On May 12, 2025, the House Ways and Means Committee released its draft tax legislation as part of the 2025 budget reconciliation process. This proposal, informally referred to as the “One Big Beautiful Bill,” aims to extend and expand provisions from the 2017 Tax Cuts and Jobs Act (TCJA), introduce new tax incentives, and implement structural reforms affecting individual taxpayers, businesses, international and nonprofit organizations. On July 4, 2025, President Donald J. Trump officially signed the bill into law. The following is a high-level summary of certain key considerations.
Individual Income Tax Reforms:
Individual Tax Rates & Brackets
Previous Law: Individual tax rates from the Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025, reverting back to higher pre-2018 rates.
New law: Personal exemptions were eliminated by the TCJA and standard deductions increased set to expire at the end of 2025.
Standard Deduction Enhancement
Previous Law: Personal exemptions were eliminated by the TCJA and standard deductions increased set to expire at the end of 2025.
New law: Permanently eliminates the personal exemption and increases the standard deduction, with a temporary enhancement through 2028. Starting in 2025 single taxpayers would see a rise from $15,000 to $15,750, head of households would rise from $22,500 to $23,625, and married couples filing jointly would increase from $30,000 to $31,500.
State and Local Tax Deduction
Previous Law: The state and local tax deduction (SALT) was capped at $10,000, or $5,000 for Married Filing Separate through 2025.
New law: Temporarily increases the cap on the itemized deduction for SALT to $40,000 for 2025 and increases the cap by 1% from that level through 2029, subject to a phaseout for taxpayers with incomes above $500,000, then reduces the cap to a flat $10,000 thereafter.
Child Tax Credit Expansion
Previous Law: Increased the child tax credit to $2,000 per qualifying child through 2025.
New law: Makes the expiring child tax credit permanent with an increased maximum of $2,200 in 2026, inflation adjusted thereafter.
Alternative Minimum Tax Exemption
Previous Law: The increased AMT exemption and phaseout thresholds were set to expire at the end of 2025.
New law: The Bill permanently extends the TCJA’s increased individual alternative minimum tax exemption amounts and exemption phase-out threshold.
Estate and Gift Taxes Exclusion Expansion
Previous Law: The exemption was temporarily doubled to about $14 million through 2025 but was scheduled to decrease to approximately $7 million in 2026.
New law: The exemption (including GST tax) is permanently increased to $15 million (indexed for inflation after 2026) for gifts made and estates administered after 2025. This preserves the ability to transfer historically high levels of wealth free of federal estate and gift tax.
Itemized Charitable Deductions
Previous Law: There was no minimum threshold (or “floor”) required to claim charitable contribution deductions when itemizing exceed 0.5% of the taxpayer’s AGI (if taxpayer AGI is).
New law: Creates a 0.5% floor on itemized deductions for charitable contributions, meaning that charitable contributions will only be deductible to the extent they exceed 0.5% of the taxpayer’s AGI (if taxpayer AGI is $100,000, then charitable contributions would need to exceed $500. If total charitable contributions are $1,000, only $500 would be deductible). Caps the tax benefits of charitable contributions at 35%, even for those in the 37% marginal tax bracket, resulting in a 2% deduction add back as additional tax.
Non-Itemized Charitable Deductions
Previous Law: Charitable contributions were only deductible for taxpayers who itemized their deductions.
New law: Creates a permanent $1,000 above-the-line deduction for charitable contributions ($2,000 for joint filers).
No Tax on Tips
Previous Law: N/A
New law: Temporarily makes up to $25,000 of tip income deductible for individuals in traditionally and customarily tipped industries for tax years 2025 through 2028; deduction phases out at a 10% rate when adjusted gross income exceeds $150,000 ($300,000 for joint filers).
No Tax on Overtime
Previous Law: N/A
New law: Temporarily makes up to $12,500 ($25,000 for joint filers) of the premium portion of overtime compensation deductible for itemizers and non-itemizers for tax years 2025 through 2028; the deduction phases out at a 10% rate when adjusted gross income exceeds $150,000 ($300,000 for joint filers).
Car Loan Interest Deduction
Previous Law: N/A
New law: Temporarily make auto loan interest deductible for itemizers and non-itemizers for new autos with final assembly in the United States for tax years 2025 through 2028; deduction limited to $10,000 and phases out at a 20% rate when income exceeds $100,000 for single filers and $200,000 for joint filers.
Business Tax Provisions:
Car Loan Interest Deduction
Previous Law: Research and Development expenses (R&D) had to be amortized over five years (domestic R&D) or 15 years (foreign R&D).
