One Big Beautiful Bill: Top 10 Considerations for Business Owners and Individuals

The One Big Beautiful Bill Act, enacted July 4, 2025, introduces significant changes to the U.S. tax code, with a focus on supporting business investment, simplifying compliance, and making many temporary tax provisions permanent. This update summarizes our initial Top 10 considerations for business owners and individuals.

1. Individual tax rates

For individuals, the top marginal individual income tax rate of 37% is now permanent under the OBBB. However, as in prior years, business owners of pass-through businesses (sole proprietors, partnerships, S corporations) whose business income is taxed on their personal returns may be eligible for a deduction of up to 20% of qualified business income (QBI) under IRC § 199A, effectively reducing the maximum tax rate on QBI to 29.6%.

2. State and Local Tax Cap (SALT Cap)

Beginning with tax year 2025, the SALT deduction cap increases from $10,000 to $40,000 for single filers and married couples filing jointly ($20,000 for married filing separately). This higher cap applies for 2025 and is indexed for inflation in subsequent years, rising to $40,400 in 2026 and increasing by 1% annually through 2029.

For high-income taxpayers, the allowable SALT deduction is phased out: the cap is reduced by 30% of the amount by which a taxpayer’s modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married filing separately), but the deduction cannot be reduced below $10,000. For example, a joint filer with $550,000 in MAGI in 2025 would see their cap reduced by $15,000 (30% of $50,000), resulting in a $25,000 SALT deduction limit. This structure remains in place through 2029, after which, starting in 2030, the cap reverts to its previous level of $10,000 ($5,000 for married filing separately), with no phase-out or inflation adjustment.

3. Charitable Deduction Rules for Corporations and Individuals

Effective for tax years after December 31, 2025, corporations may now only claim charitable contributions exceeding 1% of taxable income (not to exceed 10%) with a five-year carryforward. For individuals, only contributions exceeding 0.5% of AGI are deductible, with similar carryforward rules. For tax years beginning after December 31, 2025, the above-the-line charitable contribution deduction for individuals who do not itemize has been both expanded and made permanent. The new limits are $1,000 for single filers and $2,000 for joint filers.

4. Itemized Deductions

Under the One Big Beautiful Bill, there is a new limitation on itemized deductions effective for tax years beginning after December 31, 2025. Under this rule, the total of itemized deductions a taxpayer may claim is reduced by 2/37 of the lesser of (1) the total itemized deductions otherwise allowable, or (2) the amount by which the taxpayer’s taxable income (before this limitation and increased by itemized deductions) exceeds the threshold where the 37% tax bracket begins for their filing status. Effectively, this means taxpayers in the top tax bracket will see a “haircut” to their itemized deductions.

5. Qualified Business Income Deduction

The 20% QBI deduction for pass-through business owners is extended permanently, with a higher phase-in threshold ($75,000 for single filers, $150,000 for joint filers, indexed for inflation) beginning in 2026. There is also a new minimum deduction of $400 for active business owners with at least $1,000 in QBI, starting in 2026.

It’s worth noting that income from a Specified Service Trade or Business (SSTB) is generally excluded from the QBI deduction if the taxpayer’s taxable income exceeds the applicable threshold amount (Married Filing Jointly: Threshold $394,600; Phase-in Range $394,600 to $494,600 for 2025). However, if the taxpayer’s taxable income is below the threshold, SSTB income is eligible for the QBI deduction. If taxable income is within the phase-in range, a partial deduction may be available based on an applicable percentage.

6. Bonus Depreciation and Section 179

The provision allowing 100% bonus depreciation (full expense) for qualified property applies to property acquired and placed in service after January 19, 2025. For property acquired or subject to a binding contract before January 20, 2025, the original phase-down schedule applies (i.e., 40% for 2025, 20% for 2026, and 0% for 2027 and later). Caution: If a binding contract to acquire property was entered into before January 20, 2025, the property is not eligible for the new 100% expense rate, even if placed in service after that date.

The increased Section 179 expensing limits (maximum deduction of $1,250,000 and phase-out threshold of $3,130,000) apply to taxable years beginning after December 31, 2024 (i.e., effective for the 2025 tax year). For years after 2025, these amounts are indexed for inflation.

7. Limitation on Business Interest Deduction

The limitation on the deductibility of business interest expense is governed by IRC Section 163(j). Generally, the deduction for business interest is limited to the sum of business interest income and 30% of adjusted taxable income, with certain exceptions for small businesses and electing real property trades or businesses. The limitation on deducting business interest expense is now permanently based on EBITDA (earnings before interest, taxes, depreciation, and amortization), allowing larger deductions for many businesses.

8. Research and Development (R&D)

For taxable years beginning after December 31, 2024, the One Big Beautiful Bill repeals the requirement to capitalize and amortize domestic R&D expenditures and instead allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred during the taxable year. However, expenditures attributable to foreign research must still be capitalized and amortized over 15 years. Taxpayers who previously capitalized and amortized domestic R&D costs under the prior law are given transition relief: they may elect to deduct any remaining unamortized domestic R&D expenditures in the first taxable year beginning after December 31, 2024, or alternatively, deduct such remaining unamortized amounts ratably over the two taxable years beginning after that date. This election is available to all taxpayers, but the bill provides a special retroactive option for certain small businesses, which is defined as those meeting the gross receipts test under section 448(c), allowing them to apply the new expensing rules retroactively to taxable years beginning after December 31, 2021, by filing amended returns within one year of enactment. This retroactive relief is not available to large taxpayers, who must apply the new rules prospectively.

9. 1099 Reporting

The 1099 reporting threshold is increased to $2,000 (indexed), reducing compliance burdens for small payment. This change becomes effective for payments made after December 31, 2025.

10. Estate and Gift Tax

Significant changes are made to the estate and gift tax exemption amounts and related provisions beginning in 2025 and beyond. For 2025, the basic exclusion amount for the estate and gift tax is set at $13,990,000, as adjusted for inflation, consistent with the inflation-adjusted amount published by the IRS for that year. Starting in 2026, the base exclusion amount permanently increases to $15,000,000, which is also indexed for inflation using 2025 as the base year for future adjustments. This change eliminates the prior sunset provision that would have reverted the exemption to a lower amount after 2025; instead, the higher exemption is made permanent, with annual inflation adjustments continuing thereafter.

If you have questions about how these changes may affect you or your business, please contact your Kernutt Stokes tax professional. We are here to help.