On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation extends key provisions from the Tax Cuts and Jobs Act, introduces new tax breaks for individuals and businesses, and accelerates the phaseout of certain energy-related credits.

Below is a summary of the most significant provisions affecting business and individual taxes.

For Businesses

100% Bonus Depreciation Restored
Full bonus depreciation returns, allowing businesses to deduct 100% of qualifying assets—equipment, machinery, vehicles, and certain building improvements—placed in service after January 19, 2025. This includes a temporary incentive for qualified production property, enabling full bonus depreciation on newly built non-residential facilities used for manufacturing.

Higher Section 179 Expensing Limits
The maximum Section 179 deduction increases to $2.5 million, phasing out after $4 million in total purchases. Businesses can fully deduct qualifying property and equipment in the year it is placed in service.

Full Deduction for Domestic R&D Costs
Domestic research and development expenses can now be fully deducted in the year incurred. Foreign R&D costs must still be amortized over 15 years.

Expanded Small Business Stock Exclusion (Section 1202)
Qualified small business stock acquired after enactment may exclude 75% of gains if held at least four years, and 100% of gains if held at least five years. This reduces or eliminates federal tax on the sale of qualifying C-corporation shares.

Opportunity Zones Made Permanent
The Opportunity Zone program becomes permanent as of January 1, 2027, with a narrowed definition of “low-income community.” Investors may continue to defer eligible capital gains by reinvesting in Qualified Opportunity Funds, potentially excluding future gains from tax.

Business Interest Deduction Expanded
Section 163(j) now allows interest deductions up to 30% of EBITDA (including depreciation and amortization) rather than EBIT, benefiting capital-intensive businesses.

Changes to Clean Energy Incentives

• • Credits Ending: Clean Electricity Production Credit (45Y), Investment Credit (48E), Qualified Commercial Clean Vehicle Credit (45W), Alternative Fuel Vehicle Refueling Credit (30C), Energy-Efficient Commercial Buildings Deduction (179D).
  • Credits Extended: Clean Fuel Production Credit (45Z) through 2029.
  • New Restrictions: Certain credits unavailable for projects owned by “foreign entities of concern.”

New Payroll Reporting Requirements
Employers must separately report qualified tip income and qualified overtime pay on Form W-2 (or 1099s for contractors) beginning in 2025.

Employee Retention Credit (ERC) Claims Limited
ERC claims for Q3/Q4 2021 submitted after January 31, 2024, may be denied. The IRS has up to six years to review existing claims.

For Individuals, Self-Employed Professionals, and Business Owners

Lower Tax Rates Made Permanent
Individual tax brackets (10%–37%) are now permanent with annual inflation adjustments.

Standard Deduction, NIIT, and Estate & Gift Tax Rules

• • Standard deduction: $15,750 (single), $31,500 (joint), indexed for inflation.
  • Net Investment Income Tax (NIIT) remains at 3.8% for high-income taxpayers.
  • Estate and gift tax exemptions double in 2026 to $15 million per person ($30 million per couple), with the top rate remaining 40%.

Higher SALT Deduction Cap
The cap rises to $40,000 ($20,000 MFS), phasing down above MAGI of $500,000 ($250,000 MFS) through 2029.

Permanent 20% Qualified Business Income (QBI) Deduction
Applies to pass-through entities with higher thresholds for wage/property and SSTB limitations. Minimum QBI deduction of $400 ensures small business owners receive a baseline benefit.

New Deductions for Tips and Overtime (2025–2028)
Eligible employees and certain contractors may deduct up to $25,000 in tips and $12,500 in overtime pay (double for joint filers), phasing out above specified MAGI limits.

Expanded Child and Dependent Credits

• • Child Tax Credit: $2,200 per child (inflation-adjusted).
  • Adoption Credit: Up to $5,000 refundable, phasing out at $250,000–$290,000 MAGI.
  • Child & Dependent Care Credit: Maximum 50% of qualifying expenses, phasing down at higher AGI levels.

Senior Deduction (2025–2028)
Taxpayers age 65+ may claim a $6,000 deduction, phasing out at $75,000 MAGI (single) and $150,000 (joint).

Energy-Related Credits
Certain credits end (25C, 25D, 30C), with new reporting requirements anticipated from the IRS.

Auto Loan Interest Deduction (2025–2028)
Deduct up to $10,000 interest paid on U.S.-assembled passenger vehicles, phasing out at higher MAGIs.

Why These Changes Matter

Many OBBBA provisions are already in effect or will take effect in 2025, making year-end planning critical. Opportunities like bonus depreciation and energy-related credits have sunset dates, so timing is essential.

A year-end review with a qualified tax professional can help determine which provisions apply to your business and personal situation, ensuring you maximize available deductions and credits.