New law: Permanently restores immediate expensing for domestic R&D expenses effective 1/1/25; small businesses with gross receipts of $31 million or less can retroactively expense R&D back to after 12/31/21 (if eligible, you can amend your 2022, 2023, and 2024 returns to deduct previously capitalized R&D costs in full. The deadline for this election is July 4, 2026); all other domestic R&D between 12/21/21 and 1/1/25 can accelerate remaining deductions over a one- or two-year period (specifically, taxpayers will file form 3115 and elect to deduct any remaining unamortized domestic R&D costs for previously capitalized R&D expenditures in one year to maximize their current year deduction, or two years to spread out the deduction evenly over both years).
Accelerated Depreciation (not applicable to CA and other states)
Previous Law: Allowed 80% bonus depreciation for qualified property placed into service in 2023, phasing down by 20% each year until it sunsets after 2026.
New law: Permanently reinstates 100% bonus depreciation for qualifying tangible personal property with a recovery period of 20 years or less and placed in service after January 19, 2025. Introduces a new 100% bonus depreciation for Qualified Production Property, which is nonresidential real property primarily used for manufacturing, production, or refining of tangible personal property, provided construction begins after January 19, 2025, and is completed before 2030, and the property is placed in service before January 1, 2031.
Section 179 Deduction Increase (not applicable to CA and other states)
Previous Law: The maximum amount a taxpayer could expense under Section 179 for 2025 was scheduled to be $1.25 million with a phase-out for businesses that placed in service more than $3.13 million of Section 179 property during the year.
New law: The maximum Section 179 deduction for 2025 is increased to $2.5 million with a phase-out when the total cost of Section 179 property placed in service during the year exceeds $4 million, and adjusted annually for inflation (includes HVAC, fire protection, alarm and security systems for nonresidential property; can’t be used for land improvements; trusts are not eligible to claim section 179 depreciation deductions.
Qualified Small Business Stock (QSBS) Exclusion
Previous Law: 100% of the capital gain, up to a maximum of $10 million or 10x basis (whichever was greater), was excluded from tax, provided the stock was held for at least five years. To qualify, it had to be C-corporation stock, and the company’s gross assets could not exceed $50 million at the time of stock issuance.
New law: For QSBS acquired after July 4, 2025, the maximum gain exclusion per shareholder increases from $10 million to $15 million, with future adjustments for inflation. The holding period for gain exclusion is now phased in: 50% exclusion after three years, 75% after four years, and 100% after five years, replacing the previous five-year cliff. The aggregate gross assets limit for qualifying corporations rises from $50 million to $75 million, also indexed for inflation, allowing more businesses to qualify for these benefits.
Pass-Through Business Deduction
Previous Law: The Qualified Business Income (QBI) deduction allowed a 20% deduction for qualified passthrough business income, including income-based limitations for specified service trades or businesses (SSTBs) with phase-out thresholds of $50,000 ($100,000 joint), and set to expire at the end of 2025.
New law: Makes the 20% QBI deduction permanent. The phase-out threshold is increased to $75,000 ($150,000 joint), and a $400 minimum deduction is established for active business income, with inflation adjustments beginning in 2027.
Business Interest Expense Limitation Under § 163(j)
Previous Law: Before 2022, the calculation of Adjusted Taxable Income (ATI) for purposes of the 30% limitation on business interest expense included the add-back of depreciation and amortization deductions, effectively making it an EBITDA-based calculation. For tax years beginning after December 31, 2021, the calculation of ATI no longer included the add-back of depreciation and amortization, making it more akin to an EBIT-based calculation and potentially limiting the
New law: Permanently restores the calculation of Adjusted Taxable Income (ATI) for Section 163(j) purposes to an EBITDA-equivalent approach. For tax years beginning after December 31, 2024, the law reinstates the add-back of a taxpayer’s depreciation, amortization, and depletion expenses when calculating ATI. Includes new provisions that would treat certain capitalized interest expense as subject to the Section 163(j) limitation and other limitations that reduce the cap in certain circumstances amount of deductible interest expense for many taxpayers.
Limitation on Excess Business Losses
Previous Law: Before 2022, the calculation of Adjusted Taxable Income (ATI) for purposes of the 30% limitation on business interest expense included the add-back of depreciation and amortization deductions, effectively making it an EBITDA-based calculation. For tax years beginning after December 31, 2021, the calculation of ATI no longer included the add-back of depreciation and amortization, making it more akin to an EBIT-based calculation and potentially limiting the amount of deductible interest expense for many taxpayers.
