Company News
2025 Tax Act
July 9, 2025
We would like to provide you with an executive summary of the recently passed 2025 Tax Act (also known as the One Big Beautiful Bill).
The 2025 Act makes many of the provisions of the 2017 Tax Cuts and Jobs Act tax cuts permanent. Additionally, the 2025 Act makes sweeping changes that we will outline below.
FOR INDIVIDUALS
Extension and Enhancement of Reduced Income Tax RatesFor the years 2018 through 2025, The Tax Cuts and Jobs Act (TCJA) temporarily reduced the tax brackets for individuals, trusts, and estates. Those reduced brackets were set to expire at the end of this year. The 2025 Act makes these rate reductions permanent.
Extension and Enhancement of Increased Standard Deduction
The TCJA increased the standard deduction amounts through 2025. For tax years beginning after 2025, the basic standard deduction amounts were scheduled to revert to the pre-TCJA statutory amounts. The 2025 Act increases the basic standard deduction rates for tax years beginning after 2025 to: $31,500 for joint filers and surviving spouses; $23,625 for heads of household; and $15,750 for singles and marrieds filing separately. These amounts will be indexed for inflation going forward.
Qualified Small Business Stock
The 2025 Act increases the Sec. 1202 exclusion for gain from qualified small business stock. For qualified small business stock acquired after the date of enactment of the 2025 Act and held for at least four years, the percentage of gain excluded from gross income will rise from 50% to 75%. If it is held for five years or more, the exclusion percentage will go up to 100%.
No Tax on Tips
The 2025 Act provides a temporary deduction of up to $25,000 for qualified tips received by an individual in an occupation that customarily and regularly receives tips. The deduction will be allowed for both employees receiving a Form W-2, Wage and Tax Statement, and independent contractors who receive Form 1099-K, Payment Card and Third Party Network Transactions, or Form 1099-NEC, Nonemployee Compensation, or who report tips on Form 4317, Social Security and Medicare Tax on Unreported Tip Income.
The deduction would be an above-the-line deduction and, therefore, available for taxpayers who claim the standard deduction or itemize deductions. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return). This temporary deduction will be available for tax years 2025 through 2028.
No Tax on Overtime
The 2025 Act provides a temporary above-the-line deduction of up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation received by an individual during a given tax year. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return). The 2025 Act defines qualified overtime compensation as overtime compensation paid to an individual required under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in that section) at which the individual is employed. Overtime deductions would only be allowed for qualified overtime compensation if the total amount of qualified overtime compensation is reported separately on Form W-2 (or Form 1099, if the worker is not an employee). This temporary deduction will be available for tax years 2025 through 2028.
Extension and Enhancement of Increased Child Tax Credit and Extension of the Credit for Other Dependents
Child tax credit: For years after 2025 the Child Tax Credit rules were scheduled to revert to pre TCJA levels: $1,000 per qualifying child. The 2025 Act makes the Child Tax Credit $2,200 per qualifying child and will be indexed for inflation going forward.
Credit for other dependents: The TCJA provided for a $500 nonrefundable credit for other dependents who don’t qualify for the Child Tax Credit. The Other Dependent Credit was set to expire after 2025. The 2025 makes the credit permanent but will not be indexed for inflation.
Individual SALT Limitation
The TCJA capped the individual deduction for State And Local Taxes (SALT) at $10,000 ($5,000 for Married Filing Separately). The 2025 Act retroactively increases the individual SALT cap from $10,000 to $40,000 for 2025, $40,400 in 2026, and by an additional 1% in 2027, 2028, and 2029. The SALT cap is set to revert to $10,000 in 2030. Phase-out rules apply once modified adjusted gross income exceeds $500,000.
Extension and Increase of Basic Estate Tax Exclusion
Under pre-Act law, the basic exclusion amount was $5 million. For estates of decedents dying or gifts made after December 31, 2017 through December 31, 2025, the basic exclusion amount was increased to $10 million. Effective 2026, the basic exclusion amount will increase to $15 million and will be indexed for inflation.
Itemized Deduction Limitations
Pre-TCJA, taxpayers were subject to an overall limitation on itemized deductions known as the “Pease Limitation” (named after US Congressman Donald Pease). While the TCJA suspended the Pease Limitation, it was set to return in 2026. The 2025 Act permanently repeals the Pease Limitation – but replaces it with a new one. The new limitation reduces otherwise allowable itemized deductions by 2/37 of the lesser of (1) the amount of the itemized deductions or (2) the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket.
