Keith Mack
The One Big Beautiful Bill of 2025, also known as the One, Big, Beautiful Bill Act, introduces significant changes to federal taxes, credits, and deductions. The bill, signed into law on July 4, 2025, makes permanent several temporary tax law changes initially introduced in the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA's provisions were set to expire at the end of 2025, leading to a reversion to the 2017 tax laws. The One Big Beautiful Bill of 2025 aims to prevent this reversion while also implementing additional tax modifications. While most changes will take effect on January 1, 2026, some are retroactive and may impact tax returns for 2025 filed in 2026.
| Characteristics | Values |
|---|---|
| Qualified Business Income (QBI) deduction | 20% deduction for certain QBI |
| Bonus depreciation | Businesses could write off 100% of the cost of eligible property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023 |
| Individual income tax rates | 10%, 12%, 22%, 24%, 32%, 35%, and 37% |
| Corporate income tax rate | Reduced from 21% to 20%; 15% for manufacturing companies in the U.S. |
| Estate tax exemption | $14.3 million for married couples if the provision expires in 2026 |
| State and local tax (SALT) deduction | $10,000 cap on the deductibility of state and local taxes |
| Child Tax Credit | Increased from $1,000 to $2,000 for each child under 17 |
| Deduction for small business income | 20% deduction for qualified pass-through income for sole proprietorships, partnerships, and S-corporations |
| Alternative minimum tax (AMT) | Increased AMT exemption amounts and raised income levels, resulting in fewer taxpayers liable |
| One Big Beautiful Bill Act of 2025 | Allows deductions for qualified tips for employees and self-employed individuals in certain occupations |
| Allows individuals aged 65 and older to claim an additional deduction of $6,000 | |
| Allows deductions for qualified overtime compensation for individuals | |
| Allows deductions for interest paid on loans for purchasing qualified vehicles |
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What You'll Learn
The One Big Beautiful Bill makes some 2017 tax cuts permanent
The One Big Beautiful Bill, signed by President Trump in 2025, makes permanent several provisions of the 2017 Tax Cuts and Jobs Act (TCJA). This bill is touted as the largest tax cut in American history, benefiting American families, workers, small businesses, and manufacturers.
The bill prevents a $4.5 trillion tax hike, allowing the average worker to retain an additional $4,000 to $7,200 in annual wages and the average family of four to keep an additional $7,600 to $10,900 in take-home pay. It also provides tax relief for seniors, with no tax on tips, overtime pay, or car loan interest. Additionally, it expands access to the childcare tax credit and makes permanent the paid leave tax credit, enhancing the adoption tax credit.
The bill also has economic implications beyond individual taxpayers. It introduces tax incentives for businesses that manufacture more in the US, promotes domestic research and development, and makes expensing for investment in short-lived assets permanent. The bill also increases the small business estate tax exemption, with new thresholds set at $15 million for individual filers and $30 million for joint filers.
The One Big Beautiful Bill also has implications for immigration policy, as it gives the Trump Administration tools to reclaim national sovereignty and ramp up mass deportations. It is described as a pro-family, pro-worker, and pro-growth economic package, fulfilling President Trump's campaign promises and conservative economic principles.
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Child Tax Credit reverts to $1,000
Several tax laws are set to expire in 2025, including certain provisions of the Tax Cuts and Jobs Act (TCJA). Here is an overview of the changes and their potential impact:
Child Tax Credit:
The TCJA increased the Child Tax Credit from $1,000 to $2,000 per child under 17, and this amount was not adjusted for inflation. The maximum refundable credit also increased to $1,400 per child in 2018, adjusted for inflation and set at $1,700 in 2024. If the TCJA expires in 2025, the Child Tax Credit will revert to $1,000, reducing its real value by about 25% compared to 2017. This reversion will impact families' tax liabilities and government revenues.
Qualified Business Income (QBI) Deduction:
The TCJA provided a 20% QBI deduction for certain qualified pass-through income, which is set to expire at the end of 2025. This expiration will affect small businesses and sole proprietorships that benefited from this deduction.
Individual Income Tax Rates:
The individual income tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% introduced by the TCJA will expire after 2025, reverting to pre-TCJA rates. This change will impact taxpayers' liabilities, with Trump proposing to replace individual income tax with increased tariffs.
Alternative Minimum Tax (AMT):
The TCJA increased AMT exemption amounts and raised income levels at which exemptions phase out, reducing the number of taxpayers liable for AMT. If this provision expires, the AMT exemption for married couples filing jointly will be significantly lower in 2026.
Estate Taxes:
The TCJA doubled the estate tax exemption, and its expiration will result in a lower exemption amount in 2026 for married couples.
While the above tax laws are set to expire or change in 2025, it is important to note that there is uncertainty around potential extensions or new legislation that could be enacted. Additionally, the One Big Beautiful Bill, passed in July 2025, made some changes to the Child Tax Credit for 2025 and future years, including an increase in the credit amount to $2,200 and the addition of a work-eligible Social Security Number requirement.
