After months of political back-and-forth and near gridlock, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4, 2025, just two days after the House approved the Senate’s version of the reconciliation bill. The bill’s formal name was revised for procedural reasons, but it’s widely known by its original working title: One Big Beautiful Bill.
While the legislation includes broad changes to border security, energy policy, and spending programs, its most sweeping and immediate effects fall on the tax code—especially for individuals. OBBBA extends, modifies, or permanently codifies key provisions from the 2017 Tax Cuts and Jobs Act (TCJA), and adds new deductions targeting workers in service industries, seniors, and middle-class households.
Why This Bill Matters
Without action, many TCJA provisions—including lower tax brackets and expanded standard deductions—were set to expire at the end of 2025. OBBBA prevents that cliff, while introducing headline-grabbing campaign promises like tax breaks for tips and overtime.
According to the Joint Committee on Taxation, the tax provisions are expected to cost nearly $2 trillion over the next decade, partially offset by repealing several green energy incentives and reducing non-tax-related federal spending.
Key OBBBA Tax Changes for Individuals
1. Income Tax Brackets Made Permanent
- The seven-bracket structure (10%, 12%, 22%, 24%, 32%, 35%, 37%) remains.
- Brackets will continue to adjust annually for inflation.
2. Standard Deduction Increases
- $15,750 for single filers and $31,500 for joint filers in 2025, adjusted annually.
- Head of household amount set at $23,625.
3. Personal Exemption
- The personal exemption, suspended under TCJA, is now permanently eliminated.
4. Alternative Minimum Tax (AMT) Relief
- AMT exemption set at $500,000 single and $1 million joint, indexed for inflation.
- Phase-out formula revised to be less punitive.
5. State and Local Tax (SALT) Deduction Cap Temporarily Increased
- Cap temporarily raised to $40,000 for tax year 2025.
- Increases by 1% annually through 2029, offering modest yearly growth.
- Reverts back to the original $10,000 cap in 2030, unless further legislative action is taken.
- Phase-out begins at $500,000 in Modified Adjusted Gross Income (MAGI).
- For every dollar above $500,000 MAGI, the enhanced deduction is reduced by 30 cents.
- Fully phased out at $600,000 MAGI, where the cap reverts to the standard $10,000 limit.
6. New Deduction for Tip Income (2025–2028)
- Above-the-line deduction up to $25,000, phasing out at $150,000 MAGI ($300,000 joint).
- Applies to service industries like food, hospitality, and beauty.
- Specified Service Trade or Businesses (SSTBs) are excluded.
- Documentation (W-2, 1099, or new IRS Form 4317) required.
7. Overtime Pay Deduction (2025–2028)
- Deduct up to $12,500 ($25,000 joint) in qualified overtime.
- Phases out at $100,000 MAGI ($200,000 joint).
- Requires separate reporting on wage documents.
8. Senior Deduction (2025–2028)
- Additional $6,000 deduction for individuals over 65.
- Potentially $12,000 for taxpayers filing as Married Filing Jointly (MFJ). We are awaiting IRS guidance for clarity.
- Phases out beginning at $75,000 MAGI ($150,000 joint).
9. Car Loan Interest Deduction (2025–2028)
- Deduct up to $10,000 in interest on new U.S.-assembled vehicles.
- Phase-out begins at $100,000 MAGI ($200,000 joint).
- Available to both itemizers and non-itemizers.
10. Expanded Child and Dependent Benefits
- Child Tax Credit increased to $2,200, indexed for inflation.
Still subject to the same phase out thresholds::- Married filing jointly: $400,000
- Single, Head of Household, or Qualifying Widow(er): $200,000
- Married filing separately: $200,000
- $1,400 refundable portion and $500 dependent credit made permanent.
- Employer-provided Dependent Care FSA cap raised to $7,500.
- “Trump Accounts” – children born between 2025 and 2028 will be given a federally funded $1,000 deposit into a child savings account. Parents can make additional contributions up to $5,000 annually.
11. Section 1202 Qualified Small Business Stock (QSBS)
- New tiered gain exclusion:
- 50% after 3 years
- 75% after 4 years
- 100% after 5 years
- Lifetime per-issuer gain exclusion raised to $15 million, or 10 times the tax payer’s basis.
- Applies to stock issued after July 4, 2025.
- $15 million cap is subject to annual inflation adjustments.
12. Section 199A Qualified Business Income (QBI) Deduction
- The 20% deduction for eligible pass-through income is now permanent.
- Phase-out thresholds increased to $150,000 joint, $75,000 single.
13. Charitable Contribution Changes
- Non-itemizers can deduct up to $1,000 ($2,000 joint).
- For itemizers, a new 0.5% AGI floor applies.
- Deductive amount is now limited to contributions in excess of 0.5% of AGI.
- The 60% cash gift limit remains permanently extended.
14. Estate and Gift Tax
- Unified credit raised to $15 million per individual beginning in 2026, indexed annually.
- Generation-skipping transfer (GST) exemption also increased.
15. Clean Energy Credits Eliminated
- Electric Vehicles: The $7,500 credit for electric vehicle purchases has been terminated as of September 30, 2025.
- Home Credits: The popular solar installation credit of 30% will end on December 31, 2025 as well as other energy efficient home improvements.
What’s Not in the Bill
Although widely discussed, Social Security income remains taxable—Trump’s campaign proposal to eliminate the tax was dropped. Instead, the new senior deduction may serve a similar purpose for many retirees.
Similarly, OBBBA repeals the IRS Direct File pilot program and caps new tax breaks to those with verifiable income documentation, adding friction to informal or undocumented income streams.
What This Means for You
If you’re a high-income earner, entrepreneur, or homeowner, OBBBA could significantly reduce your taxable income—but only if you plan strategically. Some deductions are time-limited (e.g., tips, overtime, auto interest) and phase out above certain income thresholds.
Others, like the QBI deduction and expanded estate exemption, offer long-term planning benefits. Aura Advisors recommends reviewing:
- Mid-year projections to weigh standard vs. itemized deductions
- Timing for QSBS investments and gain recognition
- Estate and gifting strategies before 2026
- Payroll systems to document tip and overtime income properly
Aura Advisors Takeaway
OBBBA offers stability for the core tax code and new opportunities for wage earners and investors. But the window for several high-impact deductions is short—and income phaseouts require proactive planning. Our team is here to help you assess your eligibility, document income properly, and build a flexible tax strategy.
Contact us to schedule a discussion about the impact of OBBBA on your tax position.
Aura Advisors is a boutique tax consulting and compliance firm working with start-ups, emerging growth companies, and affluent individuals. Making it safer for good people and good companies to continue to do good things.