Background
On July 4, President Trump signed the “One Big Beautiful Bill” (OBBB) into law. This massive legislation, which narrowly passed in both the House and Senate, includes numerous tax provisions and is now formally called the One Big Beautiful Bill Act.
Importantly, some of these tax provisions are intended to be permanent. For example:
Individual tax rate cuts
Higher standard deduction
Estate and gift tax exemption
Qualified business income deduction
100% bonus depreciation
New Markets Credit
Low-Income Housing Credit
Some provisions are temporary and expire following 2028. For example:
No tax on tips
No tax on overtime
An enhanced deduction for seniors
Some provisions are retroactive to the beginning of 2025, including:
Expensing of research expenses
Enhanced Section 179 expensing
Increased SALT (state and local tax) deduction
Return to EBITDA (earnings before interest, taxes, depreciation, and amortization) calculation for business interest expense deduction limitations
The following is a summary of the significant tax provisions in the OBBB and applicable tax planning considerations.
Business Tax Provisions
1. Bonus Depreciation
Permanent extension of 100% bonus depreciation for property acquired and placed in service on or after Jan. 19, 2025.
2. Qualified Production Property Bonus Depreciation
This new provision allows 100% bonus depreciation for certain non-residential real property used in production or manufacturing in the United States, where construction begins after Jan. 19, 2025, and is placed in service prior to Jan. 1, 2031.
3. Enhanced Section 179 Expensing
Effective for 2025, this provision increases the maximum expense election amount from $1,160,000 to $2,500,000 and raises the phaseout threshold from $2,890,000 to $4,000,000.
Tax Planning Consideration: Consider the effect of these increased and enhanced deductions on planning for and timing of capital acquisitions and improvements, as well as estimated tax payments.
4. Research and Experimental (R&E) Expensing
Permanently allows full expensing of domestic R&E beginning in 2025. Foreign R&E remains subject to 15-year amortization.
There is a special rule allowing small business taxpayers (generally businesses with gross receipts less than $31,000,000) to apply the change retroactively to 2022 by filing amended returns or on returns that may be on extension.
Taxpayers may elect to deduct certain previously unamortized R&E expenses either in the first taxable year beginning after Dec. 31, 2024, or over two taxable years starting after Dec. 31, 2024.
Tax Planning Consideration: These favorable changes to R&E expense treatment will make the R&D tax credit more appealing to eligible businesses. Applicable businesses should review the R&D credit rules to discover how to benefit from the credit.
5. Business Interest Limitation Calculation Improvement
The calculation of “adjusted gross income” for purposes of determining the limitation of deductible business interest expense is changed to EBITDA, which will result in a higher allowable business interest deduction. This change takes effect in 2025 and is permanent.
6. Advanced Manufacturing Investment Credit
Increases the credit from 25% to 35% for qualified property placed in service after Dec. 31, 2025.
Tax Planning Consideration: This boost in the credit rate enhances the incentive for companies to manufacture semiconductors and equipment used in semiconductor manufacturing. Taxpayers considering the development of facilities for these activities should incorporate this change into their decision-making process.
7. Qualified Business Income (QBI) Deduction
The deduction remains at 20% (the Senate proposal of 23% was not added) and is made permanent.
The phase-out amounts are increased to $150,000 for married filing jointly and $75,000 for single filers.
A new minimum $400 deduction is introduced for taxpayers with at least $1,000 of QBI.
Tax Planning Consideration: Continued use of strategies to minimize income above the line will improve opportunities to take advantage of this deduction, such as reviewing compensation structures and bonus payouts.
8. Employee Retention Credit (ERC)
The bill increases enforcement action against aggressive ERC promoters and prohibits the payment of claims for the third and fourth quarters of 2021 as of Jan. 31, 2024.
Individual Tax Provisions
1. Individual Income Tax Rates Remain Lower
The Tax Cuts and Jobs Act (TCJA) reduced individual tax rates, which are now made permanent and will be indexed for inflation after 2025. The top individual tax rate remains 37% rather than reverting to the pre-TCJA top rate of 39.6%.
2. Standard Deduction
Permanently increases standard deductions effective Jan. 1, 2025, and indexes them for inflation as follows:
Single and Married Filing Separately: $15,750
Head of Household: $23,625
Married Filing Jointly: $31,500
3. Personal Exemptions
Permanently eliminates the deduction for personal exemptions, which had been suspended from 2018–2025.
4. Enhanced Deduction for Seniors
Temporarily, from 2025 through 2028, provides an additional $6,000 deduction for taxpayers aged 65 or older.
Tax Planning Consideration: This provision acts in lieu of directly reducing the taxation of Social Security (SS) benefits. Since SS benefits are still potentially taxable, this deduction could impact SS planning strategies regarding accelerating or deferring income to meet the deduction thresholds.
5. State and Local Tax (SALT) Cap
Retroactively increases the SALT limit from $10,000 to $40,000 for 2025 and increases it to $40,400 for 2026, with 1% increases from 2027 through 2029.
Next Steps
Many provisions in this new bill are complex and will require numerous regulations to implement the law. In addition to the Treasury Department, other agencies are expected to be involved in developing these regulations. We will monitor this regulation-writing process and provide timely updates when available.
In the meantime, please reach out to your Herbein tax consultant if you have questions regarding this article or the One Big Beautiful Bill in general.
