Trump’s 2025 Tax Reform: How the ‘One Big Beautiful Bill’ Impacts Taxes and Business Accounting

On July 4, 2025, President Donald Trump signed major tax reform 2025 legislation into law. The One Big Beautiful Bill Act became Public Law 119-21 after passing both chambers.

This sweeping new tax bill makes permanent many Tax Cuts and Jobs Act provisions. The new income tax bill also introduces several temporary deductions for working Americans. Understanding these tax law changes helps you plan better for your financial future.

Key takeaways

• The OBBBA permanently extends lower individual tax rates and nearly doubles the standard deduction.
• Temporary new deductions for employees’ qualified tips and overtime pay (2025-2028).
• Expanded SALT deduction cap for five years to $40,000 for income under $500,000.
• Permanent bonus depreciation at 100% and immediate expensing for business assets and R&D.
• Electric vehicle and residential clean energy credits eliminated after September 30, 2025.
• New reporting compliance requirements for tip income, overtime pay, and car loan interest.
• Additional $6,000 deduction for taxpayers aged 65+ (2025-2028).
• Introduction of tax-advantaged “Trump Accounts” for children born 2025-2028.
• Enhanced estate and gift tax exemption of $15 million per individual in 2026.

Key terms

• SSTB (Specified Service Trade or Business): Certain service-oriented industries such as law, health, consulting, and finance, which face special limitations under Section 199A QBI deductions.
• GILTI (Global Intangible Low-Taxed Income): Tax on foreign income of controlled foreign corporations to reduce profit shifting by multinational companies.
• BEAT (Base Erosion and Anti-Abuse Tax): A minimum tax on corporations to prevent erosion of the U.S. tax base through payments to foreign related parties.

What is in the Tax Reform Bill?

The proposed new tax legislation permanently extends lower individual income tax rates. It makes the seven tax brackets from 2017 permanent: 10%, 12%, 22%, 24%, 32%, 35%, 37%.

The new US tax law also increases the standard deduction for all taxpayers. Business owners gain permanent expensing benefits and expanded interest deduction limits.

Corporate tax reform includes enhanced depreciation rules and international tax modifications.

When does the New Tax Law take effect?

The Senate passed this us tax reform measure 51-50 with Vice President Vance’s tiebreaking vote.

The House approved the identical bill 218-214 along mostly partisan lines. Most provisions became effective immediately for the 2025 tax year filing in 2026.

Some temporary deductions run only through 2028 before expiring without renewal. Certain business provisions took effect retroactively from January 19, 2025.

Standard deduction increases permanently

The standard deduction is the amount you can subtract from your income before calculating taxes.

This law makes the higher deduction amounts permanent for all filers. You don’t need to itemize to get this benefit.

New Standard Deduction Amounts for 2025

The tax reform act makes the larger standard deduction from 2017 permanent. For 2025, single filers receive a $15,750 standard deduction amount.

Head of household filers get $23,625 as their new standard deduction. Married filing jointly taxpayers claim $31,500 under the expanded deduction rules.

These amounts adjust annually for inflation in future years going forward.

Filing Status	2025 Standard Deduction
Single or Married Filing Separately	$15,750
Head of Household	$23,625
Married Filing Jointly	$31,500

Additional senior deduction temporary benefit

For retirees and older workers if you’re 65 or older, this temporary benefit could significantly reduce your taxable income.

Taxpayers age 65 and older receive an extra $6,000 deduction for 2025-2028. This senior deduction phases out at $75,000 income for single filers. The phaseout begins at $150,000 for married couples filing joint returns.

The deduction requires a valid Social Security number for work eligibility. Married filing separately status taxpayers cannot claim this additional senior benefit.

Tax Law change: Personal Exemptions eliminated

For all taxpayers, especially those with large families the permanent elimination of personal exemptions changes how you calculate your taxable income.

The new tax law permanently eliminates personal exemptions for all taxpayers. Personal exemptions for dependents no longer provide any tax benefits going forward.

Before 2017, taxpayers claimed exemptions worth thousands of dollars per person. The enhanced standard deduction replaces the value of former personal exemptions.

