One Big Beautiful Bill Act (OBBBA) Signed Into Law

Jul 10, 2025

On July 4, President Trump signed into law H.R.1, widely recognized as the One Big Beautiful Bill Act (OBBBA). This comprehensive legislation introduces significant budgetary measures addressing border security, defense, energy policy, and federal spending reductions. Most notably, OBBBA represents one of the most consequential federal tax reforms since the Tax Cuts and Jobs Act of 2017 (TCJA), with far-reaching implications for both individuals and businesses.

The most prominent provisions are outlined below. For a more comprehensive overview of how these changes may impact your specific situation, we encourage you to connect with your William Vaughan Company advisor.

Key Provisions for Businesses

  • Research and Experimentation (R&D) Deductions: OBBBA establishes new IRC Section 174A, enabling immediate deductibility of domestic R&D expenses incurred after December 31, 2024, replacing the prior five-year amortization rule, and enhancing tax benefits for U.S.-based innovation. Companies with capitalized domestic R&D expenses between 2022 and 2024 can elect to accelerate those deductions. Eligible small businesses, generally those with average annual gross receipts not exceeding $31 million, can elect to retroactively apply the full expensing of domestic R&D expenses to tax years beginning after December 31, 2021, by amending their returns for 2022, 2023, and 2024 to claim refunds for taxes paid because of amortization. Other taxpayers with capitalized domestic R&D expenses between 2022 and 2024 can choose to accelerate deductions of the remaining unamortized amount over a one or two-year period, starting with the 2025 tax year. Foreign R&D expenditures remain subject to 15-year amortization.
  • Bonus Depreciation: Restores 100% bonus depreciation, allowing businesses to immediately expense qualifying assets placed in service after January 19, 2025, thereby eliminating the previously scheduled phase-down.
  • Qualified Production Property (QPP): Manufacturers can claim a 100% deduction for the cost of new “qualified production property,” including nonresidential real property, defined as property used in a “qualified production activity” (the manufacturing, production, or refining of a qualified product that results in a substantial transformation of the property). This change applies to qualified property placed in service after the date of enactment and before January 1, 2031.
  • Business Interest: Restores the more favorable EBITDA-based calculation for the business interest deduction limitation under Section 163(j) for tax years beginning after December 31, 2024. This reverts to the approach used from 2018 through 2021, which generally allowed larger deductions. It also provides specific rules regarding the interaction of the business interest expense limitation with other tax provisions that capitalize interest.
  • Pass-through Businesses: Makes permanent the Section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-in window from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly).
  • Pass-through Entity Tax (PTET) Elections: Electing pass-through entities (PTEs) can continue to deduct state income taxes paid at the entity level, effectively allowing business owners to bypass the limitation on individual SALT deductions.
  • Advanced Manufacturing Investment Credit: The advanced manufacturing investment credit rate increases from 25% to 35% for property placed in service after December 31, 2025.
  • Federal Tax Exclusion for Capital Gains from Qualified Small Business Stock (QSBS): Updates Section 1202 of the Internal Revenue Code by raising gain exclusion caps from $10 million to $15 million and allowing investors to access tax benefits after a shorter holding period (as little as three years in some cases). The asset limit is also increased from $50 million to $75 million, making it easier for larger start-ups to qualify.
  • Employee Retention Tax Credit: Retroactively bars the IRS from issuing refunds for Employee Retention Tax Credit (ERTC) claims for Q3 2021 (and in some cases Q4 2021) filed after January 31, 2024. The bill also requires ERTC promoters to comply with due diligence requirements regarding a taxpayer’s eligibility and the amount of an ERTC for affected quarters. In addition, OBBBA includes a $1,000 penalty for each failure to comply and extends the penalty for excessive refund claims to employment tax refund claims.

Key Provisions for Individuals

  • Tax Rates: Permanently extends most of the individual income tax rate structures established by the TCJA of 2017.
  • Standard Deduction: Makes the TCJA’s increased standard deduction amounts permanent. For tax years beginning after 2024, the standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. The standard deduction will be adjusted for inflation thereafter. These changes are retroactive to include 2025.
  • SALT Cap: The $10,000 cap on state and local tax deductions is raised to $40,000 for most taxpayers. However, the benefit phases out for households with adjusted gross income (AGI) exceeding $500,000, tapering to restore the lower cap for high earners. Both the SALT cap and the income threshold for the phase-out will increase by 1% each year from 2026 through 2029. The $40,000 limit is not permanent; it is scheduled to revert to $10,000 starting in 2030.
  • Alternative Minimum Tax (AMT): The higher AMT exemptions under the TCJA are made permanent, reducing the likelihood of AMT applying for many taxpayers. The exemption phase-out threshold is set at 2018 levels under the TCJA ($500,000 for singles and $1 million for joint filers), indexed for inflation. The exemption also phases out more quickly for higher earners.
  • Excess Business Loss (EBL) Limitations: Makes permanent the current limitations on business losses allowed to offset non-business income, with losses exceeding the limit treated as net operating losses (NOLs) and carried forward to future years.
  • New Deduction for Seniors: OBBBA provides a temporary bonus deduction of $6,000 for individuals age 65 or older (and for each spouse meeting the criteria in the case of a joint return) for taxable years 2025 through 2028. The deduction phases out for joint filers with income starting at $150,000 and $75,000 for all other taxpayers.
  • Charitable Contributions: Creates a permanent deduction for taxpayers who do not itemize. For tax years beginning after December 31, 2025, non-itemizing taxpayers can claim a deduction of up to $1,000 (single filer) or $2,000 (married filing jointly) for certain charitable contributions.
  • Child Tax Credit: Extends and enhances provisions related to the Child Tax Credit (CTC), including increasing the nonrefundable portion of the credit to $2,200 per child. The refundable Additional Child Tax Credit (ACTC) remains at $1,700 for 2025 and will be adjusted annually for inflation. The nonrefundable portion of the CTC will also be indexed for inflation beginning in 2026. Taxpayers must have a valid Social Security number for themselves (or one spouse if married filing jointly) and the qualifying child.
  • Tips & Overtime Pay Deductions: Establishes new above-the-line deductions for the 2025–2028 tax years, allowing taxpayers to deduct up to $25,000 per individual in tip income and up to $12,500 per individual (or $25,000 for joint filers) in overtime compensation. These deductions are subject to phase-out at specified AGI thresholds.
  • Individual Trust Accounts (Trump Accounts): Introduces a new category of tax-advantaged accounts specifically designed to support children under age 18. These accounts can be utilized for qualified expenses such as education, small business investments, and first-time home purchases. Annual contributions are capped at $5,000 per account, with a one-time, government-funded deposit of $1,000 for eligible children born between December 31, 2024, and January 1, 2029. Employers are also permitted to make tax-free annual contributions to these accounts.

Other Notable Provisions

  • Estate Planning: Increases the estate, gift, and generation-skipping tax exemption amounts to $15 million for estates of decedents dying and gifts made after December 31, 2025, and makes them permanent. This is compared to the TCJA’s temporary $10 million exemption (adjusted for inflation to $13.99 million in 2025).

Next Steps
The impact of the One Big Beautiful Bill Act is substantial, introducing changes that warrant continuous review and proactive planning. We strongly recommend that you engage with your William Vaughan Company advisor to assess how these legislative developments may affect your tax liabilities, cash flow, and overall business or personal wealth strategies. Our team is here to help you navigate these complexities and identify opportunities aligned with your objectives.

Categories: Tax Planning