How will the 2025 One Big Beautiful Tax Bill Affect Individual Taxpayers? by Patti Giarritano, CPA
On July 4, 2025, President Donald Trump signed into law a multi-trillion-dollar tax cut and spending bill, commonly referred to as the One Big, Beautiful Bill Act (OBBBA). The law extends many of the tax breaks included in Trump’s 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of this year. It also expands certain tax credits and deductions and terminates several environmental-friendly tax breaks introduced under the Biden administration. Here we provide a brief overview of some of the law’s key provisions and how they may affect you.
Individual Tax Rates and Standard Deduction
The OBBBA makes permanent the lower marginal income tax rates introduced in 2017, with a top rate of 37 percent and a higher standard deduction in 2025 of $15,750 for single filers and married couples filing separately, $23,625 for heads of household, and $31,500 for taxpayers who are married filing jointly and surviving spouses.
It also introduces an additional standard deduction of up to $6,000 for individuals ages 65 and older ($12,000 for married filing jointly), for tax years 2025 through 2028. The amount of the deduction decreases when an individual taxpayer’s income reaches $75,000 (or $150,000 for joint filers) and phases out completely when income exceeds $175,000 (or $350,000 for married filing jointly).
Estate Tax Exemption
The new law extends the very generous estate tax exemption currently in place at $13.99 million for individuals and $27.98 million for married couples filing jointly. Often referred to as the lifetime exclusion, the estate tax exemption is permanently increased to $15 million for gifts made after December 31, 2025, or $30 million for married taxpayers filing jointly. The exemption will be indexed for inflation after 2026.
State and Local Tax Deduction
A welcome change in the law is a temporary, five-year expansion of the cap on the state and local tax (SALT) deduction from $10,000 in 2024 to $40,000 in 2025 through 2029. The deduction is indexed for inflation for 2026 and increases an additional 1 percent each year through 2029. In 2030, the provision sunsets to $10,000.
The full $40,000 deduction in 2024 through 2029 is available only to taxpayers with modified adjusted gross income (MAGI) of less than $500,000 in 2025; the amount of the deduction phases out for taxpayers with MAGI of $500,000 or more. However, the bill preserves the pass-through entity tax (PTET) that several high-tax states introduced to help business owners avoid the cap on state and local tax deductions.
Charitable Deductions
Under current law, deductions for charitable donations to qualifying nonprofit organizations are limited to cash gifts made by taxpayers who itemize their deductions on their tax returns. The amount of the deduction is limited to 60 percent of the taxpayer’s adjusted gross income (AGI), whereas gifts of appreciated assets are limited to 30 percent of AGI.
The OBBBA introduces a charitable deduction for non-itemizing taxpayers of up to $1,000 for individuals and $2,000 for married couples filing jointly.
Deductions of Interest on New Auto Loans
For tax years 2025 through 2028, itemizing taxpayers may annually deduct up to $10,000 of interest on new loans for cars assembled in the U.S. The deduction begins to phase out for individual taxpayers with modified adjusted gross income (MAGI) above $100,000, or $200,000 for married couples filing jointly.
Taxes on Tips and Overtime
Election campaign promises to eliminate taxes on tips and overtime pay are addressed in the OBBBA as a temporary federal income tax deduction for qualifying non-itemizing taxpayers in tax years 2025 through 2028.
Under the law, taxpayers earning less than $160,000 per year may claim a deduction of up to $25,000 for qualifying tips. However, they must continue to report all their tips on their federal income tax returns, and the total tip amount remains subject to state income tax and payroll taxes for Social Security and Medicare.
Workers making less than $150,000 for single filers also may qualify for a deduction of up to $12,500 for overtime pay. The deduction increases to a cap of $25,000 for married couples filing jointly who make less than $300,000.
New Savings Program for Children
The act introduces a new tax-advantaged savings program for children who are U.S. citizens at birth and under eight years old. The plans, named Trump Accounts, allow parents to deposit up to $5,000 per year, which can be withdrawn by the beneficiary at age 18 at the preferential long-term capital gains rate. Children born between Dec. 31, 2024, and Jan. 1, 2029, would receive annual deposits of $1,000 from the federal government.
Clean Energy Tax Credits
The OBBBA terminates many of the clean-energy tax credits introduced by former President Biden under the Inflation Reduction Act. This includes a Dec. 31, 2025, repeal of up to $7,500 in credits for the purchase of a qualifying electric vehicle, up to $3,400 for energy-efficient home improvements (EEHI) and 30 percent of the costs for new, clean energy improvements to residential property.
Qualified Business Income (QBI) Deduction for Pass-Through Entities
The Section 199A deduction for qualified business income (QBI) is made permanent rather than sunsetting at the end of this year. As a result, domestic pass-through entities, such as S corporations, LLCs, partnerships, and sole proprietorships, can continue to receive a potential tax deduction of as much as 20 percent of their U.S.-source QBI that passes from their businesses to their personal income tax returns. The law also introduces an inflation-adjusted minimum QBI deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trade or businesses in which they materially participate.
About the Author: Patricia Giarratano, CPA, is a director of Tax Services with Berkowitz Pollack Brant, where she works with high-net-worth clients and business owners to develop comprehensive, tax-efficient estate, trust, gift tax and income plans, She can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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