Major Tax Changes Become Law
On July 4th, “One Big Beautiful Bill” was officially signed into law, now referred to as “One Big Beautiful Act,” marking a significant transformation to the Internal Revenue Act.
This Act makes many of the provisions from the 2017 Tax Cuts and Jobs Act permanent, introducing new deductions and credits while implementing substantial reforms in both domestic and international tax policies.
Here’s a brief overview of the most impactful tax provisions:
- Permanent Tax Cuts for Individuals and Businesses
The Act eliminates the sunset provisions for lower individual tax rates and increased standard deductions, making these changes permanent. The standard deduction will rise to an additional $23,625 for heads of households and $15,750 for singles starting in 2024. Additionally, the expanded child tax credit will become permanent, increasing to $2,200 per child, with inflation adjustments and more stringent SSN requirements included. - Enhanced Qualified Business Revenue Deduction
The Act strengthens the Section 199A deduction for Qualified Business Income (QBI). The thresholds for wages and property restrictions will rise to $75,000 ($150,000 for joint filers), with a minimum $400 deduction for moderate-income individuals, which can enhance access to the benefit for small business owners. - Permanent Mortgage Interest and SALT Deduction Limits
The $750,000 cap on mortgage interest deduction is now permanent, along with permanent treatment of mortgage premiums as deductible interest. The state and local tax (SALT) deduction cap will rise to $40,000 in 2025 (separate from $20,000), due to inflation adjustments. However, it will revert to $10,000 starting in 2029. - Miscellaneous Deductions
For the years 2025-2028, individuals can deduct up to $25,000 in tips and overtime, with specific conditions. Additionally, auto loan interest deductions and a new tax-protected account for children under 18—allowing a $5,000 yearly contribution—are being introduced. Furthermore, charity deductions up to $1,000 ($2,000 jointly) will be permanent, although certain thresholds apply for deductibility. - Depreciation and R&D Costs
The Act brings 100% bonus depreciation for qualified business properties permanently into effect and allows immediate expenditure on most business investments. For Section 179 expenses, limits rise to $2.5 million, while domestic R&D spending can be expensed in full, unlike international spending which is subject to a 15-year amortization period. - Energy and Green Tax Credits
Effective from September 30, 2025, the Act limits or terminates several clean energy credits including those for residential energy properties and improved energy-efficient homes. - Employee Retention Credit Changes
New stringent rules are introduced for employee retention credits (ERCs), including penalties for promoters and a six-year limit on IRS assessments, curtailing new or amended ERC claims beyond January 31, 2024.
To conclude, while the law is declared “permanent,” tax legislation can be flexible, allowing for rewrites at Congress’s discretion. This overhaul has considerable implications for individuals, businesses, and international stakeholders.
It’s advisable for taxpayers to discuss with their advisors about how these changes might affect their planning and compliance after 2025.
