One Big Beautiful Bill
The Big Beautiful Bill (Bill) was signed into legislation by President Donald J. Trump on July 4, 2025. The Bill both extended many previous tax laws and created new tax laws for Taxpayers to follow.
Business Tax Changes
Domestic Research and Development costs were one of the most debated topics with the most recent tax legislation. Previously, a percentage of the costs could be taken as a tax credit on the taxpayer’s return, and the remaining portion was expensed in the year paid. Recently, a tax change required the taxpayer to capitalize the expenses and amortize them over a period of sixty months. The Bill now allows for direct expensing of the costs that are not being taken as a credit. The Bill also allows the taxpayer to elect to expense the remaining portion of the previous year’s amortization expense over a one- or two-year period. It is important to note a Form 3115 may need to be filed, though, as this is a change in accounting method.
Another highly debated topic was the reduction of the bonus depreciation percentage by 20% over the last couple of years to 40% in 2025. The Bill allows 100% bonus depreciation to be taken on qualifying assets purchased after January 19, 2025. It is also important to note that qualifying structures that meet specific criteria with construction starting after January 19, 2025, and before January 19, 2029, now qualify for 100% bonus depreciation as well. Along with this, the §179 expense limitation increases from 1 million dollars to 2.5 million dollars, and the phaseout begins at 4 million dollars for property placed in service beginning in 2026.
Before the Bill was passed, C-Corporations could deduct charitable contributions up to 10% of their taxable income (with the remaining being carried forward for five years). The Bill added a floor stating charitable contributions up to 1% of their taxable income are not deductible. The Bill further stated the charitable contributions disallowed due to this new 1% floor can be carried forward only if charitable contributions are being carried forward in the ‘excess of 10%’ category. Please note the taxable income above is calculated without charitable contributions.
Another change comes in the Small Business Stock Exclusion. This exclusion allowed eligible investors to exclude all capital gains on the sale of small business stock, provided certain requirements are met. Previously, one of the requirements was that the taxpayer must have held an interest in the stock for at least 5 years. The Bill now still allows the exclusion of all capital gains of small business stock if the 5-year requirement is met, but it also adds a 75% exclusion if the investment is held for 4 years, a 50% exclusion if held for 3 years, and all others are taxed at a rate of 28%. There are also a few other business tax law changes resulting from the Act. These include the interest expense limitation calculation based on EBITDA (instead of EBIT) and the QBI deduction being made permanent, among others. Other items that were thought to change but did not include the deductibility of the pass-through entity tax and business meals provided by employers to employees being nondeductible, among others.
Individual Tax Changes
Along with the business tax changes, there were many individual income tax changes as well. The first are a trio of above-the-line deductions that taxpayers can take (even if they itemize): senior deduction of $6,000, tip income deduction for the first $25,000 in tips, and overtime deduction for the first $12,500 ($25,000 if filing jointly) in overtime. These three deductions have various phaseouts but are all effective for tax years 2025 through 2028.
The Act also added another above-the-line deduction for auto loan interest up to $10,000 each year. This is only applicable for autos that had final assembly in the United States and is also effective for tax years 2025 through 2028.
Another change is the charitable contribution deduction. Due to the large increase in standard deductions, charitable organizations have seen a decrease in contributions. The Bill added a $1,000 above-the-line deduction for charitable contributions ($2,000 if filing jointly). It is important to note the taxpayer cannot take itemized deductions to receive this. The Bill also added a 0.5% AGI floor for itemized charitable contributions. This means a taxpayer who itemizes cannot take a charitable contribution deduction for contributions less than 0.5% of adjusted gross income.
Another itemized deduction that has caused backlash from the public was the $10,000 limitation on income taxes. For tax years 2025 through 2029, taxpayers can now deduct up to $40,000 ($20,000 if married filing separately) in state tax deductions if they itemize their deductions.
The Act also added Trump accounts for children who are U.S. citizens and have a Social Security number. These accounts can be funded up to $5,000 each year and be withdrawn for qualified expenditures or after the taxpayer reaches retirement age without penalty.
There were also some changes to tax credits. In particular, the Act made the child tax credit permanent and repealed several credits, including the electric vehicle credit and the residential energy tax efficiency credit.
It is also important to note the Act permanently increased the estate and lifetime gift tax exemption to $15 million in 2026. This amount will then be adjusted for inflation for future tax years.
Please note that these changes were recently put into effect and will be reviewed and analyzed. From this, notices and regulations will be issued to clarify many of these provisions. If you have any further questions on any of these, please contact your tax advisor.