This change simplifies tax filing for millions of American households overall.

Federal Income Tax changes for workers

For employees and hourly working Americans these several new tax breaks help with everyday expenses. These deductions target tips, overtime pay, and car loan interest. However, these benefits are temporary and will expire after 2028.

No tax on tips deduction

Employees receiving tips can deduct qualified tip income from 2025 through 2028. The maximum annual tips deduction reaches $25,000 for qualifying workers.

Workers in occupations customarily receiving tips qualify for this new benefit. The IRS will publish an official list of eligible occupations by October 2025.

The deduction phases out at $150,000 income for singles and $300,000 jointly.

No tax on overtime provision

Qualified overtime pay receives a special deduction through the 2028 tax year. Single filers deduct up to $12,500 of overtime compensation annually.

Married filing jointly taxpayers can deduct up to $25,000 in overtime pay. Only overtime required by the Fair Labor Standards Act qualifies for deduction.

Employers must designate overtime wages separately on Form W-2 documents.

Car loan interest deduction rules

The tax reform law allows deducting interest on qualified vehicle loans. Individuals can deduct up to $10,000 in car loan interest annually.

Only new vehicles assembled in the United States qualify for this benefit. Check the NHTSA VIN Decoder to verify vehicle assembly location.

The deduction phases out above $100,000 income for singles, $200,000 jointly.

Worker Tax Benefit	Maximum Annual Deduction	Income Phase-Out Begins
Tips Deduction	$25,000	$150,000 / $300,000
Overtime Deduction	$12,500 / $25,000	$150,000 / $300,000
Car Loan Interest	$10,000	$100,000 / $200,000
Senior Deduction	$6,000 per person	$75,000 / $150,000

2025 Tax Brackets: Thresholds by Filing Status

For all taxpayers: Understanding which bracket you fall into helps with tax planning and withholding adjustments.

The seven permanent tax brackets with 2025 income thresholds are:

Tax Rate	Single Filers	Married Filing Jointly	Heads of Household
10%	$0 to $11,925	$0 to $23,850	$0 to $17,000
12%	$11,926 to $48,475	$23,851 to $96,950	$17,001 to $64,850
22%	$48,476 to $103,350	$96,951 to $206,700	$64,851 to $103,350
24%	$103,351 to $197,300	$206,701 to $394,600	$103,351 to $197,300
32%	$197,301 to $250,525	$394,601 to $501,050	$197,301 to $250,500
35%	$250,526 to $626,350	$501,051 to $751,600	$250,501 to $626,350
37%	Over $626,350	Over $751,600	Over $626,350

SALT Deduction Cap increased temporarily

For homeowners in high-tax states: This temporary increase could make itemizing worthwhile if you weren’t itemizing before.

State and local tax deduction changes

The new tax bill raises the SALT deduction cap significantly for five years. Taxpayers earning under $500,000 can deduct up to $40,000 in state taxes.

This represents a substantial increase from the previous $10,000 SALT cap limit. The cap increases by 1% annually through 2029 before reverting to $10,000. For 2026, the cap rises to $40,400 with ongoing inflation adjustments.

Who benefits from SALT cap increase?

High-tax states like California, New York, and New Jersey see major benefits. Homeowners with substantial property taxes gain significant deduction value under new rules.

For incomes above $500,000, the maximum SALT deduction cap gradually returns to the prior $10,000 limit. Married filing separately taxpayers get a $20,000 cap instead of $40,000.

Many homeowners may now find itemizing deductions more beneficial due to this change.

Child tax credit expansion details

For parents and guardians: The enhanced child tax credit provides more support for families raising children.

Permanent child tax credit increase

The Child Tax Credit permanently increases to $2,200 per qualifying child. Previously, the credit was $2,000 per child under age 17.

The credit amount adjusts annually for inflation starting in 2026. Both taxpayer and child must have valid Social Security numbers for work.

Phase-out thresholds remain at $200,000 for singles and $400,000 jointly.

Other dependent credit maintained

The $500 Other Dependent Credit becomes permanent under the new law. This credit helps families caring for elderly parents or adult dependents.

