July 22, 2025
One Big Beautiful Bill Act
The passage and signing of the One Big Beautiful Bill Act (OBBBA) on July 4th, 2025 has ushered in a significant number of changes what will affect the future tax files of all Americans. At Welgaard we are working hard to decern the changes and provide our clients with strategies to capitalize on the opportunities that it offers. We have compiled the following items from the bill that will impact many of our clients.
For Individuals: More Deductions, More Permanence
Standard Deduction Bump: The 2017 Tax Cuts and Jobs Act (TCJA) lives on—with a bonus. Not only are the TCJA’s increased standard deductions now permanent, they’re getting a slight boost in 2025.
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2025 under TCJA (Pre OBBBA)
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2025 under OBBBA
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Single
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$15,000
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$15,750
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Head of Household
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$22,500
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$23,625
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Married Filing Joint
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$30,000
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$31,500
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Married Filing Separate
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$15,750
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$15,750
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Tax Brackets Made Permanent
The individual income tax brackets established under the TCJA will remain in place beyond 2025.
Child Tax Credit Adjustments
Beginning in 2025, the child tax credit increases from $2,000 to $2,200 per qualifying child, and will be adjusted annually for inflation. The $500 credit for other dependents has been made permanent. The refundable portion of the credit and phaseout thresholds remain unchanged.
Qualified Business Income Deduction (IRC Sec. 199A)
The 20% deduction for qualified business income is now permanent. Beginning in 2026, the phase-out thresholds for specified service trades or businesses will rise to $150,000 for joint filers ($75,000 for others). Additionally, a minimum deduction of $400 is available for eligible taxpayers.
Changes to Itemized Deductions
State and Local Taxes (SALT) Deduction
The $10,000 cap has been increased to $40,000 for taxpayers with modified adjusted gross income (MAGI) of $500,000 or less. Both the cap and income threshold are subject to annual increases through 2029, before reverting to the $10,000 cap in 2030.
Mortgage Interest and Gambling Losses
The $750,000 cap on acquisition indebtedness and the disallowance of home equity interest deductions are now permanent. A new 90% limitation on gambling loss deductions takes effect in 2026.
Miscellaneous Deductions
Several previously suspended itemized deductions—such as unreimbursed employee expenses and tax preparation fees—are now permanently repealed. However, certain educator expenses have been expanded and remain deductible under revised rules.
Charitable Contributions
Non-itemizers may now deduct up to $1,000 ($2,000 for joint filers) for charitable contributions. Starting in 2026, itemizers will only be able to deduct charitable contributions exceeding 0.5% of their AGI.
Pease Limitation Repeal
The previous Pease limitation has been replaced by a new formula that reduces the value of itemized deductions for higher-income taxpayers.
Temporary Provisions (2025–2028)
Several taxpayer-friendly deductions will apply only for a limited time:
- Senior Deduction: Individuals age 65+ may deduct up to $6,000 above the line, subject to income limitations.
- Tip and Overtime Exclusion: Partial deductions are available for reported tips and qualified overtime pay, with phase-outs for higher incomes.
- Car Loan Interest Deduction: Taxpayers may deduct up to $10,000 in interest paid on qualifying passenger vehicle loans.
Education Savings and 529 Plans
The definition of qualified education expenses for 529 plans has been expanded. Additionally, the annual limit for tax-free K–12 distributions increases from $10,000 to $20,000 beginning in 2025.
Business Taxpayer Provisions
Bonus Depreciation and Section 179
Full expensing (bonus depreciation) for qualifying assets is now permanent. The Section 179 deduction limit increases to $2.5 million, with a phase-out threshold of $4 million starting in 2025.
Research and Development
Domestic research and experimental (R&E) expenditures will continue to be immediately deductible under the new Section 174A.
Corporate Charitable Contributions
Beginning in 2026, C corporations may deduct charitable contributions only to the extent they exceed 1% and do not exceed 10% of taxable income.
Qualified Small Business Stock (QSBS)
New exclusions have been added for QSBS acquired after July 4, 2025. Depending on the holding period (3, 4, or 5+ years), exclusion percentages range from 50% to 100%.
Form 1099 Reporting Updates
- The Form 1099-K de minimis threshold returns to $20,000 and 200 transactions.
- The filing threshold for Forms 1099-MISC and 1099-NEC increases from $600 to $2,000 beginning in 2026, and will be indexed for inflation.
Conclusion
The 2025 Reconciliation Bill introduces significant changes that affect nearly every taxpayer. While some provisions offer new opportunities, others require careful planning to avoid unintended tax consequences.
Welgaard CPAs & Advisors is here to help you navigate these changes and optimize your strategy. If you have questions about how the new tax law applies to you or your business, we invite you to meet with our team.