On July 4, 2025, President Trump signed the massive reconciliation law referred to as the One Big Beautiful Bill Act (OBBBA – H.R. 1).  And yes, that is a very unusual name for a tax and spending bill.  The House passed its version on May 22, 2025.  The Senate made some significant revisions to the House bill and passed its version on July 1st.  The revised Senate version was then passed by the House on July 3, 2025.
At our Annual Meeting in Scottsdale, Arizona in January, we discussed our priorities with respect to the upcoming tax bill.  We knew the bill would have to be passed before this September in order for it to be passed under the reconciliation process.  Reconciliation allows the Senate to pass the bill by a simple majority rather than the 60 vote margin required to cut off a filibuster.  This allowed the legislation to be passed with only Republican votes.
Our top priorities (in no specific order) with respect to the tax bill were:
  •  Having the Section 199A 20% deduction for qualified business income earned through pass-through entities be made permanent – we were successful
  • Increasing the $10,000 limit on SALT (state and local tax) deductions for individuals  – again another success but with significant cutbacks for those making more than $500,000
  • Making the doubled estate tax exemption contained in the 2017 Tax Act permanent  – successful with an additional increase
  • Reinstating the 100% bonus depreciation and providing for current expensing of research and experimental expenditures – successful
  • Allowing children to have Roth IRAs by removing the earned income limitation – partially successful – see below for more on the newest IRA kid on the block – Trump Accounts
  • Increase in the dependent care limit – successful
Section 199A
 
Internal Revenue Code (IRC) section 199A provides for a 20% deduction for qualified business income earned through pass-through entities (sole proprietors, partnerships, LLCs taxed as partnerships and Sub-S corporations).  Under the 2017 Tax Act, this section was set to expire at the end of 2025. It was critical to have this provision made permanent so there would be at least some tax rate parity with C corporations. We spent time explaining to key players on the Hill and other small business groups that if the C corporate tax rate went down as suggested by the President then the 20% deduction would have to be increased to maintain tax rate parity.  Strangely, this was one of the few provisions the President wanted that was not included in the bill so there was no decrease in the C corporate tax rate.
We also wanted simplification of the section, an increase in income limitations and to treat all small businesses the same rather than singling out specified service trade or business companies (SSTBs) for harsher treatment.  The section was not simplified and SSTBs are still singled out for discriminatory treatment.  However, effective for taxable years beginning after December 31, 2025, OBBBA increased the income limitations by raising the phase-in range from $50,000 to $75,000, for non-joint filers and from $100,000 to $150,000 for joint filers. It also provides for a minimum $400 (adjusted for inflation) deduction for taxpayers having at least $1,000 of qualified business income from one or more “active qualifying trade[s] or business[es]” (generally any qualified trade or business in which the taxpayer materially participates within the meaning of Section 469(h)).
Increase in SALT limitation
OBBBA raises the limitation on individual deductions of state and local taxes to $40,000 for joint filers ($20,000 for other filers) with a 1% increase in the cap for 2026-2029.  Beginning in 2030, the limit reverts to $10,000 again. The deduction phases down for incomes above a designated level – for 2025 the threshold for the phase down is $500,000 for married couples filing jointly (or $250,000 for married taxpayers filing separately). The effect of the phase down is that at $600,000 of income, the SALT deduction becomes $10,000.  The SALT cap will not drop below $10,000.  The $40,000 deduction is adjusted upward by 1% starting in 2026 when it becomes $40,400. In 2030, the deduction drops back to $10,000.
Another success was knocking out a provision that had been included in the House bill which would have limited the ability to take a SALT deduction at the pass-through entity level from the Senate bill (which was the version that became law).  [Thanks to Deidre Hartmann for bringing this to our attention and giving us time to try to block the misguided House version.]