- Individual Alternative Minimum Tax Exemption Amounts Permanently Increased – Phaseout Thresholds Modified
- The TCJA increased individual AMT exemption amounts and exemption phaseout thresholds through December 31, 2025. Under the 2025 Act, individual exemption amounts are permanently increased. In addition, the exemption phaseout threshold is set at $500,000 ($1 million for joint returns) in 2026, and indexed for inflation. The 2025 Act also increases the phase-out rate for higher-income taxpayers from 25% to 50%.
Repayment Cap on Excess Advance PTC Payments is Eliminated
Taxpayers can elect to have advance payments of their estimated Premium Tax Credit (PTC) made directly by IRS to the insurer. Taxpayers who choose this option must reconcile the advance payments with the actual credit (on Form 8962) when they file their returns. If the advance payments exceed the PTC to which the taxpayer is entitled for the tax year, the taxpayer generally owes the excess amount as an additional income tax.
Under pre-Act law, a “repayment cap” limited the additional tax to an applicable dollar amount, for taxpayers whose household income was less than 400% of the federal poverty line (FPL) for a family of the size involved.
For tax years beginning in 2025, the applicable dollar amounts are $750 if household income is less than 200% of the FPL, $1,950 if household income is at least 200% but less than 300% of the FPL, and $3,250 if household income is at least 300% but less than 400% of the FPL. For unmarried individuals other than surviving spouses or heads of household, the applicable dollar amounts are one-half of the above amounts.
The 2025 Act strikes the cap. As a result, all taxpayers will be forced to repay their excess advance PTC payments in their entirety. This change is effective for tax years beginning after December 31, 2025
Personal Exemptions and Temporary Senior Deduction
Prior to the TCJA the tax law allowed for a deduction for personal exemptions. These exemptions were temporarily eliminated under the TCJA. The 2025 Act permanently removes the deduction for exemptions, however, it introduces a new temporary deduction for Seniors.
Taxpayers aged 65 or older-and their spouses, if filing jointly-can claim a $6,000 deduction per qualified individual for tax years beginning before January 1, 2029 (i.e., tax years 2025-2028). This senior deduction is reduced by 6% (but not below zero) for the adjusted gross income that exceeds $75,000 (or $150,000 for joint filers).
Car Loan Interest
For tax years 2025-2028, individuals can deduct up to $10,000 of car loan interest per year, subject to a phase-out starting at $100,000 modified adjusted gross income (MAGI) for single filers ($200,000 for joint filers). To qualify for the deduction:
The debt must be incurred after December 31, 2024, for the purchase of a new personal use vehicle, secured by a first lien on the vehicle, and the vehicle’s original use must begin with the taxpayer.
The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle, with a gross vehicle weight rating under 14,000 pounds, and final assembly of the vehicle must occur in the United States, and
The taxpayer must report the vehicle identification number (VIN) on their tax return.
In addition, the provision requires lenders to file information returns reporting interest received on qualified personal auto loans with the IRS. The provision applies to qualified indebtedness incurred after December 31, 2024.
Child & Dependent Care Credit
The 2025 Act permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. The credit rate phases down for taxpayers with adjusted gross income (AGI) over $15,000. It will be reduced by 1 percentage point (but not below 35%) for each $2,000 that the taxpayer’s AGI exceeds $15,000. It will then be further reduced by (but not below 20%) 1 percentage point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 ($150,000 for joint returns). For AGIs between $43,001 and $75,000 ($86,001 and $150,000, respectively, in the case of a joint return), the credit rate is 35%.
This credit rate is further phased down to 20% for AGI between $75,001 and $105,000 ($150,001 and $210,000, respectively, in the case of a joint return).
This provision is effective for tax years after December 31, 2025.
Credit for Contributions to Scholarship-Granting Organizations
The 2025 Act enacts a new Sec. 25F that provides a credit of $1,700 for charitable contributions to scholarship-granting organizations.
An individual’s gross income won’t include any amounts provided to that individual or any dependent of that individual under a scholarship for qualified elementary or secondary education expenses of an eligible student which is provided by a scholarship-granting organization.
The credit is available in tax years ending after December 31, 2026, and the exclusion for scholarship amounts described above will apply to amounts received after December 31, 2026.
