How the ‘One Big Beautiful Bill’ Will Affect Your Tax Returns This Year

When President Trump began his second term in January 2025, he made it clear that one of his top legislative priorities was passing a comprehensive tax reform package. His goal was twofold: provide relief to American taxpayers from several expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introduce new tax incentives for individuals and businesses alike.

Nearly six months later, on July 4, 2025, President Trump signed H.R. 1 — officially titled the One Big Beautiful Bill Act (OBBBA) — into law, marking a significant legislative achievement of his administration.

Included in the law is one of the most significant overhauls to the U.S. tax code in decades. It’s an extension of the reduced income tax rates for individuals, a new round of enhanced child tax credits and permanent and expanded tax write-offs for business owners. These changes are designed to put more money back in the pockets of taxpayers while also providing new opportunities for long-term tax planning and financial savings.

Given the numerous tax provision changes included in the OBBBA, I will focus on highlighting a few of the more significant changes affecting both individuals and businesses.

Increased Standard Deductions

The OBBBA brings lasting relief to individual taxpayers by permanently extending and increasing the standard deduction originally expanded under the TCJA. Without this action, the higher deduction levels would have expired after 2025, reverting to much lower pre-TCJA levels.

Under the new law, beginning in 2026, the basic standard deduction will increase to $31,500 for joint filers, $23,625 for heads of household and $15,750 for single filers and those married filing separately. In addition, the inflation adjustment formula is updated to use 2024 as the new base year, helping deductions better keep pace with rising costs. This change simplifies filings and locks in meaningful tax savings for millions of Americans.

Increased State and Local Tax (SALT) Deduction

The new bill delivers short-term relief for taxpayers impacted by the state and local tax (SALT) deduction cap introduced initially by the TCJA. The $10,000 deduction cap ($5,000 for married filing separately taxpayers), long criticized by taxpayers in high-tax states, was set to expire after 2025. Instead, the OBBBA retroactively raises the cap to $40,000 for 2025, with slight annual increases each year before reverting to $10,000 in 2030.

For high-income taxpayers (those with modified adjusted gross income over $500,000 in 2025), the deduction begins to phase out by 30 cents for every dollar over the limit, never dropping below the original $10,000 floor.

For the next several years, the expanded SALT deduction offers valuable relief and planning flexibility, particularly for filers in high-tax states. Still, those with higher incomes should be mindful of the new phaseout thresholds and prepare accordingly.

Enhanced Child Tax Credit

Another taxpayer-friendly provision included in the OBBBA is the enhancement and expansion of the Child Tax Credit (CTC). Previously scheduled to expire after 2025, the TCJA had temporarily increased the credit to $2,000 per qualifying child, raised the refundable portion to $1,400 and allowed higher-income households to qualify, with phaseouts beginning at $400,000 for joint filers and $200,000 for all others.

Without action, the credit would have reverted to a $1,000 maximum (with no inflation indexing), stricter income thresholds and a higher earned income requirement. The OBBBA averts this rollback and raises the nonrefundable portion of the credit to $2,200 per child beginning in 2026, with inflation adjustments using 2024 as the base year. The $2,500 earned income threshold and the $1,700 refundable portion of the credit both remain in place.

To claim the CTC, taxpayers must now provide valid Social Security numbers (SSN) for both the qualifying children and at least one spouse for joint returns. This new dual-SSN requirement helps tighten compliance while preserving access for working families.

In addition, the OBBBA makes permanent the $500 nonrefundable credit for other dependents, including older children, parents and others who don’t qualify for the CTC. The modified adjusted gross income phaseout thresholds remain unchanged, and the credit is still not indexed for inflation.

Extension and Enhancement of Deduction for Qualified Business Income

The OBBBA strengthens and extends the popular Qualified Business Income (QBI) deduction, introduced under the TCJA. Under pre-OBBBA law, eligible non-corporate taxpayers could deduct up to 20% of their QBI from pass-through entities, such as partnerships, S corporations and sole proprietorships. That deduction was set to expire after 2025.

The OBBBA not only makes the deduction permanent but also introduces new enhancements. Beginning in 2026, taxpayers with at least $1,000 of QBI from all active qualified trades or businesses will be eligible to claim a minimum deduction of $400, or their regular calculated deduction, whichever is greater, providing a floor-level benefit even for smaller businesses. “Active” QBI refers to income from a trade or business in which the taxpayer materially participates.