Estate Tax Exemption Increased and Made Permanent
 
OBBBA included a permanent $15,000,000 exemption for estates of decedents dying after December 31, 2025 with a COLA adjustment.  Even though set forth as a priority in Project 2025, the estate tax rate was not reduced.  The GST tax exemption was also made permanent at the same $15,000,000 exemption with the COLA adjustment.
100% Bonus Depreciation and Current Expensing of Research and Experimental Expenditures
 
Under OBBBA, 100% bonus depreciation is made permanent for qualified property acquired and placed in service on or after January 19, 2025. Current expensing for domestic research and experimental (R & E) costs is made permanent for expenditures paid or incurred in tax years beginning after December 31, 2024.  Small taxpayers with average annual gross receipts below a statutory threshold are generally allowed to apply the current deductibility rules retroactively to tax years beginning after
December 31, 2021.
Trump Accounts
 
Somewhat of a surprise and perhaps inspired by a proposal developed by SBCA member, Larry Eisenberg, one of the outstanding retirement plan lawyers in the country, is a new type of IRA account for children under 18.  Larry’s idea, which was adopted by the SBCA members at the Annual Meeting was to remove the earned income limitation from Roth IRAs so contributions could be made for very young children without requiring them to have a job.  Of course, the power of tax free compounding is nothing short of astounding. Larry’s reasoning was that if even a relatively small amount was contributed to an IRA while a child was young, by the time the individual reached retirement age there would be significant retirement funds in the IRA.
The new Trump Accounts are a new form of Individual Retirement Account (but not a Roth IRA) subject to special rules until the year a child turns age 18, and thereafter would generally be treated in the same manner as an IRA. To be eligible for a Trump account, the account beneficiary must be below the age of 18 before the close of the calendar year in which the account is established and have a Social Security number.
Trump account funds can grow tax-free until they are withdrawn but must be invested in mutual funds or ETFs that track the returns of a qualified index (such as the S&P 500 or other index funds that are primarily comprised of U.S. companies), do not use leverage, do not have annual fees and expenses of more than .1 percent of the balance of the fund investment and meet other criteria Treasury determines appropriate.  Distributions would be subject to ordinary income tax.
Under the new law, Treasury could set up Trump accounts for individuals whom it identifies as eligible and for which no Trump account has already been established.  Contributions to a Trump account are generally limited to $5,000 per child per calendar year for years prior to the year in which the child turns age 18 and are not tax deductible. Contributions must be made by December 31 of the applicable year. Beginning in 2028, the annual contribution limit will be indexed for inflation. No contributions of any kind may be made until 12 months after the enactment date of the OBBBA.
Under the Trump accounts Contribution Pilot Program, the Treasury Department will give a one-time $1,000 contribution for a U.S. citizen child born after 2024 and before 2029, if elected by the child’s parent. This contribution does not count toward the $5,000 annual contribution limit.
 Any individual (e.g., parent, grandparent) may establish a Trump account for a child under age 18, but the account must be initially funded by a “qualified rollover contribution.”  It is not clear what a qualified rollover contribution means in this context.  At least one commentator suggests that it means contributions must be made to an account initially established by the Treasury Department with an approved trustee and then rolled over – not sure this makes sense since it appears that the Treasury Department would only be setting up these accounts for those who are to receive the $1,000 contribution from the government. These contributions count toward the $5,000 annual limit. Some commentators question whether the contributions by parents, grandparents and friends are gifts of a future interest and therefore do not qualify for the annual exclusion.  We think the regulations will make it clear that they are gifts of a present interest and thus fall under the annual exclusion ($19,000 for 2025).
Clearly this is an area where a number of questions will be answered during the year before these accounts can receive contributions.  However, keep in mind this may be an area where there will be real growth potential to assist a child with the purchase of a home, paying for college and/or providing for retirement income security.
Dependent Care Increase (finally!)
Starting for taxable years after December 31, 2025, OBBBA increases the limit on dependent care to $7,500 ($3,750 for married individuals filing separately).
