Industry Articles

Update on the One Big Beautiful Bill Act

On July 4th, President Trump signed the “One Big Beautiful Bill Act”, a sweeping tax and spending package with significant changes, especially for small business owners.

Key Elements of the New Law:

Permanent Small Business Tax Deduction and Lower Tax Rates
The 20% small business tax deduction, previously set to expire, is now made permanent. This deduction applies to pass-through entities such as S corporations, partnerships, and sole proprietorships.

Permanent Bonus Depreciation
Expensing limits for business equipment purchases have been significantly raised, and full bonus depreciation is now permanent for qualified property placed in service after January 19, 2025.

Increased State and Local Tax (SALT) Deduction
The package includes raises the cap on the state and local tax deduction from $10,000 to $40,000. After five years, it will return to $10,000. In addition, the amount of the deduction phases down when modified adjusted gross income (MAGI) exceeds $500,000 in 2025. After this year, the MAGI threshold will be adjusted for inflation through 2029.

Increased Estate Tax Exemption
The bill permanently increases the estate tax exemption and lifetime gift tax exemption amounts to $15 million for single filers ($30 million for married filing jointly) in 2026 and indexes the exemption amount for inflation after that.

No Tax on Tips
The new rules allow a deduction of up to $25,000 for qualified tips received by an individual in an occupation that customarily receives tips. The deduction begins to phase out when MAGI exceeds $150,000 ($300,000 for joint return), and the deduction expires after the 2028 tax year.

No Tax on Overtime Pay
For overtime, the bill provides a deduction of up to $12,500 ($25,000 for joint return) for qualified overtime compensation. Similar to the new tip provisions, the overtime deduction begins to phase out when MAGI exceeds $150,000 ($300,000 for joint return), and the deduction expires after the 2028 tax year.

Business Interest Deduction Changes

The limitation on business interest deductions is adjusted to a more favorable calculation, increasing deductible interest for many businesses.

What This Means for Small Business Owners

  • Tax Relief and Certainty: The permanent nature of these provisions allows for long-term planning and investment, reducing uncertainty about future tax changes.
  • Increased Cash Flow: Higher expensing limits and deductions mean more immediate tax savings, freeing up cash for growth and operations.
  • Estate Planning Opportunities: The higher exemption thresholds make it easier to transfer business assets to heirs without triggering estate taxes.
  • Compliance Reminders: With new rules come new compliance requirements. Accurate documentation and timely filings are more important than ever to maximize benefits and avoid penalties.

Support and Assistance

Acuity is here to help you navigate these important updates. While the bill is widely seen as a win for small businesses, it also includes significant changes to healthcare and social programs that may indirectly affect your employees and their families. We recommend reviewing your benefits and compensation strategies in light of these changes.

We will continue to review these updates to ensure that we have the most up-to-date tax planning information for you and your business.