100% Bonus Depreciation Made Permanent

One of the most significant wins for businesses under the OBBBA is the permanent reinstatement of 100% bonus depreciation. Originally set to fully expire by 2027 under the TCJA, bonus depreciation now becomes a lasting fixture in the tax code for qualifying property placed in service after January 19, 2025.

This means companies can immediately deduct the full cost of eligible assets, such as machinery, equipment and other tangible property with a recovery period of 20 years or less in the year those assets are placed into service. While the categories of eligible property remain unchanged, OBBBA provides a limited transitional election for businesses preferring to apply the old phase-down rates instead.

The permanence of 100% expensing offers capital-intensive industries a major incentive to invest in equipment and modernization, as it improves cash flow and reduces the upfront tax burden tied to expansion.

Increased 179 Expensing Limits

The OBBBA delivers a substantial upgrade to Section 179 expensing, making it even more attractive for businesses investing in equipment and other qualifying property. Beginning in 2025, the annual expensing limit increases from $1.25 million to $2.5 million, with the phase-out threshold rising from $3.13 million to $4 million.

These higher thresholds, which will continue to adjust for inflation, allow businesses to deduct more upfront rather than depreciating costs over time. That means faster write-offs and improved cash flow, particularly beneficial for companies investing heavily in machinery, technology and other capital assets.

Section 163(j) Limitations – Restored EBITDA Based Formula

For businesses that rely on financing, the deductibility of related interest expense is a critical factor in managing tax liability. Under the OBBBA, a key change permanently restores the more favorable formula based on Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for calculating the Section 163(j) business interest deduction limit, effective for tax years beginning after December 31, 2025.

Previously, the deduction was limited to 30% of earnings before interest and taxes, a stricter formula that significantly reduced allowable interest for many capital-intensive companies. Under the updated rule, the limit reverts to 30% of EBITDA, offering businesses a more generous approach to deducting their interest from financed activities.

Research & Experimental Expenditures

The OBBBA brings welcome relief from a costly tax provision created under Code Section 174, which has, since 2022, required companies conducting research and development (R&D) to capitalize and amortize these costs over a five-year period for research conducted in the United States and a fifteen-year period for research conducted outside the United States. Prior to Section 174’s enactment, qualifying expenditures were permitted to be immediately expensed in the year incurred. This mismatch in timing between the costs incurred and the tax deductions has created a strain on cash flows for businesses performing R&D activities.

Under the OBBBA, new Section 174A eliminates the requirement for taxpayers to capitalize and amortize domestic R&D expenses over five years. Instead, taxpayers may immediately deduct such expenses for tax years beginning after December 31, 2024.

Additionally, special rules would allow small business taxpayers to apply the rules retroactively to tax years beginning after December 31, 2021, while an election would permit all taxpayers to accelerate over a one or two-year period beginning with the taxpayer’s first tax year beginning after December 31, 2024, the deductions for unamortized domestic R&D expenditures that were capitalized after December 31, 2021 and before January 1, 2025. These long-awaited changes to Section 174A aim to restore liquidity and incentivize continued investment in innovation.

Conclusion

As the provisions of the One Big Beautiful Bill Act begin to take shape, both individuals and businesses stand to benefit from meaningful tax relief, expanded credits and enhanced compliance clarity. While the legislation offers numerous opportunities, it also introduces new rules that require careful planning to maximize potential advantages and avoid unintended consequences.

Our team at Dannible & McKee is here to help you navigate these changes with confidence. Whether you’re seeking to optimize family tax benefits, position your business for growth or ensure full compliance in a shifting regulatory landscape, we are here to help. If you have questions about how the OBBBA may impact your personal or business tax strategy, we invite you to connect with us for personalized guidance.

Contributing author: Sean R. Conners, CPA, is a tax partner with nine years of experience advising clients on individual and corporate taxation, strategic tax planning and regulatory compliance. Sean has specialized expertise in multi-state taxation and works closely with clients to help them navigate complex tax laws and identify opportunities to enhance profitability and growth. For more information on this topic, you may contact Sean at sconners@dmcpas.com or (315) 472-9127 ext. 202.