Taxpayers claim this credit for dependents not qualifying for Child Tax Credit. The credit does not adjust for inflation and remains fixed permanently.

Business tax reform provisions

For business owners and self-employed individuals: These permanent provisions create significant opportunities for tax savings and business investment.

Section 199a deduction made permanent

The qualified business income deduction permanently extends at 20% for pass-through businesses. This section 199a deduction applies to sole proprietorships, partnerships, and S corporations.

Special rules apply to taxpayers with taxable income exceeding threshold amounts. For 2025, thresholds are $197,300 for singles and $394,600 for joint filers.

Phase-in ranges increase to $75,000 for singles and $150,000 for joint filers.

Bonus depreciation tax reform restoration

The new corporate tax rate provisions restore 100% first-year bonus depreciation permanently. This applies to qualified property acquired and placed in service after January 19, 2025.

Businesses immediately expense equipment purchases rather than depreciating over time. The permanent 100% bonus depreciation significantly improves business cash flow.

This represents one of the most valuable business tax reform provisions.

Research and development expensing

Domestic research and development expenses receive immediate expensing treatment permanently. Previously, businesses had to amortize R&D costs over five years.

The new tax plan allows companies to deduct these expenses immediately. This provision encourages innovation and supports technology company growth significantly.

Software development costs also qualify for immediate expensing under new rules.

Corporate tax break provisions

For corporations and capital-intensive businesses: Enhanced deduction rules can significantly reduce your tax burden.

Business interest deduction expansion

The tax reform tax bill expands the business interest expense deduction. Adjusted taxable income calculation now excludes depreciation, amortization, and depletion.

This increases the amount of interest expense businesses can deduct annually. The more generous definition permanently applies for 2025 and future years.

This change helps capital-intensive businesses with significant financing costs substantially.

Section 179 expensing increase

Small businesses gain increased Section 179 expensing limits under the bill. The deduction cap increases to $2.5 million for qualifying equipment purchases.

This allows small businesses to immediately expense more equipment and property. The higher limit helps small businesses invest in growth and modernization.

International business provisions

Companies with foreign operations face new tax rules for international income. These changes affect how multinational corporations calculate their US taxes.

The modifications aim to reduce double taxation while preventing tax avoidance.

GILTI tax law modifications

The global intangible low-taxed income rules undergo significant modifications permanently. The new us tax law changes GILTI calculation methods and rates.

These modifications reduce certain aspects of double taxation for multinational companies. US-based businesses with foreign operations see material tax impacts from changes.

The permanent reforms replace temporary provisions expiring at year end.

BEAT tax reform adjustments

Base erosion and anti-abuse tax provisions receive updates under the bill. The Senate version of international reforms became the final law.

These changes balance competitiveness with preventing aggressive tax avoidance strategies. Corporate tax reform in this area provides more certainty for planning.

Opportunity zone extension act provisions

For real estate investors and those with capital gains: The permanent opportunity zone program offers substantial tax deferral and elimination benefits.

Permanent opportunity zone program renewal

The Qualified Opportunity Zone program becomes permanent under the new law. Investors can defer capital gains by investing in designated opportunity zones.

Holding QOF investments for five years provides a 10% basis increase. Holding for 10-30 years eliminates tax on appreciation entirely.

New rural opportunity funds receive even more favorable 30% basis increases.

New reporting requirements implemented

The bill imposes comprehensive reporting requirements on opportunity zone funds. Both new and existing QOFs face enhanced transparency and compliance obligations.

Stricter reporting helps prevent abuse while maintaining investment incentive benefits. Real estate deductions and opportunity zone benefits work together for investors.

Energy credit modifications

For environmentally conscious consumers and businesses: These changes eliminate most green energy incentives, so act quickly if you’re planning eligible purchases.

Clean vehicle credits eliminated

The bill permanently eliminates electric vehicle tax credits after September 30, 2025. New clean vehicle credits worth up to $7,500 no longer apply.

Used clean vehicle credits and commercial clean vehicle credits also terminate. This represents a major shift away from green energy tax incentives.

Residential energy credits repealed

Residential clean energy credits terminate entirely after the 2025 tax year. The Energy Efficiency Home Improvement Credit no longer provides tax benefits.

