Breaking Down the “Big Beautiful Bill” (The Act of 2025)
Taxes—everyone feels like they’re paying too much. While we won’t wade into that debate, let’s take a closer look at some key facts to put the new tax law into perspective:
Tax Distribution:
- Taxpayers earning $100,000 or less make up 76% of all tax returns but contribute only 13% of income taxes.
- Taxpayers earning over $100,000 represent 24% of returns but shoulder 87% of the income tax burden.
Federal Revenue Breakdown:
- Individual income tax accounts for 49% of federal revenue, followed by payroll tax (35%), corporate tax (11%), and other sources (5%).
Given these numbers, it’s clear that changes to tax laws will disproportionately impact higher-income earners, as they contribute the majority of tax revenue. Now, let’s dive into the details of the new tax law. You’ll likely find some provisions you love—and some you don’t.
Provisions for Individuals (Effective 2025)
- Clean Vehicle Credits:
Credits for clean vehicles will end for purchases made after September 30, 2025. - Dependent Deductions:
Personal dependent deductions are permanently replaced by the $2,000 child tax credit. - Standard Deduction:
Married couples: $31,500
Head of household: $26,625
Singles: $15,750 - Senior Deductions:
Seniors can claim an additional $6,000 standard deduction (2025–2028), phasing out for AGIs over $75,000 ($150,000 for a joint return)
Note: This benefit only applies to those using the standard deduction, not itemizers. - Itemized Deduction Changes:
State and Local Taxes (SALT): Deduction limit increases from $10,000 to $40,000 (2025–2029), but reverts to $10,000 for incomes above $600,000.
Car Loan Interest: Up to $10,000 in interest is deductible for U.S.-assembled vehicles (2025–2028) deduction pertains to post-2024 loans, phasing out for incomes over $100,000 (single) or $200,000 (joint). - Tip Income:
Up to $25,000 in tip income is deductible (2025–2028) for traditionally tipped industries, phasing out at $150,000 (single) or $300,000 (joint). - Overtime Income:
Deduct up to $12,500 ($25,000 joint) of overtime pay (2025–2028), with phaseouts at $150,000 (single) or $300,000 (joint).
Provisions for Businesses (Effective 2025)
- R&D Expenses:
Businesses with gross receipts under $31 million can expense R&D costs retroactively to 2022 while still qualifying for the R&D tax credit. - Charitable Contributions:
Corporations must meet a 1% taxable income floor to deduct charitable contributions. - QBI Deduction:
The Qualified Business Income deduction is now permanent, with slightly higher income thresholds for service businesses. - Bonus Depreciation:
100% bonus depreciation is permanently restored. However, businesses should weigh the long-term impact of deducting expenses before they’re paid. - Section 179 Write-Offs:
The phaseout threshold for Section 179 deductions increases from $1 million to $2.5 million. - Qualified Structures:
Bonus depreciation applies to certain nonresidential structures used in production activities (2025–2029). - 1099-K Filing Threshold:
The threshold for third-party networks (e.g., eBay, Etsy) increases from $2,500 to $20,000 and 200 transactions. - Small Business Stock:
Tax breaks for qualified small business stock improve, with better benefits for stock held 3–5 years (applies to stock acquired after July 4, 2025). - Childcare Tax Credits:
Employers can claim a 40% tax credit for qualified childcare expenses, which may help attract and retain employees.
Provisions Effective 2026
- Estate Tax Exemption:
Increases to $15 million per individual, adjusted for inflation. - Child Tax Credit:
Increases to $2,200, with inflation adjustments. - Energy Credits:
Residential energy credits for home improvements end after 2025. - Trump Child Savings Accounts:
Parents can contribute up to $5,000 annually for children under 18, with employers contributing up to $2,500.
Federal government provides a $1,000 contribution for babies born between 2025–2028. - Daycare Tax Credit:
Rates range from 20%–50%, with maximum costs of $3,000 for one child and $6,000 for two or more. - Obamacare Subsidy Repayment:
Expanded verification of income, family size, and immigration status for Marketplace subsidies. - Student Loan Assistance:
Employers can pay up to $5,250 annually toward employee student loans, tax-free. - Educator Expenses:
Teachers and coaches can deduct $300 for classroom or sports-related supplies. Beginning in 2026, the deduction becomes an itemized deduction and the $300 limit is removed. - 1099 Nonemployee Compensation Filing Threshold:
Increases from $600 to $2,000, adjusted for inflation. - Itemized Deduction Changes:
High-income taxpayers’ itemized deductions are capped at 35%.
Charitable contributions must exceed 0.5% of AGI to qualify.
Gamblers can only deduct 90% of losses against winnings. - Charitable Deductions for Non-Itemizers:
Individuals can deduct $1,000 ($2,000 for married couples) for cash contributions. - Excise Tax on Foreign Transfers:
A 1% tax applies to money transfers to foreign locations.
Provisions Effective 2027
- Scholarship Charities:
Contributions to scholarship-granting charities may qualify for a 100% tax credit (up to $1,700).
Rural Investment Incentives
The law enhances Opportunity Zones for rural areas, now called Qualified Rural Opportunity Funds. Benefits include:
- Tax deferral on capital gains from other property sales.
- A 30% basis step-up for investments held 5+ years.
- Permanent exclusion of capital gains for investments held 10+ years.
This comprehensive tax overhaul has something for everyone to analyze, debate, and plan around. Whether you’re an individual taxpayer or a business owner, these changes will likely impact your financial strategy in the years ahead.