One Big Beautiful Bill Act updates: Individual Taxation
The "One Big Beautiful Bill Act" introduces significant, permanent changes to the tax code affecting individuals and investors. Below is a summary of the key updates:
Individual Income Tax Rates: The 2017 tax brackets are now permanent, locking in the top 37% rate and indexing all brackets for inflation.
Standard Deductions: The current doubled standard deduction amounts (approximately $15,750 for singles and $31,500 for married couples) are made permanent to avoid a scheduled 50% reduction.
SALT Deductions: The cap on State and Local Tax (SALT) deductions has been increased from $10,000 to $40,000, and the business election for entity-level state tax payments is codified.
Miscellaneous Itemized Deductions: The elimination of miscellaneous itemized deductions for legal, professional, and financial planning fees is now permanent.
Senior Deduction: Individuals turning 65 now qualify for an additional $6,000 deduction per person, with phased-out benefits for those exceeding specific modified adjusted gross income thresholds.
Tax on Tips and Overtime: A new federal deduction is introduced for service workers in industries that customarily receive tips (up to $25,000) and for overtime pay (up to $12,500 for singles and $25,000 for married couples), effective through 2028.
Child & Adoption Credits: The Child Tax Credit is permanently increased to $2,200 per child with inflationary indexing and a refundable portion, while the Adoption Tax Credit is now partially refundable up to $17,000.
Mortgage & Auto Loan Interest: Mortgage interest deductions for primary residences are maintained with strict indebtedness rules, and a new deduction for interest on new US-assembled car loans (up to $10,000) is available through 2028.
529 Plans & Education: 529 plan rules are now permanent, allowing for $20,000 in annual withdrawals to cover workforce training and credentialing expenses.
AMT & Estate Taxes: The Alternative Minimum Tax (AMT) relief is made permanent, and the lifetime estate tax exemption has been raised to $15 million per individual, indexed for inflation.
HSAs: Health Savings Account (HSA) eligibility has been expanded to include more insurance plan types, facilitating continued triple-tax-advantaged savings . To be eligible for HSA, individuals must meet requirements, including being covered by a high deductible health plan (HDHP), can’t have disqualifying health coverage (e.g., Medicare), and not claimed as someone else’s dependent. Self-only HDHP coverage ($4,400 per year); Family HDHP coverage ($8,750 per year). Catch-up contributions, additional $1,000 per person per year for individuals age 55 or older.
Disclaimer:
This blog is intended for informational and educational purposes only and should not be construed as tax, legal, investment, or accounting advice. The content is based on general tax principles and may not reflect the most current legal developments or individual tax situations. Tax laws are subject to interpretation and change, and outcomes may vary based on specific facts and circumstances. You should consult a licensed tax professional or advisor regarding your specific situation before taking any action. Reading this blog does not create a client-advisor relationship.
Big Beautiful Bill: Business Tax Updates
C-Corp Tax Rates: The corporate tax rate for C-Corps remains at a flat 21%, maintaining the structure established by the 2017 Tax Cuts and Jobs Act.
Qualified Business Income (QBI) Deduction: The 199A deduction, which allows for a 20% tax deduction for pass-through entities like S-Corps, partnerships, and sole proprietorships, has been made permanent, though income phase-outs apply for specified service businesses.
Bonus Depreciation: Bonus depreciation has been restored to 100% for assets with a useful life of less than 20 years, allowing businesses to write off these expenses in the first year instead of spreading them out.
Section 179 Expensing: This provision allows for the immediate expensing of equipment, computers, and certain building improvements, providing a powerful tool for businesses to lower taxable income, provided it does not create a loss.
Qualified Small Business Stock: The legislation continues the exclusion for qualified small business stock and updates holding period requirements, allowing for a phased-in capital gains exclusion based on the length of ownership.
Qualified Production Property Deduction: A temporary incentive has been introduced to encourage domestic manufacturing, offering 100% deductibility for investments in non-residential real estate used for production facilities.
Expanded Interest Deduction: New rules regarding the interest deduction cap, set at 30% of EBITD, apply for tax years starting in 2025; businesses with significant debt should consult tax professionals to navigate these complex calculations.
Domestic R&D Expenses: Research and development expenses are now treated with 100% bonus-like deductibility, and businesses under the $31 million threshold may be eligible to retroactively amend tax returns going back to 2022.
Excess Business Loss Limitations: These limitations remain in place and are indexed for inflation, meaning taxpayers must be aware that not all business losses are fully deductible in the year they are incurred.
SALT Deduction: The State and Local Tax (SALT) deduction limitation has been adjusted, with the cap effectively raised from $10,000 to $40,000.
1099 Threshold Changes: The reporting threshold for 1099-K forms for payment processors returns to $20,000 and 200 transactions, while the threshold for 1099-MISC and 1099-NEC forms has been increased to $2,000 and is now indexed for inflation.
Employee Retention Credit: The government has retroactively denied new claims for the Employee Retention Credit filed after January 31, 2024, extended the audit statute of limitations to six years, and increased penalties for fraudulent claims.
Energy & Vehicle Credits: Various clean energy tax incentives, including credits for electric vehicles and home/rental solar installations, are being phased out or eliminated.
Opportunity Zones: The Opportunity Zone program has been made permanent, extending the ability to defer capital gains and providing updated rules for zone redesignations every 10 years and reduced requirements for substantial improvements.
New Markets Tax Credit: This federal program, which incentivizes investment in low-income neighborhoods, has been made permanent, offering investors tax credits for capital placed into qualifying projects.
Corporate Charitable Contributions: The corporate charitable deduction is now permanent, but with a new 1% floor, meaning donations must exceed 1% of the corporation's income to be deductible.
Employer Credits: The employer-provided child care credit has been permanently increased, and the paid family and medical leave credit has also been made permanent, providing businesses with tax incentives for supporting employee welfare.
Disclaimer:
This blog is intended for informational and educational purposes only and should not be construed as tax, legal, investment, or accounting advice. The content is based on general tax principles and may not reflect the most current legal developments or individual tax situations. Tax laws are subject to interpretation and change, and outcomes may vary based on specific facts and circumstances. You should consult a licensed tax professional or advisor regarding your specific situation before taking any action. Reading this blog does not create a client-advisor relationship.