New law: Makes the excess business loss limitation permanent for noncorporate taxpayers. The inflation-adjusted thresholds for the loss limitations remain in effect. Losses exceeding the limitation continue to be treated as net operating losses (NOLs) and are carried forward to future years for federal tax purposes (treatment for state tax purposes may vary for different states. Any excess disallowed loss created for taxable years beginning after December 31, 2024, must be included in the subsequent year’s testing of the excess business loss limitation, thereby only offsetting business income in future years and preventing the use of large losses to offset other income.
Business Meals Deduction (Clients)
Previous Law: The TCJA largely eliminated deductions for business entertainment, while retaining the 50% deduction for business meals with clients, provided certain conditions were met. These conditions included the meals not being lavish or extravagant, the taxpayer or an employee being present, and a business purpose being discussed. If entertainment and a meal occurred together, the meal portion had to be separately stated from the entertainment portion on a receipt for the meal deduction to be allowed.
New law: Client meals from restaurants are 100% deductible for the years 2025 and 2026 and reverting back to 50% deductible after 2026. Non-restaurant meals with clients are not deductible. Must meet same criteria of not being lavish, having a business purpose discussed, and a representative of the taxpayer being present. If a meal occurs during an entertainment event, the meal’s cost must still be separately stated on the receipt.
Business Meals Deduction (Employees)
Previous Law: The TCJA limited the deduction for meals provided by employers for the convenience of the employer, including those in employer-operated eating facilities, to 50%. This was a change from prior law where these meals were 100% deductible. The TCJA also included a provision that would have eliminated this 50% deduction entirely after December 31, 2025. Meals that qualify as de minimis fringe benefits (e.g., office snacks and beverages) were 100% deductible under
Previous Law the TCJA.
New law: Meals provided by employers for the convenience of the employer are not deductible. Restaurant meals for office gatherings are 100% deductible for years 2025 and 2026 and reverting back to 50% deductible after 2026. Non-restaurant for employees are not deductible. Meals sold to employees at fair market value are treated as income and deductible if properly documented. Lavish / extravagant meals are still disallowed.
Foreign Tax Provisions:
Foreign Derived Intangible Income (FDII)
Previous Law: The deduction for FDII was 37.5%, resulting in an effective tax rate of 13.125% (assuming a 21% corporate tax rate). However, the deduction was scheduled to decrease to 21.875% (resulting in an effective tax rate of 16.406%) for taxable years beginning after December 31, 2025. FDII was reduced by a deemed 10% return on the domestic corporation’s Qualified Business Asset Investment (QBAI). FDII is exclusively available to C corporations.
New law: FDII is renamed “foreign-derived deduction eligible income” (FDDEI). The deduction for FDDEI is permanently set at 33.34%, resulting in an effective tax rate of 14% (assuming a 21% corporate tax rate). The calculation of FDDEI no longer includes the deduction for deemed tangible income return (10% of QBAI). Interest expense and R&E expenditures are explicitly excluded from the deductions when determining deduction-eligible income (DEI). Income and gain from the sale or other disposition of intangible property and any other property subject to depreciation, amortization, or depletion are excluded from DEI.
Global Intangible Low-Taxes Income (GILTI)
Previous Law: The effective tax rate on GILTI was initially 10.5% (with a 50% deduction under Section 250), rising to 13.125% after 2025 (with a reduced 37.5% deduction). GILTI was reduced by a deemed 10% return on QBAI of controlled foreign corporations (CFCs). US corporations could credit 80% of foreign taxes paid on their GILTI. As a result, no incremental GILTI tax applied if the foreign tax rate was at least 13.125% (or 16.406% after 2025). Expenses, including interest and R&E expenditures, were allocated to tested income for purposes of computing GILTI. GILTI rules primarily apply to U.S. shareholders of CFCs.
New law: GILTI is now known as Net CFC Tested Income (NCTI). The effective tax rate on NCTI is permanently set at 12.6% (with a 40% deduction). The 10% QBAI exclusion is eliminated, meaning NCTI applies to the full net income of CFCs. The foreign tax credit limitation is increased to 90%, meaning no incremental NCTI tax applies if the foreign tax rate is at least 14%. Interest and R&E expenses are now explicitly excluded from being allocated to NCTI for foreign tax credit limitation purposes. A 10% disallowance applies to foreign taxes on distributions of Previously Taxed Earnings and Profits (PTEP) from GILTI/NCTI.
