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Understanding the "One Big Beautiful Bill" Act: Key 2025 Tax Changes

On July 4th, a pivotal moment arrived with the signing of the "One Big Beautiful Bill" Act (OBBBA) by the President. This landmark legislation introduces a series of tax reforms that will significantly impact taxpayers beginning in 2025. It's crucial for individuals to understand these changes and assess their potential effects on personal and business finances. Meticulous planning can help optimize tax responsibilities and leverage benefits that this legislation offers.

Below, we dive into the OBBBA's tax provisions that will take effect in 2025 and their implications:

  1. Standard Deduction Increase: Effective 2025, the standard deduction rises to $15,750 for singles and married filing separately, $23,625 for heads of household, and $31,500 for married filing jointly, with adjustments for inflation thereafter.

  2. Special Temporary Deduction for Seniors: Seniors aged 65 or older can claim a $6,000 deduction ($12,000 for qualifying couples), contingent on their modified adjusted gross income not surpassing $75,000 for singles or $150,000 for joint filers. This deduction, available from 2025 to 2028, is independent of Social Security benefits and can be claimed by both itemizers and non-itemizers.

  3. Child Tax Credit: The nonrefundable child tax credit is enhanced to $2,200 per child, with phaseout thresholds at $400,000 for joint filers and $200,000 for others, provided both child and parent(s) have valid Social Security Numbers.

  4. Qualified Small Business Stock Exemption: Starting July 4, 2025, a tiered gain exclusion applies to QSBS, offering exclusions of 50%, 75%, and 100% for stock held three, four, and five years respectively, applicable to C Corporations with certain limits.

  5. New Deduction for Tips: Occupations customarily receiving tips can claim a deduction up to $25,000 per annum. Deduction phases out for AGI over $150,000 ($300,000 joint filings). The IRS will specify qualifying occupations by October 2, 2025. This deduction is available through 2028 and is exclusive to jointly filed returns.

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  6. Overtime Deduction: Allows exclusion of overtime pay exceeding regular rates from taxable income. Phased out at higher income brackets and jointly filed returns required. Eligible employees should adjust tax withholding while self-employed may modify estimated tax payments accordingly.

  7. Deduction for Car Loan Interest: Permits deduction up to $10,000 on interest for U.S.-assembled vehicle purchases. Phases out for MAGI over $100,000 for singles and $200,000 for joint filers. Details require VIN inclusion on tax returns.

  8. Adoption Credit: Transitioning from non-refundable, this credit becomes partially refundable up to $5,000 through 2028.

  9. 529 Savings Plan Enhancements: Broadened allowances for educational expenses and affiliations, raising limits post-July 4, 2025.

  10. Bonus Depreciation: The 100% bonus depreciation is reinstated permanently for qualified business property from January 19, 2025.

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  11. Qualified Production Property Depreciation Allowance: Immediate 100% deduction for production properties, effective for construction between January 19, 2025, and January 1, 2029.

  12. Third-Party Network Transaction Reporting: Restores 1099-K reporting thresholds to pre-reduction levels for higher transaction volumes.

  13. Termination of Environmental Credits: Credits for clean vehicles and energy-efficient improvements will phase out by September 30, 2025, and December 31, 2025, respectively, prompting timely action for taxpayers.

  14. Domestic Research Expenditures: Immediate deduction available from tax year commencing after December 31, 2024.

  15. SALT Deduction Changes: The cap on the SALT deduction jumps to $40,000 in 2025, providing relief, unless taxpayer MAGI exceeds $500,000, where the cap reverts to $10,000.

In light of these transformative tax amendments, ensure to review these points carefully and seek professional advice to adapt your tax strategy accordingly. For personalized guidance, don't hesitate to reach out to us.

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