Over the Fourth of July weekend, President Trump signed into law the One Big Beautiful Bill Act (OBBB). There are many current tax provisions that were set to expire at the end of 2025 that were made permanent, as well as new provisions incorporated into the OBBB. It will take time to fully unpack the contents, and we expect further guidance to be forthcoming from the IRS.
A few of the highlights for business and business owners are summarized below.
- Research and experimentation costs (section 174 costs): Since 2022, businesses were required to capitalize costs and expense over 60 months. The new provision will allow domestic costs to be expensed in year incurred (foreign costs will continue to be amortized over 15 years). There is also an option to amend prior year returns to expense previously capitalized costs retroactively back to 2022 or accelerate remaining undepreciated costs.
- Bonus depreciation will be reinstated back to 100% expensing and is made permanent for assets placed in service on January 19, 2025, or later.
- Section 179 expensing is increased to $2.5M limit with an acquisition threshold of $4M.
- Qualified business income deduction that was set to expire after 2025 has been made permanent and remains at 20% of business income.
- Pass through entity tax will continue to be permitted by states that have enacted PTE tax return options.
- Form 1099 reporting was revised to adjust the reporting requirement threshold from $600 per recipient to a new threshold of $2,000 per recipient.
- State tax nexus was addressed with an expanded definition of solicitation under PL 86-272.
A few highlights for individuals include:
- No tax on overtime pay, as it will be deductible by the individual taxpayer up to $12,500.
- No tax on tips, as these will be deductible by individual taxpayers up to $25,000.
- State and local tax itemized deduction has been expanded to allow a deduction up to $40,000 for those earning less than $500,000.
- Estate tax exemption has been increased to $15M per taxpayer and will be indexed for inflation annually.
- Many clean energy credits are being eliminated.
As we continue to unpack everything in this Act, there will certainly be procedural updates and communications released from the Internal Revenue Service. We will provide guidance as these become available.
Additional information can be found at Journal of Accountancy: Tax Provisions in the One Big Beautiful Bill Act.