THE "ONE BIG BEAUTIFUL BILL ACT" (OBBBA or OB3 for short)
- Jamee Mitchell EA
- Aug 14, 2025
- 8 min read
It’s impossible to discuss taxes right now without talking about the "Big Bill" signed into law on the 4th of July! There were many revisions along the way which have led to a lot of questions and misinformation. When asked how I feel about the bill, I tell people that I’m 50/50. Here is my opinion along with a summary of what you need to know and how it will impact you!
Permanent Tax Changes (Most of which we like)
Those of us in the practitioner community generally agree that these are the most impactful items. They simplify the tax code, stimulate the economy and help to equitably distribute the tax burden. Of course, the term “permanent” is used loosely since there is an excellent chance the next administration will undo many of these changes.
Tax Rates: The individual income tax rates and brackets established under the Tax Cuts and Jobs Act (TCJA) of 2017 were slated to expire at the end of 2025. Those are now permanently extended! This prevented what would have been the largest tax increase in U.S. history consisting of a 3% rate hike for everyone making under $500k per year and 2% for those making over that. This is by far the biggest benefit of the new bill!
Standard Deduction: The higher standard deduction that we have become accustomed to for the past 7 years is also made permanent and remains indexed for inflation. (e.g., $15,750 for singles, $31,500 for joint filers for 2025 plus an additional $1,600 for those 65 and over).
Child Tax Credit: Like the standard deduction, we have gotten used to the $2,000 child tax credit for kids 16 and under. This is not only made permanent but will now also be indexed for inflation.
Senior Deduction: Both parties made campaign promises to stop double-taxing Social Security. Instead, as a consolation, individuals aged 65+ will get an additional $6,000 deduction, which phases out above certain income thresholds. This is in addition to the higher standard deduction which remains in place and does not phase out with higher incomes.
Charitable Contributions: Starting in 2026, there will be an above-the-line deduction for the first $1,000 each person gives to charity. Every book on finance I’ve ever read advises giving generously to charity. Historically, this deduction was reserved for those who itemize but this change allows everyone to benefit. Donations must be in cash rather than in-kind. Charitable gifts over this amount will still be itemized only now are subject to a 0.5% floor and remain limited to 60% of AGI.
Elimination of Solar and EV Credits: The credit for electric vehicles will go away at the end of Sep 2025 and the 30% solar and home energy credits that we wrote about here will disappear at the end of Dec 2025. If you are planning on installing solar, do it before the end of the year! Some may disagree with this one, but in this author’s opinion, a few solar panels in select neighborhoods are ultimately not the answer to climate change. The future of green energy is nuclear, and it will be financed through public utilities, not individual households.
Gambling Losses: The new law seriously discourages gambling by limiting deductible losses to just 90% of winnings. That means that 10% of all gambling winnings will now be taxable! This is on top of the fact that winnings skew AGI upward, costing many gamblers to phase out of tax deductions and lose things like health insurance benefits. The moral of the story is to stay away from the casinos! If you want the thrill of gambling, maybe try the stock market instead.
State and Local Tax (SALT): This deduction, formerly limited to $10,000 total, is now increased to $40,000. This ends up benefiting taxpayers in states with higher income or property taxes more than lower taxed states. Even so, the loophole for business owners to prepay their state taxes remains - you can read more about that here.
Increased 1099 Thresholds: We get a lot of questions about paying people “under the table” for day labor and small jobs. Historically, anyone paid more than $600 per year must receive a 1099-NEC. Starting in 2026, that threshold will be increased to $2,000 per year. Additionally, vendors being paid through platforms such as Square and Stripe will not receive a 1099-K form unless their sales exceed $20,000 per year. This benefits the gig economy and frees small businesses from unnecessary paperwork.
Qualified Business Income (QBI): Essentially, this gives qualified business owners a 20% discount on their taxes. This provision, originally intended to put pass-through entities in the same tax bracket as stand-alone entities such as C-corps, has already been in effect for 7 years. It has become a staple in the business world and is considered a small consolation for the many thankless hours business owners often work.
Bonus Depreciation: Business owners can now elect to expense 100% of qualified property placed in service after January 19, 2025 rather than depreciating over several years. There is a long sorted history behind this change but the logic is that businesses will buy more stuff if it's tax deductible thereby stimulating the economy.
Opportunity Zones: Not a lot of taxpayers take advantage of these, but they allow anyone with a large capital gain to roll their proceeds into qualifying low-income communities. After 10 years, part of the proceeds become tax free. If you or someone you know is facing a large capital gain, give us a call and we will be happy to review the options in greater detail.
Temporary Changes (The things we generally do NOT like!)
Effective tax administration requires consistency and fairness. These provisions accomplish neither by not only benefiting specific groups but adding complexity to an already burdensome tax system. In fact, the IRS has announced that they will need extra time to implement these changes. As a result, they will not start accepting tax returns this year until February 16th, delaying refunds by a full month and shortening the filing season to less than 60 days! Please be patient with us as this will mean many late nights for us accountants and more extensions than usual.