Other major items in the tax bill that we think will be of interest to SBCA members include (this is by no means an exhaustive list):
  • An extra deduction of $6,000 per person for single filers age 65 or older with income up to $75,000 and joint filers up to $150,000 before phasing out.  This deduction applies for tax years 2025 through 2028.  Regardless of what you may have read on social media or even from the Social Security Department of the federal government, this is the only provision that has any bearing on removing social security from taxation.,000 before phasing out.  This deduction applies for tax years 2025 through 2028.  Regardless of what you may have read on social media or even from the Social Security Department of the federal government, this is the only provision that has any bearing on removing social security from taxation.
  • Under Section 179, OBBBA allows for immediate expensing of the cost of qualifying property up to $2.5 million, with a phase out threshold that begins to reduce the deductible amount when costs exceed $4 million for property placed in service after Dec. 31, 2024. In general, qualifying property is defined as depreciable tangible personal property, off-the-shelf computer software and qualified real property that is purchased for use in the active conduct of a trade or business.
  •  OBBBA caps the value of itemized deductions at 35 percent beginning in 2026.  This change impacts taxpayers who are in the top 37% income tax bracket.  This is obviously a reduction in the value of the itemized deductions.
  • Starting for tax year 2026, OBBBA provides a charitable contribution deduction for individuals – $1,000 for single filers; $2,000 for joint filers – who do not itemize deductions.  The new bill makes it clear that contributions to donor-advised funds and private foundations are only deductible if the taxpayer itemizes and thus, not included in the $1,000 and $2,000 deduction above.
  • A new limit places a floor of .5% on itemized deductions of charitable contributions. For example, a filer with $300,000 of MAGI would get no deduction for the first $1,500 of charitable donations on Schedule A. This change is also effective in 2026. The lost deduction can be carried forward to future years. As an aside, it has been estimated that 20 billion dollars have been lost to charities since the changes made to charitable contributions by the 2017 Tax Act.
  •  The increased alternative minimum tax exemptions set forth in the 2017 tax bill are made permanent at the 2018 exemption phase out levels of $500,000 ($1 million for joint filers) and is indexed for inflation starting in 2027. OBBBA increases the phase out of the exemption amount to 50 percent (from 25 percent) of the amount by which a taxpayers AMT income exceeds the threshold amount.
  • The new law permanently increases the child tax credit by $200 to $2,200, effective for 2025 and thereafter indexed for inflation (also makes permanent the $1400 refundable child credit, indexed for inflation); subject to income phase-outs at $200,000 ($400,000 for joint filers); both taxpayers and dependents must have Social Security numbers in order to claim.
  • Starting in 2026, OBBBA expands tax-free withdrawals from 529 education savings plans to include more K-12 expenses such as tuition, books, on-line costs, qualified tutors, standardize tests for college admission, and expenses for certifications and licenses for trade credential programs
  • OBBBA eliminates tax on overtime for tax years 2025-2028, generally limited to a federal income tax deduction of $12,500 ($25,000 for joint filers), with phase-outs for those earning more than $150,000 ($300,000 for joint filers). This is limited to overtime pay required under Section 7 of the Fair Labor Standards Act of 1938 to be paid greater than the regular rate of pay.
  •  For tax years 2025-2028, the “no tax on tips” provision allows for a deduction up to $25,000 for single filers with income up to $150,000 and joint filers up to $300,000 before phasing out.  This is only available for individuals who are in an occupation which traditionally and customarily receives tips. Tip income is still subject to payroll taxes.  The skeleton crew remaining at Treasury has 90 days to publish qualifying industries.
  • The new law allows a deduction for certain new car loan interest (only if the vehicle’s final assembly occurs in the U.S.) of up to $10,000 for tax years 2025 through 2028 for those earning $100,000 or less ($200,000 for joint filers), with a phase-down thereafter. This is only available to passenger vehicles.
  There is the possibility of one or more additional reconciliation bills during late 2025 and 2026.