Solar panel installations and energy-efficient windows lose their tax incentives. Homeowners should complete qualifying projects before year-end to claim existing credits.

The alternative fuel vehicle refueling credit terminates after June 30, 2026.

Real estate deductions maintained

For homeowners and real estate investors: These permanent rules affect how you deduct mortgage interest and casualty losses.

Mortgage interest deduction cap permanent

The $750,000 limit on home mortgage acquisition debt becomes permanent. Previously, this limitation was scheduled to increase to $1 million in 2026.

The limitation on corporate deductions affects real estate investors and homeowners. Married filing separately taxpayers face a $375,000 acquisition debt limit.

Mortgage insurance premiums can now be treated as qualified residence interest.

Casualty loss deduction limitations

The itemized deduction for personal casualty losses remains restricted to disasters. Only losses from federally declared disasters qualify for the itemized deduction.

The bill expands this to include certain state-declared disasters as well. Losses must not exceed 10% of adjusted gross income to claim.

Tax reform impact on individuals

For all taxpayers: Understanding who benefits most helps you identify planning opportunities specific to your situation.

Who benefits most from changes?

Middle-income families benefit from permanent standard deduction and lower rates. Workers receiving tips and overtime gain new temporary deductions through 2028.

Seniors age 65+ receive substantial additional deductions if income qualifies. High-income taxpayers in high-tax states benefit from increased SALT cap.

Business owners gain permanent Section 199A deduction and bonus depreciation benefits.

Who faces higher taxes?

Taxpayers previously claiming miscellaneous itemized deductions lose those permanently. High-income itemizers face new limitations reducing their total deduction benefits.

The elimination of personal exemptions costs large families with many dependents. Electric vehicle buyers lose substantial credits after September 30, 2025.

Details of the new tax bill filing

Filing your taxes will look different starting with your 2025 return. Employers must track and report tips and overtime separately. New forms and reporting requirements take effect this year.

New reporting requirements for 2025

Employers must report qualified tips separately on Form W-2 documents. Overtime pay requires special designation for employees claiming the deduction.

Car loan lenders must report qualified interest payments to the IRS. Vehicle identification numbers must appear on returns claiming car loan deductions.

These new requirements increase administrative burden for employers and lenders.

Form 1099 threshold changes

Form 1099-K reporting threshold increases substantially to $20,000 and 200 transactions. Form 1099-NEC and certain 1099-MISC thresholds rise to $2,000 from $600.

These higher thresholds reduce reporting burden for small businesses significantly. Taxpayers still must report all income even without receiving forms.

Trump accounts for families

For parents of young children: This new savings program provides government contributions and tax-deferred growth for children born between 2025-2028.

New child savings account program

The tax reform bill creates “Trump Accounts” for children born 2025-2028. The federal government provides a one-time $1,000 contribution per citizen child.

Parents can contribute up to $5,000 annually to these tax-deferred accounts. Earnings grow tax-free until the child reaches age 18 years old.

At age 18, accounts automatically convert to traditional IRA accounts.

Employer contributions allowed

Employers may contribute up to $2,500 annually to employee Trump Accounts. These contributions help employees save for their children’s future financial security.

The accounts provide limited benefits compared to existing 529 education plans.

Itemized deductions changes

High earners face new limits on how much they can benefit from itemizing.

The value of itemized deductions decreases for those in the top tax bracket. Some charitable giving rules also change under the new law.

Limitations on itemized deductions

High-income taxpayers in the top tax bracket face itemized deduction caps. Deductions provide tax benefit equal to only 35 cents per dollar.

This limitation effectively reduces the value of itemizing for wealthy taxpayers. The cap applies only to those in the highest 37% bracket.

Charitable deduction modifications

Non-itemizers can claim up to $1,000 for cash charitable contributions. Married filing jointly taxpayers claim up to $2,000 in charitable deductions.

Itemizers must reduce charitable deductions by 0.5% of contribution base income. These changes affect giving strategies for both itemizers and non-itemizers alike.

Property contributions to charity do not qualify for non-itemizer deduction benefits.