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Qualified Business Income (QBI) deduction ends
The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, was introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. This deduction was designed to benefit small business owners and the self-employed by allowing them to deduct up to 20% of their QBI from their taxable income. The QBI deduction is available to sole proprietorships, partnerships, S corporations, limited liability companies (LLCs), and certain trusts and estates. It excludes C corporations and income earned as an employee.
The QBI deduction was initially set to expire at the end of 2025. However, legislative changes have been made, and the One Big Beautiful Bill (OBBB) has now made the QBI deduction a permanent part of the tax code. This means that there is currently no expiration date for the QBI deduction.
For the 2025 tax year, the original phase-in ranges still apply. For single filers, the phase-in begins at $50,000, and the phase-out range is $197,300 to $247,300. For married couples filing jointly, the phase-in is $100,000, and the phase-out range is $394,600 to $494,600. These ranges will be adjusted for inflation in 2026 and subsequent years.
Starting in 2026, a new minimum QBI deduction of $400 will be available for taxpayers with at least $1,000 in QBI who actively participate in the business. This minimum deduction will be adjusted annually for inflation. Additionally, taxpayers with rental property income will not be eligible for the QBI deduction if they hold the property for investment purposes. However, if they own the rental property as a real estate business and meet the active business standards, they can include their rental income or loss in the QBI calculation.
The QBI deduction is calculated using Form 8995 or 8995-A and can be claimed even if the taxpayer does not itemize deductions. It is a complex calculation that requires tax preparers to apply technical rules and maintain detailed records.
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Alternative Minimum Tax (AMT) exemption changes
The Alternative Minimum Tax (AMT) is a separate tax system that runs parallel to the regular income tax system. It is a second method for calculating taxes, aimed at closing loopholes that allow high-income earners to reduce or eliminate their tax bills under the standard income tax system.
The 2017 Tax Cuts and Jobs Act (TCJA) included provisions that significantly reduced the impact of the AMT. The TCJA enacted a higher AMT exemption, raised the income level at which the exemption begins to phase out, and repealed or scaled back some of the largest AMT preference items. As a result, the number of AMT payers fell from more than 5 million in 2017 to 200,000 in 2018.
The AMT provisions, along with almost all other individual income tax measures in the TCJA, are set to expire at the end of 2025. Thus, barring legislation from Congress, the AMT will return in force in 2026, affecting 7.6 million taxpayers. That number will rise to 9.7 million by 2032.
For tax year 2025, the exemption amount for unmarried individuals increases to $88,100 ($68,650 for married individuals filing separately) and begins to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700.
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Estate tax exemption halves
The Tax Cuts and Jobs Act (TCJA) of 2017 included significant changes to the tax code, but its provisions were temporary and set to expire at the end of 2025. The One Big Beautiful Bill (OBBB) of 2025 makes many of these once-temporary changes permanent, while also introducing some additional changes.
One notable change in the OBBB is the provision related to estate taxes. The TCJA doubled the estate tax exemption, but this provision is set to expire in 2026. If the TCJA expires without an extension, the estate tax exemption for married couples will be halved, dropping from $28.6 million to $14.3 million. This change will have a significant impact on the tax liabilities of high-net-worth individuals and their estates.
The estate tax exemption is a crucial aspect of tax planning for individuals with substantial assets. By taking advantage of the current higher exemption amount, individuals can transfer a larger portion of their wealth to their heirs tax-free. This allows for a more efficient distribution of assets and can help preserve the value of their estate. However, with the impending halving of the exemption, individuals will need to reevaluate their estate planning strategies to mitigate the potential tax burden on their heirs.
To navigate this upcoming change effectively, individuals can explore various strategies. One approach is to maximize the use of the current exemption amount before it expires. This can be done through gifts or strategic transfers of assets during an individual's lifetime. Additionally, individuals can work with tax and legal professionals to structure their estates in a way that minimizes tax exposure, such as through the use of trusts or other estate planning vehicles.
It is important to note that tax laws and their associated provisions are subject to change and can be complex. Seeking professional guidance is always recommended to ensure compliance with the latest regulations and to make informed decisions regarding one's financial situation.
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Frequently asked questions
The OBBB, signed into law on July 4, 2025, makes permanent many of the temporary tax law changes introduced as part of the Tax Cut and Jobs Act (TCJA) in 2017. It also adds some temporary and permanent changes to the tax code. While most of the changes take effect on January 1, 2026, some are retroactive and could impact 2025 tax returns filed in 2026.
In 2025, individuals who are 65 and older may claim an additional deduction of $6,000. Additionally, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate. Furthermore, employees and self-employed individuals may deduct qualified tips received in certain occupations.
Before the OBBB, several provisions of the TCJA were set to expire at the end of 2025, including individual income tax rates, the Qualified Business Income (QBI) deduction, and the $10,000 cap on state and local tax deductions (SALT).
