The One Big Beautiful Bill: Major Tax Changes for 2025 and Beyond

On July 4, 2025, Congress enacted H.R. 1, commonly known as the “One Big Beautiful Bill Act” (OBBB). This landmark legislation represents one of the most significant tax overhauls in recent years, building on and extending provisions from the 2017 Tax Cuts and Jobs Act (TCJA) while introducing several new tax benefits. Here’s what you need to know about how these changes will affect your taxes.

What is the One Big Beautiful Bill?

The One Big Beautiful Bill Act is a comprehensive tax reform package that permanently extends many provisions from the TCJA that were set to expire and introduces new tax breaks for individuals and businesses. The law went into effect for tax year 2025, meaning these changes will impact the tax return you file in 2026.

Major Changes for Individual Taxpayers

1. Increased Standard Deduction

Effective: Tax Year 2025

The standard deduction has been increased for all filers:

Single filers: $15,750 (increased by $750)
Married filing jointly: $31,500 (increased by $1,500)

The standard deduction will continue to be adjusted for inflation in future years.

What this means for you: Most Americans who don’t itemize will see an additional reduction in their taxable income, putting more money in their pockets.

2. New Senior Deduction - $6,000 Extra!

Effective: Tax Years 2025-2028 (Temporary)

This is one of the most exciting provisions for older Americans:

Additional deduction of $6,000 for taxpayers age 65 and older
Available whether you take the standard deduction OR itemize
Phases out for higher earners:
- Single taxpayers: Begins phasing out at $75,000 income
- Married taxpayers: Begins phasing out at $150,000 income
- Phase-out rate: 6%

Example: A married couple over 65 with income under $150,000 could claim a total standard deduction of $43,500 ($31,500 + $6,000 + $6,000)!

Important: This deduction is temporary and currently expires after 2028.

3. Enhanced Child Tax Credit

Effective: Tax Year 2025 and Beyond

The Child Tax Credit has been enhanced:

$2,200 per child for 2025 (increased from $2,000)
Adjusted for inflation after 2025
Refundable portion permanently extended
Made permanent (no expiration date)

What this means for families: A family with two children could receive up to $4,400 in tax credits, with the amount increasing in future years based on inflation.

4. Higher SALT Deduction Cap

Effective: Tax Years 2025-2029

The state and local tax (SALT) deduction cap has been significantly increased:

$40,000 cap for 2025 (up from the previous $10,000)
$20,000 cap for married filing separately
Returns to $10,000 cap in 2030

Who benefits: Homeowners in high-tax states like California, New York, New Jersey, and Illinois will see the most benefit from this change.

5. Lower Individual Tax Rates - Now Permanent

The lower individual income tax rates from the TCJA have been made permanent. These include the 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets that were set to expire after 2025.

New Tax Deductions for Workers

Tax Deduction for Tips

Effective: Tax Years 2025-2028 (Temporary)

Workers in qualifying tipped occupations can now claim a tax deduction for their tips:

How it works:

Deduction up to $25,000 per year on qualified tips
This is a tax deduction, not an exemption from withholding
You’ll still have federal income tax withheld during the year
Claim the deduction when you file your tax return
Social Security and Medicare taxes still apply to all tip income

Who qualifies:

Workers in occupations where tipping is customary
Includes restaurant servers, bartenders, hairstylists, barbers, delivery drivers, hotel workers
Excludes professionals in accounting, health care, law, consulting, financial services, athletics, and performing arts
Must provide Social Security number on tax return

Income limitations:

Phase-out begins at $150,000 income (single) or $300,000 (married filing jointly)
Reduced by $100 for every $1,000 over the threshold

Important: This is a temporary provision that expires after 2028.

Tax Deduction for Overtime Pay

Effective: Tax Years 2025-2028 (Temporary)

Workers receiving overtime can claim a deduction for qualified overtime compensation:

How it works:

Deduction up to $12,500 ($25,000 for married filing jointly)
Applies only to overtime premium pay required under the Fair Labor Standards Act (FLSA)
Only the extra half-time portion qualifies for the deduction
This is a tax deduction, not an exemption from withholding
You’ll still have federal income tax withheld during the year
Claim the deduction when you file your tax return
Social Security and Medicare taxes still apply to all overtime pay

Example: If you earn $20 per hour regularly and $30 per hour for overtime work, only the $10 premium (the extra half-time pay) is eligible for the deduction. The regular $20 per hour does not qualify, even though it was earned during overtime hours.