Healthcare Tax Benefits: HSAs and FSAs

The One Big Beautiful Bill Act expands Health Savings Account (HSA) eligibility and significantly raises Dependent Care Flexible Spending Account (FSA) limits.

Health Savings Account (HSA) expansion

• Permanent telehealth coverage: High-deductible health plans (HDHPs) can cover telehealth services before the deductible without losing HSA eligibility, retroactive to January 1, 2025.
• ACA Bronze and Catastrophic plans qualify: Beginning January 1, 2026, millions enrolled in ACA Bronze and Catastrophic plans become immediately eligible for HSAs.
• Direct primary care (DPC) compatibility: Monthly DPC fees (capped at $150 for individuals and $300 for families) qualify as medical expenses payable with HSAs, permanently allowing members to retain HSA eligibility.

Dependent Care FSA limit increase

• The annual dependent care FSA limit rises from $5,000 to $7,500 per household starting January 1, 2026.
• Married filing separately taxpayers have a $3,750 limit.
• This marks the first permanent FSA dependent care increase since 1986, offering significant tax savings for working families.
• Employers must update cafeteria plan documents to adopt the higher limits.

Other Healthcare spending Account Provisions

• Healthcare FSA limits: Remain unchanged with a $3,200 annual contribution cap for 2025, with inflation adjustments continuing thereafter.
• Health Reimbursement Arrangements (HRAs): No major changes; existing rules and contribution limits remain intact.
• Employer-provided health coverage and premium conversion plans retain favorable tax treatment.

Additional Employee Benefits

• Student loan repayment assistance: The tax-free employer benefit, capped at $5,250 annually, is permanently extended and indexed for inflation beginning 2026.
• Employer-provided childcare tax credit: Raised from $150,000 to $500,000 (up to $600,000 for eligible small businesses), incentivizing employer-supported childcare initiatives.
• Adoption assistance credits: Permanently extended with higher annual limits, including exclusion of employer-provided adoption assistance from income.

Medical expense deduction and long-term care

• Medical expense deductions remain at a 7.5% Adjusted Gross Income threshold for qualified unreimbursed expenses.
• Qualified long-term care insurance premiums remain deductible under existing age-based limits, with benefits remaining largely excluded from taxable income.

Education tax benefits expanded

Families saving for education get more flexibility under this law. You can now withdraw more from 529 plans for K-12 expenses.

Several education-related credits and benefits expand to cover additional costs.

529 plan expansion provisions

Tax-free 529 withdrawals increase to $20,000 annually for K-12 expenses. Previously, only $10,000 could be withdrawn tax-free for K-12 costs.

Additional qualified expenses include books, tutoring, and online learning materials. Post-secondary credential testing fees and continuing education also qualify now.

These expansions make 529 plans more flexible for education savings.

Student loan and educator provisions

Employers can permanently contribute up to $5,250 for employee student loans. This amount applies to both principal and interest on qualified loans.

The Educator Expense Deduction expands to include coaches and sports equipment. American Opportunity Credit and Lifetime Learning Credit require valid work SSNs.

Tax reform bill details: Revenue impact

This tax cut costs the government trillions in revenue over ten years. Economic growth will offset some of the lost revenue. The combination of tax cuts and spending changes increases the federal deficit.

Budget and deficit implications

The tax provisions reduce federal revenue by $5 trillion conventionally over ten years. Dynamic scoring incorporating economic growth reduces the cost to $4 trillion. Economic growth offsets approximately 19% of the tax cut costs overall.

Combined with spending cuts, the net deficit increase reaches $3 trillion. Higher interest costs add another $725 billion in deficit impact over decade.

Economic growth projections

The tax foundation estimates long-run GDP increase of 1.2% from provisions. Permanent expensing for R&D and equipment provides the strongest growth boost.

Lower tax rates and certainty encourage business investment and economic expansion. The permanent nature of changes provides crucial planning certainty for businesses.

Tax Reform Act: Planning Considerations

Smart tax planning can help you maximize the benefits of this new law. Act quickly on temporary credits that expire soon.

Review your entire tax situation to see whether itemizing or the standard deduction works better.