Base Erosion and Anti-Abuse Tax (BEAT)
Previous Law: The BEAT rate was 10% and was scheduled to increase to 12.5% for tax years beginning after December 31, 2025. BEAT generally applied to corporations with annual gross receipts over $500 million and a base erosion percentage of 3% or higher (2% or higher for banks and registered securities dealers).
New law: The BEAT rate is permanently set at 10.5% for taxable years beginning after December 31, 2025, avoiding the scheduled increase to 12.5%. Continues the taxpayer-favorable treatment of the R&D credit, low-income housing tax credit, renewable electricity production credit, and Section 48 credit for BEAT taxpayers with regular tax liability. The current base erosion percentage threshold of 3% is maintained.
Other Provisions:
Excise Tax on Excess Compensation (applicable tax-exempt organizations)
Previous Law: 21% excise tax on compensation exceeding $1 million applied only to the top five highest-paid employees (including certain former employees).
New law: Significantly expands the scope of the excise tax beginning 2026, applying it to all current and former employees (not just the top five) who receive compensation exceeding $1 million in a taxable year.
Opportunity Zones (OZ)
Previous Law: The OZ program operated over a 10-year window and provided investors with three tax benefits for investing their unrealized capital gains into eligible distressed communities: 1) A temporary deferral on taxes for capital gains rolled over from a non-OZ investment into a qualified opportunity fund (QOF) to be invested into an OZ. The taxes are not realized until 2026 or when the asset is sold/disposed of, whichever comes first; 2) A step-up in basis on their previously earned capital gains that were invested in a QOF. Investments held for five years receive a 10% step-up in basis and investments held for seven years receive an additional 5% step-up in basis (for a total of 15%); 3) For investments held for at least 10 years, taxpayers receive a permanent exclusion of taxable income on the gains resulting from the original investment in the QOF.
New law: Establishes a permanent OZ policy, creating a rolling 10-year OZ designation beginning in 2027. After five years, the original rollover gain receives a 10% basis step-up. After 10 years, 100% of the gain from the OZ investment is excludable when the investment is sold. There are also enhanced tax benefits for rural zone OZ investments.
Considerations and Conclusion
The One, Big, Beautiful Bill makes many of the TCJA’s individual tax cuts permanent, providing certainty, but also introducing complexity through temporary provisions and income limits. While there are benefits for low- and middle-income families, analysts suggest higher earners will see the greatest impact. In 2027, 59% of the tax cuts will be to those making over $200,000, compared to 49% under the TCJA. The bill provides higher percentage and dollar tax cuts to those earning $200,000 and above, with the largest benefits accruing to those in the $500,000+ and $1 million+ income groups.
The bill presents a mixed bag for businesses. While permanent extensions of key deductions like 100% bonus depreciation and the QBI deduction provide valuable certainty and potential cash flow benefits, the changes in international taxation and the clean energy sector introduce new challenges and compliance hurdles. Taxpayers, particularly those with international operations or clean energy investments, must proactively engage with their tax advisors to understand the specific implications of these provisions, adjust their strategies accordingly, and ensure compliance in a rapidly evolving tax landscape.
Some changes (e.g., enhanced standard deduction) streamline filing for certain taxpayers, however the introduction of tiered excise taxes, temporary caps, and overlapping deductions will likely increase complexity for tax preparers and small businesses. Expanding enforcement and ensuring compliance—particularly around wealth transfers, SALT caps, and nonprofit rules—would require significant IRS resources.
Regarding clean energy, the bill marks a policy shift, scaling back incentives for certain clean energy technologies while maintaining and expanding others, particularly clean fuels. The accelerated phase-outs and new restrictions, especially those related to foreign entities, create a more complex environment for development. Stricter enforcement measures in a recent executive order highlight the need for stakeholders to understand these changes. The bill may reduce government spending, but its long-term effects on the clean energy transition, economy, and environment are still being debated and analyzed.
As with the TCJA, there may be limited guidance available on the interactions between federal changes and existing state laws, and states may ultimately choose to conform, exclude, or reduce the impact of these provisions. Many states may have limited ability to assess these federal provisions to address conformity, leading to a lack of clarity on how states will tax certain items.
Our firm is actively analyzing these provisions and will continue to provide timely updates and tailored guidance to assist clients in navigating the new landscape, optimizing their tax positions, and ensuring compliance. Please do not hesitate to contact us to discuss the specific implications for your unique circumstances and explore strategic planning opportunities under the new law.
