How Will the One Big Beautiful Bill Affect You

President Trump just signed the One Big Beautiful Bill (OBBB) into law. Remember during President Trump’s first term, a major Republican complaint was how complex the tax system was. One of the things President Trump said was that the Tax Cuts and Jobs Act of 2017 simplified the tax system by making the 1040 form fit on an index card. Of course, they did that by simply removing questions from the 1040 and adding additional schedules for those questions. No one is talking about the index-card tax return anymore. The OBBB adds many new deductions and credits and changes others. It’s 940 pages long and adds significant complexity to the tax system. We can forget about that index card now!

This tax bill will affect every American and I will try to summarize the major points which will affect average Americans. Many of the bill’s features will kick into place already this year. I have tax-planning software which I use to help clients plan their 2025 taxes and that software became obsolete a week ago when the bill was signed. I await updates, but it may be a while in coming.

Brackets and the Standard Deduction

One of the major provisions of the bill was making permanent the income tax rates and brackets that were originally in the TCJA. Slight changes were made to the standard deduction.

• TCJA tax rates, maxing out at 37% were made permanent. No changes were made to long-term capital gains tax rates or the 3.8% Net Investment Income Tax which kicks in for income above $200,000(single) or $250,000(married).
• Standard deductions were made slightly higher for all Americans. This change kicks in for 2025.

Senior Deduction (No Tax on Social Security)

President Trump had made a campaign promise to remove the tax on Social Security benefits. What ended up in the OBBB is not quite what was advertised but is supposed to be a substitute. What’s there instead is an additional above the line (not itemized) deduction of $6,000 which is means-tested. It is only for those who are 65 years of age or over by December 31st of a given tax year. It starts to phase out at an income of $75,000 (single) or $150,000 (married) and is fully phased out at $175,000 (single) or $250,000 (married). This deduction is available in 2025 but only lasts 4 years and is eliminated in 2029 and beyond.

Child Tax Credit and Dependent Care Deduction

The expanded child tax credit was supposed to sunset after 2025. The OBBB brings the expansion back and does several things:

• Increases the credit to $2,200 for 2025
• Indexes the credit for inflation starting in 2026 so it will probably go up every year.
• Indexes the portion of the tax credit which is refundable (paid even if you owe no tax) for inflation starting this year. The amount refundable is currently $1,400.

Employers already had a credit for dependent care expenses. The OBBB increases those significantly, especially for small businesses.

The adoption credit is enhanced to make up to $5000 of the credit refundable and indexes the credit for inflation. This change is effective in 2025.

Small Business Provisions

There are several changes which will benefit small (and some large) businesses. The first one is the Section 199A Qualified Business Income deduction. This deduction, which had been scheduled to expire after 2025 has now been made permanent. It benefits small businesses which are taxed as pass-through entities. This includes sole proprietorships, partnerships, LLCs, and certain S-corporations. The rules for this deduction are complex, but here are some of the changes in the OBBB:

• Minimum deduction of $400 for taxpayers with at least $1000 in qualifying small business income. This will benefit very small businesses.  Starts in 2026.
• Increases the phase-in range for income limitations. This means more small businesses will qualify for the deduction. Starts in 2026.

There are also some new rules bringing back accelerated bonus depreciation, increasing section 179 depreciation, and accelerated R&D expense deductions. These may be used by small business, but most likely will be applicable to larger businesses.

Prior to the OBBB, businesses could deduct 50% of certain meal expenses for employees. The 50% deduction sunsets after 2025. The OBBB does not change this and in the future food and meals are not deductible for employees. The days of free coffee and snacks at work may be over. Travel meals are still tax deductible at 50%.

Estate and Gift Tax Changes

The TCJA had doubled the unified lifetime estate and gift tax exclusion and indexed it for inflation. With the TCJA the exclusion is $13,990,000 per person in 2025. But this provision sunsetted in 2026 and would have reverted to ½ the current amount. The OBBB sets the 2026 unified exclusion at $15,000,000 and continues to index it for inflation. This provision was made permanent. When you consider that spouses can use the unused amount of their deceased spouse’s exclusion (portability of the exclusion), the actual estate tax exclusion of a couple is now $30,000,000. Very few Americans will be subject to Federal Estate taxes.

Alternative Minimum Tax

Remember the AMT? Before the TCJA, many taxpayers were caught by the AMT, an alternative tax system that did not allow deductions. The AMT thresholds were never indexed for inflation, so they caught more and more taxpayers every year just prior to 2017. The TCJA raised the thresholds high enough that most taxpayers no longer had to pay AMT tax, but the higher thresholds sunsetted after 2025.