Casualty Loss Deductions
Under the 2025 Act, the TCJA’s provision limiting the itemized deduction for personal casualty losses to losses resulting from federally declared disasters becomes permanent, but the 2025 Act expands the provision to include certain state-declared disasters.
Mortgage Interest Deduction
The 2025 Act permanently extends the TCJA’s provision limiting the Sec. 163 qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt. It also makes permanent the exclusion of interest on home-equity indebtedness from the definition of qualified residence interest. The 2025 Act also treats certain mortgage insurance premiums on acquisition indebtedness as qualified residence interest.
Miscellaneous Itemized Deductions
The 2025 Act makes permanent the TCJA’s suspension of the Sec. 67(g) deduction for miscellaneous itemized deductions but removes unreimbursed employee expenses for eligible educators from the list of miscellaneous itemized deductions.
Wagering Losses
The 2025 Act amends Sec. 165(d) to clarify that the term “losses from wagering transactions” includes any deduction otherwise allowable under Chapter 1 of the Code incurred in carrying on any wagering transactions. The 2025 Act limits the term “losses from wagering transactions” to 90% of the amount of those losses, and losses will be deductible only to the extent of the taxpayer’s gains from wagering transactions during the tax year.
Moving Expense Deduction
The 2025 Act permanently eliminates the Sec. 217 deduction for moving expenses, except for members of the armed forces and certain members of the intelligence community.
Trump Accounts
The 2025 Act takes the House bill’s concept of tax-free savings accounts for minors, called Trump accounts, and revises it to make them a form of individual retirement account (IRA) under Sec. 408(a). Under the 2025 Act, Trump accounts will be IRAs (but not Roth IRAs) for the exclusive benefit of individuals under 18. Contributions can only be made in calendar years before the beneficiary turns 18 and distributions can only be made starting in the calendar year the beneficiary turns 18. Trump accounts will have to be designated as such when they are set up, and the 2025 Act does not allow Trump account contributions until 12 months after the date of enactment of the 2025 Act.
Under the 2025 Act, Treasury can set up Trump accounts for individuals that it identifies as eligible and for which no Trump account has already been created.
Eligible investments in Trump accounts would generally be mutual funds and indexed ETFs. Contributions (other than qualified rollover contributions) will be capped at $5,000 a year (adjusted for inflation after 2027). State, local, and tribal governments and charitable organizations could make “general funding contributions,” which would be contributions made to a specified qualified class of Trump account beneficiaries. Qualified classes include beneficiaries under the age of 18, and the general funding contribution can specify geographical areas or specific birth years of beneficiaries whose accounts will receive the contributions.
A new Sec. 6434 creates a Trump accounts contribution pilot program that provides a $1,000 tax credit for opening a Trump account for a child born between Jan. 1, 2025, and Dec. 31, 2028.
Adoption Credit
The 2025 Act makes a portion (up to $5,000) of the Sec. 23 adoption credit refundable. That amount will be adjusted for inflation.
Sec. 529 Plans
The 2025 Act allows tax-exempt distributions from Sec. 529 savings plans to be used for additional educational expenses in connection with enrollment or attendance at an elementary or secondary school. The expanded list of eligible education expenses includes tuition; curriculum and curricular materials; books or other instructional materials; online educational materials; tuition for tutoring or educational classes outside of the home; fees for nationally standardized tests, advanced placement exams, and college admission exams; fees for dual enrollment at higher education institutions; and educational therapies for students with disabilities provided by a licensed or accredited professional.
The 2025 Act increases the annual limit for 529 account distributions from $10,000 to $20,000. This limitation applies only to K-12 expenses. The effective date for the expanded expenses applies to distributions made after the date of enactment, and the doubled limitation applies to tax years beginning after December 31, 2025.
Charitable Contribution Deduction
The 2025 Act creates a floor of 0.5% of the taxpayer’s contribution base (which is, generally, adjusted gross income, AGI) on the charitable deductions of individuals. Thus, an otherwise deductible charitable contribution must be reduced by 0.5% of an individual’s contribution base for the tax year. The 2025 Act provides rules for the order in which the taxpayer’s contributions are taken into account, and for carryforwards of contributions disallowed by the 0.5% floor.
Under pre-Act law, individuals can’t deduct more than a specified percentage of their “contribution base”-generally AGI-as a charitable deduction in any year. For contributions to “50% charities,” an individual may deduct up to 50% of the contribution base-the “50% ceiling.” And a 60%, limit (“60% ceiling”) applies to cash-only contributions by individuals to 50% charities.