Year-end tax planning strategies

Complete energy-efficient home improvements before December 31, 2025 to claim credits. Purchase electric vehicles before September 30, 2025 to qualify for credits.

Review whether increased SALT cap makes itemizing worthwhile versus standard deduction. Consider accelerating deductible expenses into 2025 if income exceeds deduction phaseouts.

Long-term financial planning

Permanent provisions provide certainty for retirement and investment planning decisions. Business owners should evaluate equipment purchases to maximize bonus depreciation benefits.

Real estate investors can plan around permanent opportunity zone program availability. Families should consider Trump Accounts for children born in eligible years.

Estate planning strategies change with permanent $15 million exemption in 2026.

IRS Enforcement and Compliance Updates

• The IRS released transitional relief guidance for 2025 on tip, overtime, and vehicle loan interest reporting (Notice 2025-57).
• Employers must keep records and comply with new W-2 reporting fields for tips and overtime.
• Lenders must report vehicle loan interest and furnish statements to borrowers.
• IRS will publish the official list of tip-eligible occupations by October 2, 2025.
• Failure to comply may increase audit risks and penalties.

Proposed changes to Federal Tax Laws enforcement

The IRS needs time to implement all these new rules. They’ll publish guidance documents throughout the year. Employers and taxpayers get some transition relief for the first year.

IRS implementation timeline

The IRS will provide guidance by October 2, 2025 on tip occupation eligibility. Transition relief applies for 2025 tax year for new deduction claims.

Treasury Department will issue regulations clarifying complex new provisions over time. Employers receive transition relief for new reporting requirements in 2025.

Corporate accounting implications

Public companies must evaluate how these tax changes affect their financial statements.

The permanent bonus depreciation creates significant differences between book and tax accounting. International companies face complex new calculations for foreign income.

Financial statement impact

Companies must evaluate tax provision impacts on effective tax rates immediately. Permanent bonus depreciation creates substantial book-tax differences requiring careful tracking.

International provisions affect how companies account for foreign operations and taxes. Public companies must disclose tax reform impacts in financial statement disclosures.

Tax compliance changes

Businesses face new compliance requirements for employee benefit reporting immediately. International tax changes require updated transfer pricing and tax planning strategies.

Enhanced opportunity zone reporting demands improved documentation and record keeping. Companies should engage tax advisors to ensure compliance with complex rules.

Who Benefits and Who Loses

Group	Benefit	Impact
Middle-income families	Permanent standard deduction and lower rates	Lower tax liability
Workers with tips and overtime	New temporary deductions	Immediate tax relief
Seniors 65+	Additional standard deduction	Reduced taxable income
High-income taxpayers in high-SALT states	Higher SALT cap for 5 years	Higher itemized deductions
Business owners	Permanent bonus depreciation and 199A deduction	Enhanced cash flow and savings
Electric vehicle buyers	Loss of tax credits after Sept 30, 2025	No new federal EV incentives
Large families	Loss of personal exemptions	Potentially higher taxes

Tax law change comparison table

Provision	Previous Law	New Tax Law	Effective Date
Standard Deduction (Single)	$14,600 (2024)	$15,750	2025 permanent
Child Tax Credit	$2,000	$2,200 + inflation	2025 permanent
SALT Cap	$10,000	$40,000 (temporary)	2025-2029
Bonus Depreciation	40% (2024)	100%	Jan 2025 permanent
Tips Deduction	None	Up to $25,000	2025-2028
Overtime Deduction	None	Up to $12,500/$25,000	2025-2028
EV Tax Credit	Up to $7,500	Eliminated	Sept 30, 2025
Section 199A	Expiring 2025	Permanent 20%	2025 permanent

Conclusion

Trump’s 2025 tax reform creates significant planning opportunities for individuals and businesses. The permanent extension of 2017 tax cuts provide crucial long-term certainty.

Temporary worker deductions offer immediate benefits for millions of Americans currently. Business tax provisions encourage investment through generous expensing and depreciation rules. Understanding these complex provisions helps you maximize benefits and ensure compliance.

Work with qualified tax professionals to develop strategies aligned with your goals. The new tax reform law fundamentally reshapes American tax policy for years ahead.

Frequently asked questions