One Big Beautiful Bill Act - A First Glance at What You Need to Know

Wow! There is a lot in this bill and no way we are going to cover everything or deep dive into anything specific. So…after reading and reading, here is an extensive glance at some of our notes. Note: It is imperative that you consult with your tax advisor before implementing any strategies.

One of the biggest benefits of this bill is simply having some permanence (well…as permanent as things can get in DC) and stability with a big chunk of the tax code. This is crucial for small business owners and even individuals to make decisions about their future.

Permanence and Stability
Extend and Expansion of 2017 Tax Reform	Most of the provisions made in this act were made permanent, which means you won’t see your taxes revert to 2016 rates and rules including Alternative Minimum Tax. There is also an increase in the standard deduction and child tax credits.
Estate Tax Exemption Stability	For the first time in history, we have some permanency in this area. In 2026, the exemption amount will be $15 million per person and adjusted for inflation thereafter.
Section 199A Business Owner Deduction Extension and Expansion	This 20% deduction for business owners won with higher income phase-in amounts and a minimum deduction.
Depreciation and Expenses Expanded	First-year bonus depreciation is once again 100% and here to stay for items placed in service after January 19,2025. Additionally, you can expense depreciation on equipment in the amount of 2.5 million as opposed to the previous 1.25 million. Phaseouts for this expensing also increased.
Interest and R&D Expanded	Deductions you previously were not able to take are now on the table for grabs. There are increased interest limitations and R&D efforts may be able to be deducted as expenses rather than amortized.
Opportunity Zones Stability and Expansion	These were made permanent with a rolling 5-year deferral of capital gains tax and a 10% basis increase at the 5-year mark. There is also an incentive for rural opportunity zones that could increase that same basis by 30%.

Next on our list is all about the kids…

Student-Focused
529 Education Plan Expansion	The language for the use of these educational funds was expanded to include expenses in connection with elementary and secondary schooling, tutoring, homeschooling, special needs therapies, as well as additional higher education expenses like credentialing or vocational training.
Trump Accounts	This new type of account for children under age 8 can support contributions from anyone at a maximum of $5,000 per year until the beneficiary turns 18. Employers can also make these contributions for the child of an employee without being taxable to the employee. Trump accounts grow tax deferred and have preferential tax treatment for the beneficiary for education and/or a first-time home purchase or capital for a small business or farm. These accounts must be emptied by age 30. Additionally, there is a pilot program with the government funding a one-time deposit for babies born in the years 2025-2028.
Student Loans	There is now a lifetime borrowing cap of $100,000 for graduate students and $200,000 for medical and law students. There are also further limitations for part-time students and a $65,000 cap on Parent Plus Loans. Repayment options were gutted and simplified to just two. You either have 10-25 years to repay regardless of income or you can utilize the “Repayment Assistance Plan” which will be 1-10% of your discretionary income. The Parent Plus Loans won’t be eligible for the repayment programs.

What about charitable gifts?

Charitable Gifting
Universal Charitable Deduction	Whether you itemize your deductions or not, you can now receive a $1,000 or $2,000 (if married) deduction for your charitable gifts.
Tax Credit for Scholarships	There is a new credit until the end of 2029 for up to $5,000 or 10% of your adjusted gross income (whichever is greater) for contributions to state-approved scholarship-granting organizations.
Floors	0.5% and 1% floors established for the ability to itemize charitable gifts for individuals and corporations respectively; however, these charitable contributions are eligible to be carried forward for up to five years.

Speaking of itemized deductions….

State and Local Tax
State and Local Tax Increase	There is now a $40,000 cap for state and local tax, but it begins to phase out with $500,000 of income and it reverts back to a $10,000 cap in 2030.
Pass-Through Entity Workaround	There was no limitation put on this. You can still potentially utilize a pass-through entity to regain your missing state and local tax deductions.

There are a couple items that you may want to give immediate attention toward.