The rule providing for a 60% ceiling for cash gifts to 50% charities was slated to expire after 2025. The 2025 Act makes permanent the 60% ceiling for cash gifts to 50% charities, and provides that a contribution of cash to a 50% charity is deductible to the extent that the total amount of contributions of cash to 50% charities doesn’t exceed the excess of: (a) 60% of the taxpayer’s contribution base for the tax year, over (b) the total amount of contributions to 50% charities for the tax year. Both the floor provision and the 60%-limit provision are effective for tax years beginning after Dec. 31, 2025.
Permanent Non-Itemizers’ Charitable Deduction for Individuals
Under pre-Act law, no provision currently allows individuals to deduct charitable contributions without electing to itemize deductions. The 2025 Act provides that non-itemizers may claim a charitable deduction, not in excess of $1,000 ($2,000 for a joint return). The provision applies for tax years beginning after Dec. 31, 2025. (Act Sec. 70424(b))
Excise Tax on Certain Foreign Remittance Transfers
Under pre-Act law, there is no tax on remittance transfers for a U.S. sender of a payment to a recipient in a non-U.S. country. The 2025 Act establishes a 1% excise tax on any remittance transfer, to be paid by the sender, to be collected by the remittance transfer provider and to be remitted quarterly to the Secretary of the Treasury.
A secondary liability is imposed on the remittance transfer provider to the extent that the tax is not collected from the sender. An exception from the imposition of the excise tax is available if the remittance transfer is withdrawn from a financial institution governed by Title 31, Chapter 53 or funded with a U.S.-issued debit or credit card.
Where appropriate, anti-conduit rules apply to recharacterize remittance transfers to prevent the avoidance of tax. This provision is effective for transfers made after Dec. 31, 2025.
Treatment of Capital Gains From Sale of Certain Farmland Property
The 2025 Act allows sellers of qualified farmland property to elect to pay capital gains tax resulting from the sale in four equal annual installments.
Qualified farmland property means real U.S. property used as a farm or leased to a qualified farmer. To qualify, the property must be used substantially for farming purposes for the 10 years preceding the sale. The property must also be subject to prohibitions on non-farm use for at least 10 years after the sale. A qualified farmer is an individual actively engaged in farming, as defined in the Food Security Act of 1986.
The first installment payment is due with the tax return for the year in which the sale occurs. The following three payments are also due with the returns for the subsequent tax years. If a payment is missed, the entire remainder of the capital gains tax balance is then due immediately. This section applies to sales or exchanges in tax years beginning after the date of enactment.
FOR BUSINESSES
Overtime
Overtime compensation will need to be reported separately on Form W-2 (or Form 1099, if the worker is not an employee) for employees or workers to potentially claim a deduction on their individual return.
Tips
A transition rule will allow employers required to furnish statements enumerating an individual’s tips for tax year 2025 to use “any reasonable method” to estimate designated tip amounts.
The 2025 Act also extends the Sec. 45B credit for a portion of employer Social Security taxes paid with respect to employee cash tips to certain beauty service businesses.
Trump Accounts
The 2025 Act creates a new Sec. 128 that allows for employer contributions to Trump accounts. These contributions will not be included in the employee’s income.
QBI Deduction
The 2025 Act makes the Sec. 199A Qualified Business Income (QBI) deduction permanent and keeps the deduction rate at 20%. The 2025 Act sets the minimum deduction for active QBI at $400. It also provides that an applicable taxpayer must have a minimum of $1,000 QBI to claim the deduction. An “active qualified trade or business” means any qualified trade or business of the taxpayer in which the taxpayer “materially participates”. The 2025 Act expands the Sec. 199A deduction limit phase-in range for SSTBs and other entities subject to the wage and investment limitation by increasing the $50,000 amount for non-joint returns to $75,000 and the $100,000 amount for joint returns to $150,000. Inflation adjustments apply to the new minimum amounts for tax years beginning after 2026.
Bonus Depreciation
The 2025 Act permanently extends the Sec. 168 additional first-year (bonus) depreciation deduction. The allowance is increased to 100% for property acquired and placed in service on or after Jan. 19, 2025,
Sec. 179 Expensing
The 2025 Act increases the maximum amount a taxpayer may expense for certain business property under Sec. 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million.
