Cecily Zamora
The duration of tax laws' effectiveness varies, with some provisions in tax legislation taking effect at different times. For instance, the One Big Beautiful Bill (OBBB) of 2025, which was signed into law by President Trump, includes tax laws that are effective for the 2025 tax year (filed in 2026) and beyond. The OBBB also makes some temporary changes, such as limiting taxes on tips or overtime pay, which are set to expire in 2026. The Tax Cuts and Jobs Act (TCJA) of 2017, on the other hand, included temporary provisions that were set to expire at the end of 2025, potentially resulting in substantial changes to individual income tax in 2026.
| Characteristics | Values |
|---|---|
| Name of the bill | One Big Beautiful Bill (OBBB) |
| Effective from | 2025 |
| Retroactive provisions | A few uncommon provisions are retroactive to tax year 2024 |
| Effective through | 2026 and beyond |
| Key changes | Adjustments to tax brackets, deductions, and retirement contributions |
| Tax laws reverting to | 2017 |
| Tax laws applicable to | Individuals, self-employed, and business owners |
| Tax laws impacting | How Americans file their taxes |
| Tax laws impacting sectors | Energy, healthcare, and immigration |
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What You'll Learn
The One Big Beautiful Bill (OBBB)
The OBBB makes permanent many of the changes from the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA reduced statutory tax rates at almost all levels of taxable income and shifted the thresholds for several income tax brackets. The TCJA also repealed personal and dependent exemptions, increased the standard deduction, and increased the child tax credit (CTC). The OBBB makes these changes permanent, along with the lower individual tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The OBBB introduces some new tax rules, both short-term and long-term. Some of these changes include:
- A new “No Tax on Tips” law, which allows for a dollar-for-dollar deduction for a designated amount of tips earned by workers where tipping is customary.
- Repeal of energy-efficient credits for electric vehicles (EVs), hybrids, charging, and energy-efficient home improvements beginning in 2025.
- The state and local tax (SALT) deduction cap has been increased from $10,000 to $40,000 for the 2025 tax year, $40,400 for 2026, and will increase by 1% every year after through 2029.
- The 20% Qualified Business Income Deduction is now permanent, with phase-in ranges increased to $75,000 ($150,000 for married filing jointly).
- Limitations on personal casualty losses, miscellaneous itemized deductions, and moving expense deductions for most taxpayers.
- Changes to premium tax credit rules and underlying Marketplace eligibility and insurer options, which may decrease the number of individuals with health insurance coverage through the Marketplace.
It's important to note that not all the changes in the OBBB are permanent, with some only lasting a few years. Additionally, some of the changes have certain requirements, such as adjusted gross income limits. The OBBB is expected to have a significant impact on how Americans file their taxes in 2025 and beyond.
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Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and Jobs Act (TCJA) was passed in 2017 and included significant changes to the tax code. The act was expected to lower taxes by an average of $1,600 in 2018 and 2025. It was projected that the top 20% of Americans by income would receive roughly 65% of the tax savings. The act also cut taxes for most U.S. taxpayers, with more than 90 Fortune 500 companies paying an effective federal tax rate of 0% or less as a result.
The TCJA simplified the tax code for some, lowered corporate debt, and increased investment. It also brought money back from overseas, although it did not bring back business activity. The act reduced the American corporate tax rate to 21%, four percentage points lower than the OECD average at the time. It also lowered most individual income tax rates, including the top marginal rate from 39.6% to 37%. The TCJA increased the standard deduction to $12,400 for single filers and $24,800 for married filers (tax year 2020), a significant increase from the prior law.
The act eliminated the personal exemption and a variety of other miscellaneous deductions, such as the state and local tax (SALT) deduction, mortgage interest deduction (MID), and charitable contribution deduction. It also limited certain itemized deductions. The TCJA also included changes related to business structure, such as Opportunity Zones designed to spur economic development and job creation in distressed communities.
While the TCJA was expected to increase deficits and stimulate the economy, its effects on economic growth and median wages were smaller than expected. It is worth noting that the provisions of the TCJA were temporary and set to expire at the end of 2025, with tax laws reverting to those from 2017. However, the One Big Beautiful Bill (OBBB) of 2025 includes legislation to stop most of the tax laws from reverting to the 2017 version, while also making some additional changes. The majority of the changes in the OBBB take effect on January 1, 2026, with some being retroactive and impacting 2025 tax returns filed in 2026.
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Tax provisions and changes
The One Big Beautiful Bill (OBBB) of 2025 introduces a significant number of new tax laws for 2025 and beyond. Most of the changes in the OBBB take effect on January 1, 2026, but some are retroactive and could impact 2025 tax returns filed in 2026. The OBBB includes legislation to stop most tax laws from reverting to their 2017 state.
