Tax Monitor

The 2025 Tax Act, aka "One Big Beautiful Bill": Initial Takes

July 18, 2025

By: Stacey K. Skillman and Robert G. Tweel

Just before the July 4th holiday, Congress passed the 2025 Tax Act (referred to in this article as the “Act” and formerly referred to as the One Big Beautiful Bill or OBBB). The new law is broad and sweeping. This update provides an overview of some of the key components of the Act. As we receive your questions and feedback in the coming weeks and months, we will check back in to address additional aspects that are generating discussion.

The Act makes the 2017 Tax Cuts and Jobs Act tax cuts permanent and expands qualified small business stock benefits. The Act introduces new temporary tax breaks for individual taxpayers who are seniors and for other individual taxpayers related to tip income, overtime income, and car loan interest.

For businesses, the 2025 Tax Act includes several business-friendly provisions, such as full expensing for domestic research and experimental expenditures, immediate expensing of certain business property, and a permanent extension of qualified opportunity zones, which were also introduced in the 2017 Tax Cuts and Jobs Act.

Refresher on the 2017 Tax Cuts and Jobs Act (TCJA) and Enhancements of the 2025 Tax Act        

The TCJA made significant changes to the federal tax system. The TCJA reduced individual tax rates, nearly doubled the standard deduction, increased the unified gift and estate tax exemption amount to $10 million per person (adjusted for inflation), capped the state and local tax (SALT) deduction at $10,000, and introduced other significant changes.

The 2025 Tax Act extends and makes the following enhancements to these key TCJA provisions:

1. Tax Rates.  Extends lower tax rates and brackets for individuals (brackets remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%) and lower tax rates and brackets for trusts and estates (brackets remain at 10%, 24%, 35% and 37%).
2. Standard Deduction.  Increases the basic standard deduction statutory amounts for tax years beginning after 2025 to: $31,500 for joint filers and surviving spouses; $23,625 for heads of household; and $15,750 for singles and marrieds filing separately.
3. Gift and Estate Tax.  Increases the unified gift and estate tax exemption amount to $15 million per person (adjusted for inflation) in 2026.
4. SALT Deduction.  Increases the state and local tax (SALT) deduction cap to $40,000 for married individuals filing jointly ($20,000 for married taxpayers filing separately) but returns to $10,000 in 2030.

While the 2025 Tax Act makes these key provisions of the TCJA permanent, in this context, “permanent” means the provisions do not have a set expiration date. Congress can always change the provisions through future legislation.

QSBS Exclusion Extended

The Act provides that gain on the "applicable percentage" (50% for stock held for 3 years, 75% for stock held for 4 years, 100% for stock held for 5 years) is eliminated for qualified small business stock (“QSBS“) acquired after July 4, 2025. Also, the gain exclusion threshold is increased from $10 million to $15 million and the $50 million aggregate gross asset limit is increased to $75 million (subject to inflation adjustments).

New Temporary Tax Breaks for Individual Taxpayers

The Act introduces new temporary tax breaks for workers and seniors for 2025 through 2028.

1. Tip Income Deduction.  Up to $25,000 of tip income is deductible for taxpayers in “traditionally tipped occupations.” “Traditionally tipped occupations” will be defined by the IRS within the next 90 days. Deductible tip income must be reported on a form provided by the employer and will be subject to employment taxes.  Phase out starts for modified adjusted gross income in excess of $150,000 ($300,000 married filing jointly) and completely phases out for modified adjusted gross income in excess of $400,000 ($550,000 married filing jointly).  Note, this does not change an employer’s withholding and reporting obligations on wages.
2. Overtime Income Deduction.  Up to $12,500 ($25,000 for joint filers) of overtime income is deductible.  The deduction applies only to the additional pay received above the standard rate, must be reported on the employee’s W-2, and will also be subject to employment taxes.   Phase out starts for modified adjusted gross income in excess of $150,000 ($300,000 married filing jointly) and completely phases out for modified adjusted gross income in excess of $275,000 ($425,000 married filing jointly).  Note, this does not change an employer’s withholding and reporting obligations on wages.
3. Car Loan Interest Deduction.  Up to $10,000 of car loan interest is deductible on a loan used to purchase a qualifying vehicle, with reductions for those with incomes above $100,000 ($200,000 for joint filers). The car must be purchased (not leased) between 2025 and 2028, must be for personal use, and final assembly must have occurred in the United States.  
4. Senior Deduction.  An additional $6,000 deduction is available for seniors aged 65+ with income under $75,000.

Additional Provisions for Individual Taxpayers

The Act includes the following additional provisions for individual taxpayers:

1. Dependent Care Assistance Programs. The Act increases the annual tax-free limit for amounts paid or incurred by an employer pursuant to a dependent care assistance program to $7,500 ($3,750 for a married individual filing separately). This provision is effective for tax years beginning after 2025.
2. Adoption Credit. Starting in 2025, the adoption credit is enhanced to include a refundable portion of up to $5,000 per child (indexed for inflation). This means eligible taxpayers can receive up to $5,000 as a refund even if they owe no tax, making the credit more valuable for lower-income families.
3. Moving Expenses. The Act makes the prior suspension of the moving expense deduction and exclusion permanent for most taxpayers. However, the exception for active-duty members of the Armed Forces moving due to a military order and permanent change of station remains. There is also a new exception for U.S. intelligence community employees and appointees who relocate due to a change in assignment. This is effective for tax years after 2025.

Business Tax Provisions

For businesses, the following are a few noteworthy provisions:

1. Immediate Expensing of Domestic Research and Experimental Expenditures.  The Act allows businesses to immediately deduct domestic research and experimental expenditures for tax years beginning after December 31, 2024, reversing the prior law’s amortization requirement.
2. Increased Expensing Limits on Certain Business Property (Section 179 Expensing).  Code Section 179 allows immediate expensing deductions for certain business property. The Act increases the expensing limit to $2.5 million annually (up from $1 million) and increases the phase-down threshold to $4 million, effective for property placed into service in tax years beginning after December 31, 2024.
3. Qualified Opportunity Zones. The Act establishes a permanent opportunity zone policy, creating rolling, ten-year opportunity zone designations beginning on January 1, 2027. The Act also creates a new category of qualified rural opportunity funds.  The Act also creates a tax deferral beyond 2026 of 5 years for gain reinvested in an opportunity zone after December 31, 2026.  Note, for sales and investments in QOZs occurring prior to January 1, 2027, the gain will be includable on December 31, 2026.  The new rules for 5-year deferral of gain become effective on January 1, 2027.
4. Employee Retention Tax Credit (ERTC). Because a substantial number of employers have sought to receive the ERTC, the OBBB creates new denials of these claims.  Although an eligible employer was potentially entitled to claim a COVID-related ERTC until April 15, 2025, the Act prohibits IRS from issuing any ERTC refunds after July 4, 2025 (unless the taxpayer had filed the refund or credit claim before Jan. 31, 2024). The Act also adds a new $1,000 penalty on a "COVID-ERTC promoter" who aids or advises on COVID-ERTC documents without meeting due diligence requirements when determining eligibility for, or the amount of, a credit or advance payment under Code Sec. 3134 (the penalty is $1,000 per violation).       

The 2025 Tax Act delivers a broad package affecting everyone, and, in many aspects, provides clarity for tax and estate planning decisions that may have been on hold while Congress was considering the OBBB. We will continue to monitor and report on developments related to the implementation of the 2025 Tax Act. In the meantime, please reach out to your primary Jackson Kelly contact for questions related to the Act.

• Stacey K. Skillman
• Robert G. Tweel