A lot of tax planning during the first half of 2025 was focused on what might happen if the individual provisions of the Tax Cuts and Jobs Act were allowed to expire at the end of 2025. Thanks to the One Big Beautiful Bill Act, officially H.R. 1, P.L 119-21 (and unofficially the OBBBA), however, Congress has generally extended those provisions and made them permanent.
Congress did not simply extend those TCJA provisions starting in 2026; it also modified some of those provisions effective in 2025. It also added several new provisions effective for 2025. In addition, it terminated some clean energy credits from the Inflation Reduction Act in 2025.
Individual provisions from TCJA
The OBBBA did not simply permanently extend the standard deduction increases of the TCJA; it also made a midyear enhancement in the 2025 standard deductions: now $15,750 for single filers, $23,625 for heads of household, and $31,500 for joint filers. Normally, the standard deduction is taken into account for purposes of determining income tax withholding for the year. The IRS, however, has announced that it will not adjust the 2025 withholding tables. Taxpayers will therefore only see the benefit of the enhanced 2025 standard deduction when they file their 2025 tax return, unless they also make estimated tax payments which they can adjust.
The Child Tax Credit was not only permanently extended but also increased from $2,000 to $2,200 for 2025 and indexed for inflation after 2025.
The state and local tax deduction limit was increased from $10,000 to $40,000 for 2025, although a phase-out starting at a modified adjusted gross income of $500,000 was also included in the OBBBA.
The pass-through entity work-around was also preserved. Even with the income phase-out, the increase in the SALT deduction could open up the use of itemized deductions to more taxpayers as more favorable than the standard deduction.
Trump's tax proposals
President Trump's campaign tax proposals largely made it into the OBBBA, at least in some form, and are generally effective for 2025, although — unlike the permanent extension of the individual provisions — these expire after 2028.
The deduction for tips is new and limited to $25,000 per year and has a phase-out starting at $150,000 MAGI for single filers and $300,000 for joint filers. The Secretary of the Treasury is directed to promulgate a list of qualifying occupations by Oct. 2, 2025.
Qualifying tips are still subject to FICA taxes and must be voluntary and be reported on a segregated basis to the IRS as income to be deductible. The IRS is to provide reasonable methods for businesses to document tips for the first half of 2025.
Those employers will have to identify employees who are eligible for the tip deduction and segregate eligible tip income from other forms of tip income. This will likely require modifications to the manner in which tips are being documented on the books of the business and how they are reported to the IRS. The IRS has also stated that it will not modify Form W-2 for 2025, so it is likely that the agency will have to explain to employers where to report this segregated tip income on the W-2.
Like the tip deduction, the deduction for overtime has similar requirements, except the limit is a relatively low $12,500 ($25,000 for joint filers). Overtime eligibility is determined under the Fair Labor Standards Act of 1938, which requires that overtime pay be at least time-and-a-half. Many employers treat overtime pay as the entire pay for hours worked overtime, the regular pay plus the additional overtime amount. The OBBBA only permits a deduction for the extra overtime amount.
If the employer pays overtime pursuant to state law requirements or labor contracts, some of that overtime may be required to be excluded from the calculation for the deduction if inconsistent with the Fair Labor Standards Act. The business will have to report qualifying overtime on the Form W-2 for employees or Form 1099-NEC for independent contractors to be eligible for the deduction. The IRS has announced that neither form will be modified for 2025, so the agency will likely tell businesses where on the form to report the qualifying overtime amount.
The car loan interest deduction is also available for 2025 up to a maximum of $10,000, but only for interest paid or accrued on a post-2024 loan to purchase a qualified passenger vehicle for personal use with its final assembly in the U.S. VIN number starting with 1, 4 or 5 indicates final assembly in the U.S. Eligibility for the deduction phases out starting at MAGI of $100,000 for single filers and $200,000 for joint filers. Unlike the mortgage interest deduction, this interest deduction is available to both itemizers and non-itemizers.
A new $6,000 senior deduction replaces Trump's proposal not to tax Social Security benefits. The budget reconciliation rules in the Senate would not permit a Social Security provision in the legislation. The deduction is available in 2025 for qualified individuals age 65 and older, whether they have claimed Social Security payments yet or not. It begins phasing out at MAGI of $75,000 for single filers and $150,000 for joint filers. Seniors who do not currently owe income taxes will not benefit from the added deduction.
The tip, overtime, car loan interest, and senior deductions are all below-the-line deductions available to both itemizers and non-itemizers. While this makes them available to non-itemizers, it also means that they do not reduce adjusted gross income, which might otherwise have helped them qualify for other tax breaks and also might have helped with some state income taxes.
The only below-the-line deduction other than the standard deduction and itemized deductions on the most recent tax returns was the qualified business income deduction. Now, there are so many below-the-line deductions that the IRS is likely to create a special 1040 schedule for reporting them, rather than give each a line on the 1040 form.
A new $1,000 charitable contribution deduction ($2,000 for joint filers) for non-itemizers is also a below-the-line deduction. It is not effective until 2026; however, non-itemizing taxpayers might want to consider postponing charitable contributions into 2026 to take advantage of this new tax break.