100% Depreciation Election for Real Property Used for Producing Tangible Personal Property
The 2025 Act adds new provision that allows a taxpayer to elect a 100% depreciation deduction for qualified production property (QPP) in the year it is placed in service. Adjusted basis is reduced accordingly. To be eligible, generally, QPP construction must start between January 20, 2025, and
December 31, 2029; and the property must be placed in service in the U.S. (or a U.S. possession) before January 1, 2031.
QPP is nonresidential real property used as an integral part of a qualified production activity (QPA). QPP does not include property used for a variety of functions unrelated to QPAs, such as offices for sales or research activities. Additionally, QPP does not include Alternative Depreciation System (ADS) property, or property the taxpayer leases to another person. QPP is subject to an original use requirement, but an exception is allowed if the property (i) was not previously used by the taxpayer, (ii) was not previously used in a QPA by another person, and (iii) was not acquired from a related party or certain non-recognition transactions.
A QPA is the manufacturing, production (agricultural and chemical only), or refining of a qualified product. A qualified product is tangible personal property other than food or beverages prepared in the same building as a retail outlet that sells those products.
QPP is subject to a 10-year recapture period. If QPP ceases to be used for a QPA, then Code Sec. 1245 is applied as if there had been a disposition of the property. There are coordination rules for the alternative minimum tax and for QPP that might also be eligible for other forms of additional first-year depreciation. This provision is effective for property placed in service after the date of enactment of the 2025 Act.
Research & Development Expenses
The 2025 Act allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after Dec. 31, 2024. However, research or experimental expenditures attributable to research that is conducted outside the United States will continue to be required to be capitalized and amortized over 15 years under Sec. 174.
Small business taxpayers with average annual gross receipts of $31 million or less will generally be permitted to apply this change retroactively to tax years beginning after Dec. 31, 2021. And all taxpayers that made domestic research or experimental expenditures after Dec. 31, 2021, and before Jan. 1, 2025, will be permitted to elect to accelerate the remaining deductions for those expenditures over a one- or two-year period.
Limitation on Business Interest
The 2025 Act reinstates the EBITDA limitation under Sec. 163(j) for tax years beginning after Dec. 31, 2024. Therefore, for purposes of the Sec. 163(j) interest deduction limitation for these years, adjusted taxable income would be computed without regard to the deduction for depreciation, amortization, or depletion. The 2025 Act would also modify the definition of “motor vehicle” to allow interest on floor plan financing for certain trailers and campers to be deductible.
Paid Family & Medical Leave Credit
Under the 2025 Act, Sec. 45S is amended to make the employer credit for paid family and medical leave permanent.
1099 Reporting
Historically, the 1099 reporting threshold has been $600 for forms 1099-MISC and 1099-NEC. The 2025 Act increases the reporting threshold from $600 to $2,000. Beginning in 2027, this threshold will be increased for inflation. This provision is effective for payments made after December 31, 2025.
1% Floor for Deductions of Corporate Charitable Contributions
A corporation can deduct charitable contributions. The deduction can’t exceed 10% of the corporation’s taxable income (as computed without regard to the charitable contribution). Contributions in excess of that limit in any year can be carried forward and deducted over the next five years.
The 2025 Act provides that any otherwise allowable charitable contribution by a corporate taxpayer for any tax year (other than certain qualified conservation contributions) will be allowed only to the extent that the aggregate of such contributions exceeds 1% of the taxpayer’s taxable income for the tax year. Charitable contributions disallowed either for exceeding the 10% maximum or failing to reach the 1% threshold can be carried forward for five years. The new 1% floor on corporate charitable contributions applies in addition to the 10%-of-taxable-income limitation discussed above. This section is effective for tax years beginning after December 31, 2025.
Conclusion
While this is only a brief summary of the 2025 Act, there are many intricacies and complicating factors. We encourage you to reach out to us if you have any specific questions or concerns regarding your personal situation. A summary of this nature cannot provide detailed information on how these rules may apply to your specific tax situation. As such, reliance on the above information without further advice is at your own risk.
We would also need to recognize that in gathering and providing the information supplied above, we relied on the Federal Tax Update Staff of Thomson Reuters Tax & Accounting who provides us with tax research material and also an article published by Alistair M. Nevius, JD in the Journal of Accountancy published by the American Institute of Certified Public Accountants updated July 7, 2025.