecting individuals and small businesses. 

Key Tax Changes

The OBBB extends and modifies TCJA elements, creating questions on eligibility, phase-outs and deduction types. Here is a breakdown of the areas: 

The seven individual brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are made permanent beyond 2025. The rates will not adjust, but marginal brackets will continue to adjust for inflation. This averts a pre-TCJA maximum rate of 39.6% and benefits pass-through business owners by keeping effective rates lower when combined with the Qualified Business Income Deduction. 

Effective for tax years beginning on January 1, 2026, itemized deductions are capped at 90% of gambling winnings (down from 100%). This means at least 10% of gambling winnings will be taxable even if losses offset them fully. The standard deduction for 2025 is 15,750 (an extra 750 is allowed in 2025) and 31,500 for married filing joint (with an extra 1,500 for 2025). This means that similar to prior years, if you have gambling income, you’ll need to deduct them on Schedule A as itemized deductions, which must exceed the thresholds listed above or else you’ll take the standard deduction. Itemized deductions on Schedule A include but are not limited to medical expenses, property taxes, mortgage interest, and gambling losses. If those actual amounts exceed the standard deduction, you can itemize deductions on Schedule A and reduce your taxable income by greater amounts. 

Increased SALT Cap. The $10,000 cap on state and local tax deductions enacted by the TCJA  is increased to 40,000 effective after December 31, 2025, but with a 35 cents per dollar value limit for those in the top marginal bracket. In other words, this itemized deduction’s value is limited to 35% for top bracket filers. This will expand the limit on deducting property taxes for taxpayers in Nevada, but for California and other taxpayers that have state income tax liabilities, it will also unlock limitations on deducting state income taxes paid as well. 

Changes to Tip Income Taxation. A new above-the-line deduction (not as itemized deductions on Schedule A) allows up to $25,000 in qualified tips to be excluded from Adjusted Gross Income for 2025-2028, phasing out above $150,000 AGI single / $300,000 joint. We expect payroll reporting to provide more detailed W2 reporting for this purpose. 

No Tax on Overtime. This provision aims to support hourly workers by deducting up to 12,500 per taxable year for single filers and 25,000 for married filing jointly. The phase out starts at 150,000 AGI for single filers and 300,000 for married filing jointly. This deduction is effective for 2025-2028 as an above-the-line deduction (not as an itemized deduction). 

Increased Social Security Exemption. This is a 6,000 above-the-line deduction for those 65 and older, effective 2025-2028. The phase-out begins for adjusted gross income above 75,000 singles and 150,000 married filing joint. 

Child Tax Credit increases. The credit rises to 2,200 per qualifying child for 2025 (up from 2,000), then becomes permanent at that level with inflation adjustments from 2026. 

EV Tax Credits. The 7,500 new electric vehicle and 4,000 used EV credits, and home charger incentives enacted by the Inflation Reduction Act of 2022 have been repealed, but still available for qualifying purchases by September 30, 2025. If you are considering buying an EV vehicle right now, do not delay. As a reminder, this tax credit reduces your tax liability dollar for dollar up to 7,500 and it is not refundable (you can not be refunded if your credit reduces your tax liability to zero). 

For small businesses, there are significant updates to the tax treatment of fixed assets, which are classified as equipment, machinery, furniture, buildings and vehicles used in business operations and with a useful life greater than one year. Under the TCJA, bonus depreciation allowed for 100% bonus depreciation from 2018-2022, then began to phase down to 40% in 2025. For assets placed in service after January 19, 2025, bonus depreciation is back to 100% and has been made permanent with no phase-outs. This applies to both new and used property, as long as it is the taxpayer’s first use. Businesses can deduct 100% of the asset’s cost in the year it is placed in service, reducing taxable income immediately, rather than spread out over the asset’s useful life (anywhere from 3 years up to 20 years). For example, a small Las Vegas construction contractor purchasing a new excavator can immediately write off the full cost under the permanent 100% bonus depreciation rule, instead of recovering it slowly over 5-7 years. That upfront deduction may free up cash to hire seasonal workers.

Upon taking this bonus depreciation deduction, the asset’s basis then becomes zero, so no further depreciation. If the asset is later sold, depreciation recapture applies. This means that gain up to the deducted amount is taxed as ordinary income. “Section 179” has also been expanded, providing similar accelerated depreciation on these asset types. It is common for tax professionals to coordinate and determine how best to coordinate these depreciation methods. 

The TCJA introduced the Qualified Business Income Deduction. This temporary deduction was set to expire on December 31, 2025, but was made permanent by OBBB. The most significant change with the QBI deduction is an increased phase-out from 50,000 single / 100,000 joint to 75,000 single / 150,000 joint. The increase will take effect beginning with tax year 2026. For 2025 the deduction begins to phase out for taxable incomes of 197,300 single and 394,600 joint for 2025. This deduction has many limitations and has been a focus for tax planning purposes at year-end to ensure you are maximizing the deduction. It is a 20% deduction off of the qualified income, normally self-employed income or pass-through business activity and can offer substantial tax savings. If your taxable income approaches the phase-out thresholds, you need to make sure you have sufficient W-2 wages or else you risk limiting your QBI deduction. The solution to this is often simple, but requires your accounting to be up to date at year-end to properly plan and make adjustments at year end. 

As it relates to annual Form 1099 filings, the OBBB has provided compliance relief for issuing Forms 1099-MISC and 1099-NEC for nonemployee compensation to contractors and certain other payments, such as rent expenses and payments for legal expenses. The threshold to issue these forms has increased from $600 to $2,000 per calendar year per contractor or vendor. 

As the OBBB ushers in these tax changes, it is clear that tax planning will be relevant for many small businesses and individual taxpayers. The new phase-out thresholds and deduction limits often interact in ways that demand a comprehensive review to uncover the best strategies. By evaluating your income, deductions, and investment plans now, you can take full advantage of these opportunities when they matter most. If you’re uncertain how these updates will impact you, don’t wait until tax season catches you off guard. Reach out to your tax advisor to explore how these new laws can work in your favor. 

Donovan Thiessen, CPA is the founder and shareholder of The Accountant, LLC. Our mission is to help business owners make better decisions by providing timely and accurate financial and tax analysis. You may reach Donovan at hello@theaccountantcpa.com, www.theaccountant.cpa and 702-389-2727.