New Trump Accounts under the OBBBA technically cannot be opened until 2026 but apply to children born after Jan. 1, 2025, and before Dec. 31, 2028. Their main advantage over IRAs is that there are no earned income requirements and they offer $1,000 in seed money from the government. Their main disadvantages compared to IRAs are a lower $5,000 annual contribution limit ($2,500 of which can come from an employer), more limited investment options, and no contributions after age 18. The funds can be rolled over to ABLE Accounts.
Other individual provisions
The adoption credit is now refundable up to $5,000 for tax years beginning after Dec. 31, 2024.
Interest payment requirements on student loans resumed on Aug. 1, 2025.
Effective July 4, 2025, qualifying expenses for 529 college savings plans include curriculum and instruction materials, online educational resources, qualified tutoring, dual enrollment fees, standard testing fees such as SAT and ACT, education therapies for students with disabilities, and post-secondary credentialing such as for the bar and CPA exams, including expenses for maintenance of those credentials.
A new 0.5% floor on itemized charitable contribution deductions does not apply until Jan. 1, 2026; however, the new floor might be worth considering in perhaps accelerating year-end 2025 charitable giving.
Business provisions phasing out
A few business provisions had already started to phase down under the TCJA. The bonus depreciation provision was restored to 100% for property placed in service after Jan. 19, 2025. However, it was not otherwise retroactive, leaving the phase-down from the TCJA to apply. Therefore, 80% still applies for 2023, 60% for 2024, and 40% for early 2025.
New provisions also allow 100% bonus depreciation for qualified production property constructed after Jan. 19, 2025, and before Jan. 1, 2029, and placed in service before 2031.
The limitation on the business interest expense deduction was adjusted back to the original TCJA rules for adjusted taxable income to correspond to earnings before interest, taxes, depreciation and amortization, rather than just interest and taxes, starting in 2025. It was not made retroactive to the start of the EBIT period. The more restrictive limit on the business interest deduction will continue to apply for 2022, 2023 and 2024.
Research and experimental expenses are again back to a 100% deduction starting in 2025, with foreign activity remaining subject to 15-year amortization. It is not retroactive except that small businesses with gross receipts of $31 million or less may retroactively apply 100% expensing to tax years after Dec. 31, 2021.
The AICPA has asked for clarification from the IRS as to whether small-business taxpayers who have not yet filed their 2024 tax return may utilize this change in the originally filed return, and how small-business taxpayers should amend 2022 and 2023 tax returns.
The qualified business income deduction for pass-through entities was made permanent at 20%. Also, the phase-in thresholds were increased to $75,000 for single taxpayers and $175,000 for joint filers, effective for tax years after Jan. 1, 2025, along with a new minimum deduction of $400 with at least $1,000 of QBI.
Other business provisions
Effective after Jan. 19, 2025, capital gains on the sale of farmland may be spread over four years.
Residential construction may use the completed contract method of depreciation rather than the percentage of completion method for contracts after July 4, 2025.
Limitations on Code Sec. 179 small-business expensing are increased to $2.5 million for 2025, with the investment limitation phase-out starting at $4 million.
Changes to Code Sec. 1202 qualified small-business stock are effective for stock acquired after July 4, 2025. The exclusion is now tiered, with a 50% exclusion if held for three years, 75% exclusion if held for four years, and the old 100% exclusion if held for five years. Also, the asset value limit is increased to $75 million.
The Form 1099-K reporting threshold is retroactively changed back to $20,000 or more and more than 200 transactions for 2025 and prior years.
By separate legislation, the IRS proposed requirements for DeFi brokers to report digital asset transactions on Form 1099-DA have been eliminated. The IRS has indicated that it will not revise 1099 forms until 2026. Taxpayers should still be able to reduce 1099-K reporting for the 2025 tax year.
Modifications to the de minimis entry privilege for commercial shipments that had permitted very low-cost items from China and other countries to enter tariff-free have been modified effective July 1, 2027; however, penalties for misuse of the de minimis rules are effective Aug. 3, 2025.
Clean energy credits
The clean energy credits terminating after Sept. 30, 2025, include the Sec. 30D Clean Vehicle Credit, the Code Sec. 25E Previously-owned Vehicle Credit, and the Code Sec. 45W Commercial Clean Vehicle Credit. This deadline will likely have already passed by the time this column is being read.
Clean energy credits terminating after Dec. 31, 2025, which might warrant utilization in the remainder of 2025, include the Code Sec. 25C Energy-efficient Home Improvement Credit and the Code Sec. 25D Residential Clean Energy Credit. Also terminating at year-end is the Code Sec. 45Z Sustainable Aviation Fuel Credit.
Most of the other terminating credits have effective dates later than year-end 2025; however, the Code Sec. 45X Advance Manufacturing Production Credit has some restrictions and phase-outs starting in 2025, and the Code Sec. 45Z Clean Fuel Production Credit includes a provision that, beginning in 2025, fuel must be derived exclusively from domestic feedstock.
Summary
At least Congress has passed the OBBBA in early July rather than in December, as seems often to be the case with tax legislation. This permits a little planning lead time. The IRS will still be busy trying to get out guidance on some of these provisions prior to year-end, and some of the planning may have to await further guidance from them.
There were some indications of a possible delayed start to the 2026 tax filing season; however, the IRS now states that a starting date has not yet been announced. Significant staff reductions at the IRS and continuing cut-backs in funding may also impact the ability of the agency to issue timely guidance.