The OBBB makes the higher threshold permanent but lowers them slightly to $1,000,000 (Married). The phaseout rate of the exemption also increases to 50% a year up from 25%. When you combine this with the higher SALT deduction, its very possible that more people will be subject to the AMT. At least the new thresholds are indexed for inflation starting in 2027. The new AMT regime starts in 2026.

Itemized Deductions

The TCJA did away with most itemized deductions. The only ones that were left were the Mortgage Interest deduction, the State and Local Tax (SALT) deduction, and the medical expense deduction. The OBBB changed some of these.

• The big change is an increased limit on SALT deduction. The TCJA had capped the deduction to $10,000. The OBBB increases this cap to $40,000 in 2025 and increases the cap by a small amount each year until 2028. In 2029, the cap drops back to $10,000.
• The SALT deduction cap is reduced by 30% of modified AGI above $500,000 (Married) but cannot drop below $10,000. So higher income Americans will not be able to deduct as much. This provision kicks in for 2025.
• The Mortgage interest deduction changes in the TCJA were made permanent. In addition, the OBBB restores the deductibility of mortgage insurance premiums.
• The elimination of the casualty loss deduction except in Federal Declared Disaster areas was made permanent with the addition that governors can now also declare a disaster area and you will be able to deduct losses.
• The non-itemized (above the line) educator expense deduction is now made permanent and athletic equipment is included. The cap is $300 in 2025 and is indexed for inflation.

Prior to the TCJA, itemized deductions could be limited for higher income taxpayers. The TCJA did away with this “Pease” limitation. The OBBB has brought it back. The calculation is complex, but essentially reduces itemized deductions to 35 cents on the dollar instead of 37 cents for any income taxed in the 37% tax bracket.

Gambling Losses

If you are considered a professional gambler, you can deduct gambling losses on your schedule C. If you are not a professional gambler, you deduct them on schedule A, itemized deductions. In the past, you could deduct 100% of your losses up the amount that you won. In other words, you only paid taxes on your winnings minus your losses.

The OBBB has a big surprise for gamblers. You can now only deduct 90% of your losses and not 100%. This is a very onerous tax for higher value gamblers. Here is an example, if you gamble and win $100,000, but then make the mistake of continuing to gamble and lose the $100,000 that you won, you should be even, right? Your net winnings are actually $0 and prior to the OBBB your tax would be $0. But with the OBBB, you can only deduct $90,000 of losses from your winnings, so you will owe tax on $10,000 of phantom winnings. This provision kicks in next year and will probably significantly reduce the gaming and sports betting industry.

No Tax on Tips

You can deduct your tips up to $25,000 if you work in a profession which is normally paid by tips including waitstaff, hairdresser, uber driver, etc. as a non-itemized deduction. This kicks in for 2025 but is only available for 4 years and sunsets in 2029. The deduction phases out when your income rises over $150,000 (single) or $300,000 (married).

No Tax on Overtime

Overtime pay up to $25,000 can also be deducted as an above-the-line non-itemized deduction. There are similar income limitations to the tips deduction, and it is also only available in 2025, 2026, 2027, and 2028.

New Car Loan Deduction

For 2025 and the next 3 years, you can deduct interest on a first-loan for a new vehicle assembled in the USA. The deduction is non-itemized and is capped at $10,000. There is also an income phaseout that starts at $100,000 (single) and $200,000 (married).

Trump Accounts

This is a very interesting new provision of the OBBB. Trump accounts are a new type of savings accounts for children which have complex rules and significant limitations. The upside is that, at least for the next 4 years, the government will deposit $1000 for each child who becomes eligible. Here are some of the rules for the new accounts:

• The account is opened by a parent on behalf of a US-citizen child under 18.
• The federal government will deposit $1000 in each child’s account for children born in 2025, 2026, 2027, or 2028.
• Employers can get a tax deduction for depositing up to $2500 in these accounts.
• Parents and/or grandparents can deposit a non-deductible contribution up to $5000 per year into the account.
• Contributions may be made up until the child’s 18th birthday.
• Investments must be only in low-fee index funds and no other fees may be charged.
• Distributions can be made after age 18 for things like education or first-time home purchase or starting a business. Distributions would be taxed (on gains only) at long-term capital gains rates if distributions are used for these qualified purposes.
• Distributions made for any other purposes are taxed at ordinary income rates.

The rules on the Trump accounts don’t make them a particularly good deal. Other than the initial $1000 government contribution, the taxation rules are not better than other tax-advantaged savings vehicles. 529 plans make more sense for saving for college and UTMA/UGMA accounts sound better for saving for other purposes. Although the accounts are supposed to be available in 2025, this is a totally new program and I would expect it will take some time until we see financial institutions offering them.

Charitable Contributions

There are several provisions which affect charitable contributions in various ways.

