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The new One Big Beautiful Bill Act (OBBBA) has introduced a wave of tax changes that will impact individuals and businesses alike. With so much information swirling around, it’s easy to feel overwhelmed or misinformed. Let’s break down what’s actually in the bill and explore how these changes might affect your financial plans.
What’s Actually in the Bill? Here’s What Matters
For Individuals
The One Big Beautiful Bill Act makes a few key adjustments that will matter for your yearly tax planning:
1. Permanent Standard Deduction Changes
Remember the tentative extensions to the Tax Cuts and Jobs Act (TCJA)? The OBBBA permanently locks in the doubled standard deduction introduced in 2018. That means single filers will continue to enjoy a more straightforward tax filing process with a lower taxable income threshold.
2. Clarification on Social Security Taxes
There’s been a lot of talk about the bill introducing a provision that makes Social Security benefits completely tax-free, but that’s not what happened here. This bill leaves Social Security taxes exactly where they were. No new breaks on Social Security made it into law this time around.
3. Modified SALT Deduction Cap
The state and local tax (SALT) deduction is always a hot topic, especially if you live in a high-tax state. For now, the bill raises the SALT cap to $40,000 through 2029 for those making less than $500,000. After that, it’s back to the $10,000 cap. If this impacts you, now’s your window to take advantage.
4. No Taxes on Tips and Overtime—With a Few Caveats
For anyone who gets tips or works overtime, this bill introduces some potential tax breaks, but there are strings attached.
- For overtime, the tax exemption only applies to the “extra” portion of your time-and-a-half pay—the premium you earn above your regular hourly rate for hours beyond 40 per week. If you’re in a salaried position classified as “exempt,” this benefit likely won’t apply to you.
- For tax exemptions on tips, the benefit is only for income from “eligible occupations,” which the IRS will define before the end of 2025. While the list of eligible occupations hasn’t been finalized, the list is expected to include jobs that “customarily and regularly” receive tips, like waitresses, bartenders, or hairdressers.
It’s also important to note that these deductions only affect your federal income taxes. Your tips and overtime will still be subject to Social Security, Medicare, and any state or local taxes. Keep in mind, you won’t see these savings in your paycheck right away—they’ll show up when you file your federal tax return. Currently, these benefits are set to expire after the 2028 tax year unless Congress decides to extend them.
For Businesses
There’s plenty here for business owners (big and small) to take note of:
1. Corporate Tax Rates Stay Competitive
The corporate tax rate, which dropped to 21% under the TCJA, remains unchanged in this bill. There were rumors of bigger changes or new tiers, but this bill doesn’t introduce an update to the corporate tax rate.
2. Pass-Through Business Deduction Becomes Permanent
For small businesses structured as partnerships, S corps, or sole proprietorships, the 20% Qualified Business Income (QBI) deduction is now permanent. This provision makes tax planning easier for many, but some worry it creates uneven tax treatment between different types of businesses.
3. Expanded Expensing for Capital Investments
Businesses can now fully deduct the cost of short-lived assets, like equipment, as well as research and development investments in the year they’re purchased. This change is designed to encourage reinvestment in operations and innovation.
4. Clean Energy and R&D Credits Rolled Back
Big plans for solar panels or environmentally-friendly upgrades? The OBBBA trims back many of the clean energy credits and incentives that were previously available. It’s a good time to revisit your plans if you were counting on those credits.
Clearing Up Common Misconceptions
With any major bill, rumors fly. Here’s what didn’t actually change:
- Social Security Tax Exemptions: While it was on the table, there’s no new tax break for Social Security benefits. However, individuals 65 years or older may claim an additional $6,000 deduction on their taxes.
- Estate Tax Cuts: Current estate tax exemptions are unchanged for now, but they’re scheduled to adjust in 2026 unless Congress steps in.
- Health Savings Accounts (HSAs): Despite talk of expanded limits, nothing major happened on this front.
How SME CPAs Can Help You Understand Tax Changes
Big change always comes with new questions, and you shouldn’t have to figure it all out on your own. Whether you’re rerouting your contributions, recalculating deductions, or puzzling over the fine print for your business, our team at SME CPAs is here for you.
Our tax experts can help you:
- Spot every deduction or credit you qualify for—and make sure you’re not missing out.
- Help you get ahead of SALT cap changes and business investment adjustments.
- Navigate exempting tips and overtime pay from your taxes.
Ready to take the guesswork out of your tax plan? Our experts have your back so you can move forward with confidence, no matter what tax policy changes are on the horizon. If you want a strategy that’s built for you, reach out to SME CPAs today.