Tip Income: Eligible workers can deduct up to $25,000 of tips annually. This will be relatively simple to calculate since tips are already reported on W2 forms. The question is SHOULD we be doing this. I love this for my friends who will benefit from it but, if we are being honest, no one likes tipping culture and this only enhances it! Tips also remain subject to FICA taxes so the savings may not be as large as advertised.
Overtime Pay: Workers can deduct up to $12,500 per individual of FLSA overtime pay. There is currently no mechanism for tracking this so, at least for the first year, it will be on the “honor system.” Just like the deduction for tips, overtime pay will remain subject to FICA tax. While we support hard-working Americans, we also support parents being home with their kids instead of being enticed to work overtime. It also makes no allowance for small business owners, many of whom regularly work more than 40 hours per week.
Auto Loan Interest: Up to $10,000/year in interest is now deductible on loans for new, U.S. assembled vehicles. This sounds like a big deal until you realize that a 5% loan on an average-priced vehicle only equates to around $300 per year in tax savings. Plus, it’s not available for singles making over $100k or $200k for joint filers.
Premium Tax Credit: Often referred to as “Obamacare” this health insurance subsidy will become substantially less attractive! The credit was originally intended to help families between 2x and 4x the federal poverty level to pay for health insurance. In practice it has become a guessing game of borrowing money and trying to figure out how much must be repaid. To further complicate issues, in response to the pandemic, the government temporarily doubled the amount a family could make for 2022 and 2023 and still receive a subsidy. When that ended, many of our clients found themselves paying more than they expected for health insurance in 2024 (which unfortunately does not always equate to quality health CARE.) Thanks to the “Big Bill” the problem only gets worse:
As of 2026, there will be no floor on repayments. Families with an unexpected windfall were only required to repay part of their premium subsidy. That will no longer be the case so BEWARE when you renew your health insurance not to understate your income.
Starting in 2028, the marketplace will implement stricter rules when signing up for marketplace insurance making it harder to qualify.
For those who find themselves unable to afford traditional insurance, we remain huge fans of medical sharing arrangements. These are similar to credit unions where participants pool their resources and share the savings. A couple of our current favorites include Start Health and Zion Healthshare. (We are not affiliated with either company, we just like their service.)
Trump Accounts: American babies born between 2025 and 2028 are eligible to receive $1,000 from the government. This money will be held in an account that the child cannot access until they turn 18. At that time, it will be treated as a traditional IRA. Up to $5,000 per year can be added to the account, but there is literally no economic benefit for doing so. Although this experimental program is expected to benefit bankers and money managers far more than the children receiving the funds, who is going to say “no” to an extra thousand dollars? It remains to be seen how many Gen-Alpha beneficiaries will save the money and how many will spend it. As a sidebar, there may be an opportunity for savvy businesses to market goods and services to that generation when those accounts start to mature in 2043. And here's an interesting thought; Unless Donald Trump lives to be 101, he will not likely be around to see how these accounts play out that bear his name.
Other Considerations: The bill also addresses many non-tax issues which will likely affect our lives to varying degrees. We will leave comments on these topics for another time which address such issues as:
Border Security, including funding for the border wall and immigration policies.
Healthcare, making changes to the Affordable Care Act and potential cuts to Medicaid.
Energy Policy, enhancing energy production and curbing the government’s involvement in the deployment of renewable energy.
Other Areas, including international issues, transgender rights, LGBT issues and even AI regulation.
How will this affect you?
We estimate that the combined effect of these provisions will save our average client around $1,000 per person per year plus another $3,000 potential tax hit avoided by the rate cuts. Nevertheless, the bill is not without controversy.
Proponents say that the bill benefits families and small businesses and is essential to our country’s financial health.
Opponents say it’s overly complex and fiscally irresponsible, adding $3.4 trillion to the national debt over the next 10 years. There are also concerns about “benefit skew”.
It’s possible that both things are true! Projections show that those making over $200k/year will stand to gain tens of thousands annually in tax benefits. Middle-income earners will see more modest gains of only a few thousand per year while those below the poverty level stand to lose over a thousand dollars per year in safety-net programs such as Medicaid and SNAP. At the same time, a return to the 2017 TCJA tax rates would have had a HUGE negative impact on the economy.
There are parts of this bill that had to happen and elements that we despise. Could it have been better? Absolutely! Will the economic benefits trickle down and create more robust economy? Who knows? Will the Laffer effect result in more net tax revenue? Maybe, but nowhere near enough to cover the huge cost of the bill. Politics is the art of compromise, and as Abraham Lincoln said, "you can't please all the people all the time". This bill attempts to do neither!
What we DO know for sure is that whatever happens, The Tax Company will be here to help you adapt to and benefit from the many changes.
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