Who qualifies:

Non-exempt workers under FLSA
Must work more than 40 hours per week
Overtime must be required under federal FLSA (not just state law or contract)
Employers will report qualified overtime separately on Form W-2

Income limitations:

Phase-out begins at $150,000 income (single) or $300,000 (married filing jointly)
Reduced by $100 for every $1,000 over the threshold

Important: This is a temporary provision that expires after 2028. Overtime paid voluntarily by employers or required only by state law does not qualify.

Tax Deduction for Car Loan Interest

Effective: Tax Years 2025-2028 (Temporary)

A new deduction is available for auto loan interest, with specific requirements:

How it works:

Deduction up to $10,000 per year in auto loan interest
Vehicle must be new and have final assembly in the United States
Purchased between January 1, 2025, and December 31, 2028
Must be for personal use (not business use)
Includes cars, minivans, vans, SUVs, pickup trucks, and motorcycles

Income limitations:

Phase-out begins at $100,000 income (single) or $200,000 (married filing jointly)

Important: This is a temporary provision that expires after 2028. Used vehicles and foreign-assembled vehicles do not qualify, even if from American brands.

Major Changes for Business Owners

1. 100% Bonus Depreciation - Now Permanent

Effective: Property acquired and placed in service on or after January 19, 2025

Businesses can immediately deduct 100% of the cost of qualifying property in the year it’s purchased, rather than depreciating it over several years.

What this means: If you buy equipment, machinery, vehicles, or computers for your business, you can deduct the full cost right away, significantly reducing your tax bill.

2. Immediate R&D Expense Deduction

Effective: Tax Year 2025

Research and development expenses can now be deducted in the year they’re incurred, rather than being capitalized and amortized over 5-10 years.

Who benefits: Tech companies, manufacturers, and any business investing in innovation and product development.

3. Enhanced Pass-Through Deduction (Section 199A)

Effective: Made Permanent

The 20% deduction for qualified business income from pass-through entities (LLCs, S-Corps, partnerships, sole proprietorships) has been:

Made permanent (no expiration)
Enhanced with a new minimum $400 deduction starting in 2026 for taxpayers with at least $1,000 in qualified business income
Both figures adjusted for inflation after 2026

Example: If your LLC generates $100,000 in qualified business income, you could deduct $20,000, reducing your taxable income to $80,000.

4. Permanently Higher Estate Tax Exemption

Effective: 2026 and Beyond

The estate tax exemption has been permanently set at:

$15 million per individual ($30 million for married couples)
Adjusted for inflation in future years

Who benefits: Business owners and families with significant assets can now pass more wealth to heirs without estate tax concerns.

Charitable Giving Enhancement

Effective: Tax Years Beginning After December 31, 2025

A new deduction for taxpayers who don’t itemize:

$1,000 deduction for single filers ($2,000 for joint filers)
Available to those who take the standard deduction
Does not include contributions to donor-advised funds

What this means: Even if you take the standard deduction, you can still get a tax benefit for charitable giving.

What This Means for Your Tax Planning

For Most Taxpayers:

✓ Larger standard deduction means lower taxable income ✓ Enhanced child tax credits for families ✓ New deductions available for tips, overtime, and car loans (if you qualify) ✓ Charitable deduction even if you don’t itemize (starting 2026)

For Tipped and Hourly Workers:

✓ Tax deduction for tips (up to $25,000 annually) ✓ Tax deduction for overtime premium pay (up to $12,500/$25,000) ✓ Important: These are deductions claimed on your tax return, not exemptions from withholding ✓ Plan ahead: Set aside money throughout the year as taxes are still withheld from your paychecks

For Seniors (65+):

✓ Extra $6,000 deduction (per person!) through 2028 ✓ Simplified tax filing with higher standard deduction ✓ Reduced tax burden in retirement years ✓ Time-limited benefit - expires after 2028