• A new non-itemized charitable deduction. There had been one during COVID, but this resurrects that idea and increases the amount to $1000 (single) or $2000 (married). It will only be available 2026+.
• Tax credit for contributions to scholarship granting organizations which give scholarships for elementary and secondary schools. Capped at $1700.
  • This is likely to be aimed at private schools and particularly religious schools.
  • Available in 2027.
• There is a new floor for itemized charitable deductions. You can only itemize charitable donations above 0.5% of your AGI. If your donations are lower than that (but still above the non-itemized limit above), then they can carry over to another year. We have to wait to see how the IRS implements this part of the law, but it would seem that the carryforward of the non-deductible amount means that only the first-year amount is essentially not deducted. This provision is effective in 2026+.
• The limitation of itemized deductions for those in the 37% tax bracket essentially means that the maximum deduction benefit of charitable contributions is 35% of your donation.
• There is a new floor for corporate charitable contributions. They must exceed 1% of taxable income to be deductible. Donations which do not meet the floor may be carried forward to a later year. There is already a cap of 10% of income for charitable donations. The new floor is effective in 2026+.

Higher Education

• The OBBB makes permanent the business tax deduction for education assistance plans that help to pay down employees student loan debt. Indexes the amount for inflation. The maximum amount is $5250 in 2025.
• The OBBB expanded the qualified expenses for tax-free 529 plan distributions to include tuition, books and materials including online, and tuition for tutoring programs for elementary and secondary schools. Also includes therapy for students with disabilities. Increases the amount to for elementary and secondary expenses to $20,000. Available in 2025 after enactment of the bill.
• 529 plans may now be used for vocational and credential training. This could be post-college certifications or alternatives to college. Available in 2025 after enactment of the bill.

Qualified Opportunity Zones

Qualified Opportunity Zones were created by the TCJA and are a real estate investment which allows investors to defer and in some cases avoid capital gains taxes from the sale of other assets. The rules are quite complex and were originally written in a way that only allowed deferment for certain years. The OBBB resurrects these investments for 2027 and beyond. An opportunity zone is an area designated by state governments to be in need of redevelopment.  The bill makes QOZ permanent and allows it to continue to operate in subsequent years. This may be a planning opportunity for those who sell a business or other highly appreciated asset and want to defer the capital gains taxes. QOZ investments are illiquid, and the tax rules are complex. They are not suitable for all investors.

1099K Reporting

Remember that in 2025 any company which paid you more than $2500 was supposed to send you a 1099K. This amount was supposed to be reduced to $600 in 2026. This applies to Venmo and Zelle and at least theoretically to anyone who gave you a check. The 1099K does not mean the amount is taxable, but it does mean its reported to the IRS and you are supposed to list it on your tax return. As an example, I run a tennis game every year where we rent a few courts and the players reimburse me for the court rental. I am not making money; I am just the person who actually pays for the courts. With the current rules I would be getting a 1099K and I would have to explain it to the IRS.

The OBBB changes this to require 1099k reporting if the total was over $2000 per payee. Fortunately, my per-person cost for my tennis court situation is below $2000 and will no longer require reporting.

The OBBB also makes a change to how credit-card processors and companies like Uber have to report paying their clients. The requirement is now payments of more than $20,000 AND over 200 of transactions per year per payee will result in a 1099K being issued. This change is retroactive to 2022.

Clean Vehicle and Energy Credits

The OBBB does away with most of the clean energy tax credits in the Inflation Reduction Act, President Biden’s signature climate and tax bill. You can still get some of the credits if you act fast. Here is a summary:

• Used Clean Vehicle Tax Credit – Sunsets the credit as of 9/30/25.
• New Clean Vehicle Tax Credit – Sunsets the credit as of 9/30/25.
• Commercial Clean Vehicle Tax Credit – Sunsets the credit as of 9/30/25.
• Alternative Vehicle Refueling Property Credit – Sunsets the credit as of 6/30/2026.
• Energy Efficient Home Improvement Credit (insulation, etc.) – Sunsets the credit as of 12/31/25.
• Residential Clean Energy Credit (Solar Panels) – Sunsets (no pun intended) the credit as of 12/31/25.
• Efficient Energy Commercial Buildings Deduction – Sunsets as of 6/30/2026.
• New Energy Efficient Home Credit – Sunsets the credit as of 6/30/26.

There are a lot of additional changes in the OBBB which only affect a small number of taxpayers or are particular to certain investors or businesses. The complexity of this bill means that we will be talking about it for a long time. In some cases, we may not know the details until the IRS publishes the new tax code revisions. There is no doubt that if you pay taxes at all, this bill has affected you and its important to understand how.

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