The OBBB makes permanent many of the changes from the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA included significant changes to the tax code, such as:
- Larger standard deductions
- Elimination of personal and dependent exemptions
- Lower tax brackets
- Elimination of, or limits on, certain itemized deductions
- Increased child tax credit
- Expanded CTC eligibility
The OBBB also introduces new tax rules, including:
- Repeal of energy-efficient credits for electric vehicles, hybrids, charging, and energy-efficient home improvements
- Permanent extension of the 20% Qualified Business Income Deduction
- Ability to deduct 100% of business equipment expenses placed into service after January 19, 2025
- Limitation on personal casualty losses, miscellaneous itemized deductions, and moving expense deduction for most taxpayers
- “No Tax on Tips” law, allowing a dollar-for-dollar deduction for a designated amount of tips earned by workers where tipping is customary
- Changes to premium tax credit rules and underlying Marketplace eligibility and insurer options, which may decrease the number of individuals with health insurance coverage through the Marketplace
- Limitation on how much of a gambling loss can be claimed on taxes each year
- Allowing taxpayers who claim the Standard Deduction to also claim a Charitable Deduction for cash contributions
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Tax brackets and deductions
The One Big Beautiful Bill (OBBB) of 2025 introduced a significant number of new tax laws for 2025 and beyond. Most of the changes in the OBBB will take effect on January 1, 2026, but some are retroactive and will impact 2025 tax returns filed in 2026.
The seven federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent. The standard deduction has increased, and a new ""bonus" deduction is available for older adults. For taxpayers in the top tax bracket (37%), itemized deductions are limited to 35 cents on the dollar. These limits do not apply to taxpayers in other tax brackets. The state and local tax (SALT) deduction cap has increased from $10,000 to $40,000 for the 2025 tax year, and the cap will increase to $40,400 for 2026 and by 1% every year after through 2029.
The 20% Qualified Business Income Deduction is now permanent, with phase-in ranges increased to $75,000 ($150,000 for married filing jointly). Self-employed individuals can deduct 100% of business equipment expenses placed into service after January 19, 2025, and home office expenses. However, unreimbursed employee expenses are no longer deductible.
The personal exemption for tax year 2023 remains at 0, and there is no limitation on itemized deductions. The modified adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit is not adjusted for inflation for taxable years beginning after December 31, 2020. The lifetime learning credit is phased out for single tax filers with a modified adjusted gross income (MAGI) of more than $80,000 ($160,000 for married couples filing jointly).
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Tax planning strategies
The One Big Beautiful Bill (OBBB) of 2025 has brought about significant changes to US tax laws, most of which will come into effect on January 1, 2026. Some of these changes are retroactive and will impact 2025 tax returns.
Itemized vs. Standard Deduction
Deciding whether to itemize or take the standard deduction is an important part of tax planning. Itemized deductions are specific expenses that can be subtracted from your taxable income, while the standard deduction is a flat-dollar amount. Itemizing can be more advantageous if your itemized deductions exceed the standard deduction, but it requires more time and proof of qualification. Tax software or a tax preparer can help you determine which option is best for you.
Tax Credits and Deductions
Understanding the difference between tax credits and tax deductions is crucial for effective tax planning. While tax deductions reduce your taxable income, tax credits provide a dollar-for-dollar reduction in your tax bill. Stay informed about applicable tax credits and deductions, such as those related to operating expenses, employee benefits, travel expenses, or interest payments. By conducting a thorough analysis and staying updated on evolving regulations, you can maximize your tax savings.
Retirement Accounts
Consider contributing to tax-advantaged retirement accounts, such as a 401(k), 403(b), traditional IRA, or Roth IRA. Traditional IRAs offer tax-deductible contributions, while Roth IRAs provide tax-free withdrawals in retirement. Additionally, explore options like 529 plans for tax-free earnings and withdrawals for educational expenses and Health Savings Accounts (HSAs) for tax-deductible contributions and tax-free withdrawals for qualified medical expenses.
Proactive Tax Planning
Stay proactive throughout the year to reduce tax liabilities and avoid surprises during tax season. Work with tax and financial professionals to align your tax strategy with your financial goals. Regularly review adjustments to tax brackets, deductions, and retirement contributions to make informed decisions. Utilize tools like the TurboTax Tax Reform Calculator to understand how new tax laws impact your finances.
Business Tax Strategies
For businesses, strategic tax planning is critical to compliance, profitability, and long-term sustainability. It involves analyzing financial affairs, managing initiatives, and identifying tax deductions and credits to minimize tax liabilities. Stay updated on evolving tax laws to adjust your tax planning strategy accordingly. Ensure that your business goals and tax planning are created together to support each other.
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Frequently asked questions
The current tax laws in the US are in effect until the end of 2025. The Tax Cuts and Jobs Act (TCJA) of 2017 was enacted on a temporary basis with a maximum lifespan of 10 years.
After the TCJA expires, there will be significant changes to the tax laws. All tax rates and income brackets will revert to the levels they stood at before the TCJA became law, adjusted for inflation.
The key changes in the new tax bill for 2025 include adjustments to tax brackets, deductions, and retirement contributions. A new ""bonus" deduction for older adults was also added, which will remain in effect until 2028.
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