For Business Owners:

✓ Immediate write-offs for equipment and property ✓ R&D expense deductions in the year incurred ✓ Permanent 20% pass-through deduction ✓ Higher estate tax exemption for succession planning

For Homeowners in High-Tax States:

✓ $40,000 SALT cap for 2025 (vs. previous $10,000) ✓ Significant tax savings if you itemize ✓ Annual increases through 2029 ✓ Plan ahead: Cap returns to $10,000 in 2030

Important Considerations

Understanding Deductions vs. Exemptions

Critical distinction: The new provisions for tips, overtime, and car loans are tax deductions, not exemptions:

Federal income tax will still be withheld from your paychecks
Social Security and Medicare taxes still apply to all income
You claim these deductions when filing your tax return
You may receive a larger refund or owe less, but the benefit comes at tax time

Temporary vs. Permanent Provisions

Many provisions have expiration dates:

Temporary (Expire 2028):

Senior deduction ($6,000)
Tips deduction
Overtime deduction
Car loan interest deduction

Temporary (Expire 2029):

Higher SALT cap ($40,000)

Permanent:

Individual tax rates
Enhanced child tax credit
Pass-through deduction (Section 199A)
Estate tax exemption
100% bonus depreciation
R&D expense deduction

Record Keeping Requirements

With new deductions, maintaining excellent records is more important than ever:

For tipped workers:

Daily tip logs for cash tips
Keep all tip reports and statements
Verify tips are properly reported on Form W-2

For overtime workers:

Track overtime hours worked
Verify employer reports qualified overtime separately on Form W-2
Ensure overtime qualifies under FLSA requirements

For car loan deduction:

Keep loan documents and interest statements
Verify vehicle assembly location (must be U.S.)
Maintain proof of purchase date

For all taxpayers:

Maintain detailed business expense records
Document charitable contributions
Keep receipts for all deductible expenses

State Taxes May Differ

Remember that these are federal tax changes. Your state may have different rules:

Tips and overtime deductions may not apply at the state level
State tax may still be owed on these items
State SALT deduction rules may differ
Consult with a tax professional about your specific state

Withholding Adjustments

Important: The IRS has not updated Form W-4 for these new deductions in 2025:

Your employer will continue withholding federal income tax from tips and overtime
You’ll need to pay these taxes throughout the year
Benefit comes when you file your tax return and claim the deduction
Consider adjusting withholding if you’re in a lower bracket due to new deductions

The Bottom Line

The One Big Beautiful Bill provides significant tax benefits, but it’s more complex than headlines suggest. Many provisions are temporary, have income limitations, and require careful documentation. Understanding the difference between tax deductions and tax exemptions is crucial to avoid surprises.

How We Can Help

At R Tax Services, we’re staying on top of all these changes to ensure you:

✓ Understand which provisions apply to you and which don’t

✓ Maximize your deductions under the new law

✓ Properly track and report tips, overtime, and other qualifying income ✓ Take advantage of business provisions if you’re self-employed

✓ Plan for temporary provisions that will expire

✓ Navigate the interaction between federal and state taxes

✓ Avoid common mistakes in claiming new deductions

Our Services Include:

Complete tax preparation incorporating all new provisions
Tax planning to maximize benefits under the new law
Guidance on documentation requirements for new deductions
Business advisory for depreciation and deduction strategies
Retirement and estate planning with new exemption amounts
Year-round support as IRS regulations are clarified

Take Action Now

The 2025 tax year is already underway, and these changes are in effect. Don’t wait until tax season to understand how these provisions affect you.

Schedule a consultation today to discuss:

How these changes specifically impact your situation
Whether you qualify for the new deductions
Strategies to maximize your tax savings
Documentation you need to maintain
Planning for provisions that will expire
Adjusting your withholding appropriately

Note: This blog post provides general information about federal tax law changes and should not be considered personalized tax advice. Tax situations vary, and we recommend consulting with a qualified tax professional to understand how these changes apply to your specific circumstances. Information is current as of October 2025 and is subject to IRS guidance and interpretation. The tips, overtime, and car loan provisions are tax deductions, not exemptions from withholding or payroll taxes.