Immediate Attention
Employee Retention Credit Spotlight	If you used this, note that the audit timing was lengthened, clawbacks were strengthened and penalties were elevated to include the tax professional.
Electric Vehicle Credits Disappearing	Buying an electric vehicle? Do it before September 30th! The bill eliminates three tax credits you might want if you are a business owner: qualified commercial clean vehicle credit (7,500 up to 40,000 for heavier trucks), new clean vehicle credit (up to 7,500), previously owned clean vehicle credit (up to 4,000). It is important to work with your tax advisor on this one though. There are a lot of income caps and rules that can impact the amount of the credit.
Solar, Wind, and Home Energy Credits Disappearing	December 31, 2025 is the last day for the 30% credit for clean energy to include solar panels, solar water heaters, wind energy systems, other renewable energy; It is also the end of the $1,200 annual credit for energy improvements like skylights, windows, doors, insulation and the $2,000 credit for installing energy efficient components like gas heat pumps or water heaters, biomass stoves and boilers.

What is new for Individuals?

New Tax Legislation for Individuals
Overall Itemized Deductions Limited	There is a new limitation for those in the top tax bracket (37%) that the value of their itemized deductions is only 35%.
No Tax on SOME Tips	There is an above the line exemption of $25,000 on qualified tips, which means you don’t have to itemize your deductions to take it. There is also phase out for this deduction beginning at $150,000 of income or $300,000 of income if you are married and it only applies in years 2025-2028.
No Tax on SOME Overtime	There is an above the line exemption of $12,500 on overtime or $25,000 for those married filing jointly, which means you don’t have to itemize your deductions to take it. However, it has to be reported separately on your W-2. There is also phase out for this deduction beginning at $150,000 of income or $300,000 of income if you are married and it only applies in years 2025-2028.
No Tax on SOME Social Security	There is a $6,000 senior deduction for those over 65, but there are phase outs beginning at $75,000 of income for individuals and $150,000 if you file as married filing jointly.

What is new for businesses, rancher and farmers?

New Tax Legislation for Businesses
100% Expensing for “Qualified Property”	You may be able to expense 100% of the depreciation for certain “qualified property” between 2029 and before 2033 if it is used for qualified manufacturing, agriculture, chemical production, or refining of qualified product. There are 10-year recapture rules, so be careful in your long-term planning.
Conservation Easement Funding Redirected, Expanded and Stabilized	Environmental Quality Incentives Program (EQIP), Conservation Stewardship Program (CSP) and Agricultural Conservation Easement Program (ACEP) are funded through fiscal year 2031. Inflation Reduction Act funding was redirected into the permanent farm bill baseline for these programs. There is also the renewal of smaller initiatives that that needed funding are now funded through 2031. This includes safeguarding well water with the Grassroots Source Water Protection program, and incentivizing farmers and ranchers to open their land to hunting and other recreation through the Voluntary Public Access and Habitat Incentive program. Last, Texans will be happy with the Feral Swine Eradication and Control Pilot Program. This initiative will help offset damages caused invasive wild pigs.
Qualified Small Business Stock Exemption Expansion	This unique rule to help small business owners exit their business with less tax has some new, favorable rules. The required holding is now 3 years rather than 5. This means that 50% of the gains will not be taxed if held for 3 years, 75% if held for 4 years, and 100% if held for 5 years or more. It also increases the cap on gains that qualify from the greater of $10 million or 10 times the owner’s basis to the greater of $15 million or 10 times the owner’s basis. There is also an increase in the issuing corporation’s gross asset limit from $50 million to $75 million. And both the $15 million and $75 million are indexed for inflation.
Farm and Ranch Infusion	There is $66 billion in new spending for farm programs. This is the largest infusion since 2002 and includes commodity programs, crop insurance, conservation programs (mentioned earlier), trade promotion, research and innovation, education, rural development, energy programs, support for specialty crops, nutrition and miscellaneous farm and livestock provisions.

As we stated in the beginning, this is just a glance. Energy, for example, was a main focus in the bill, and we didn’t even touch on it. We will keep peeling back the onion so stay tuned!