How the Big Beautiful Bill Impacts Taxpayers

What Is the Big Beautiful Bill and How Will It Affect Your Taxes?

The 'Big Beautiful Bill'—officially known as the One Big Beautiful Bill Act (H.R. 1, Public Law 119-21)—was signed into law on July 4, 2025. Effective from the 2025 tax year, this comprehensive tax reform introduces various changes to the tax landscape for individuals and businesses. These changes range from bolstering standard deductions to phasing out specific energy credits, fundamentally altering the tax dynamics for all.

You can view the full text of the bill on Congress.gov if you want the full legislation.

New Tax Deductions and Credits for Individuals (2025)

These updates are based on the final law and apply to tax years beginning after December 31, 2024.

Increased Standard Deductions

The basic amount you can deduct from your income before calculating taxes has increased:

• Joint Filers: $31,500
• Heads of Household: $23,625
• Single or Married Filing Separately: $15,750

These figures will adjust for inflation each year.

Overtime & Tip Income Deductions

If you earn income from overtime or tips, you may now deduct part of it:

• Up to $12,500 in overtime pay
• Up to $25,000 in tip income

A valid Social Security Number (SSN) is required to claim this deduction, even if you don’t itemize.  The deduction begins with the 2026 tax year, ending after 2028. Phase-outs apply if your Modified Adjusted Gross Income (MAGI) exceeds $150,000 (or $300,000 for joint filers).

SALT Deduction Cap Temporarily Increased

The Big Beautiful Bill temporarily raises the cap on state and local taxes (SALT) deductions, a key issue for taxpayers in high-tax states.

What’s changing:

• The SALT cap increases to $40,000 starting in 2025.
• In 2026, the cap rises to $40,400, representing a 1% increase.
• From 2027 through 2029, the cap continues to increase by 1% annually, based on the previous year’s amount.
• In 2030, the cap returns to $10,000, matching the pre-BBB limit under the Tax Cuts and Jobs Act (TCJA).
• The phaseout threshold is $500,000 in 2025 (adjusted for inflation).  Married individuals filing separately use half that amount.

What is the SALT deduction?

Heads-up: The increase in the SALT deduction cap under the Big Beautiful Bill is a temporary measure. Taxpayers in high-tax states should plan for the upcoming phase-down years.

Child & Senior Tax Benefits

• Under the Big Beautiful Bill, the Child Tax Credit has been increased to $2,200 per child, with annual adjustments for inflation. The refundable portion of this credit (the Additional Child Tax Credit) remains subject to inflation adjustments and was $1,700 in 2024. The taxpayer and the child must have valid Social Security Numbers to claim this credit.
• Taxpayers 65 or older may claim an additional $6,000 deduction, phased out for those earning over $75,000 (or $150,000 if filing jointly).
• A new charitable deduction of up to $1,000 per person (or $2,000 per couple) is allowed even if you don’t itemize.

Tax-Advantaged Savings Accounts for Newborns (2025–2028) (aka Trump Accounts for Newborns)

Children born from 2025 to 2028 will be eligible for special savings accounts:

• The government deposits $1,000 into the account at birth.
• Families can contribute up to $5,000/year, and employers up to $2,500/year.
• This savings account becomes a traditional IRA when the child turns 18.

Car Loan Interest Deduction

For tax years 2025 to 2028:

• Interest paid on car loans (up to $10,000/year) may be deductible.
• The car must be assembled in the U.S.
• Deductions phase out if your Modified Adjusted Gross Income exceeds $100,000 (or $200,000 for joint filers).

Estate Tax Exemption Increased

The lifetime exemption for estate and gift taxes has been increased to $15 million, indexed annually for inflation. Under the new law, this change is permanent, providing taxpayers with security and confidence about their future financial planning.

What Individual Taxpayers May Lose

Clean Energy Tax Credits Ending

The Big Beautiful Bill begins phasing out several clean energy tax incentives introduced or expanded under the Inflation Reduction Act.

Here’s what’s ending and when:

• Electric vehicle system credits end after September 30, 2025.
• Solar energy system credits end after December 31, 2025.
• Residential energy credits—including upgrades like heat pumps, insulation, windows, and high-efficiency HVAC systems—end on December 31, 2025.
• Commercial building energy efficiency deductions (like Section 179D) will no longer be available for projects that start construction on or after June 30, 2026.
• If construction begins before that date, the project may still qualify for the deduction, even if it's finished later.

These changes may impact taxpayers planning energy-efficient home or vehicle upgrades. Installations or purchases completed before the cutoff dates are still eligible.

Tip: These credits can be worth up to $7,500 for electric vehicles and up to 30% of the costs of solar or energy-efficient home upgrades. If you plan an update, you should confirm eligibility before year-end 2025.

Personal Exemptions Permanently Removed

The Big Beautiful Bill permanently eliminates personal exemptions beginning in 2026. These were previously amounts you could deduct for yourself and dependents.

However, the bill creates a separate “Temporary Senior Deduction” of $6,000 per person age 65 or older (available 2025–2028), which phases out at $75,000 of income ($150,000 if filing jointly). This bonus deduction is not classified as a personal exemption and does not continue beyond 2028.

Education Credit ID Requirements Tightened

Starting in 2026, stricter ID requirements apply to claim education credits:

• For the American Opportunity and Lifetime Learning Credits, taxpayers must provide the student’s Social Security Number (SSN).
• The school’s Employer Identification Number (EIN) must also be included on the return for the American Opportunity Credit only.

Mortgage Interest Deduction Limits Made Permanent

The deduction for mortgage interest is now permanently capped at the first $750,000 of home acquisition debt ($375,000 if married filing separately). Interest on home equity loans is no longer deductible under the Big Beautiful Bill.

New Small Business Tax Benefits in 2025

Bonus Depreciation Made Permanent

Businesses can now deduct the full cost of eligible purchases in the year they’re placed in service (100% bonus depreciation):

• Applies to property acquired after January 19, 2025.
• Previously, bonus depreciation was scheduled to phase out entirely by 2027. The Big Beautiful Bill reverses this, making 100% bonus depreciation permanent for eligible property placed in service after January 19, 2025.

Section 179 Deduction Expanded

The Section 179 deduction limit allows businesses to write off up to $2.5 million in qualifying property expenses immediately rather than depreciating them over several years.

Key updates:

• This applies to equipment purchases, machinery, software, and certain improvements (such as HVAC, roofs, and security systems).
• The deduction begins to phase out once total equipment purchases exceed $4 million in a single year.
• Available for new and used property in service during the tax year.
• Businesses must elect Section 179 on their return to use it—it’s not automatic.

Note: Section 179 can’t be used to create a net loss. It's often used strategically with bonus depreciation for maximum tax benefit.

Qualified Business Income (QBI) Deduction Extended

The 20% deduction for certain pass-through business income is now permanent. It applies to sole proprietors, LLCs, and S corporations. This deduction was created by the Tax Cuts and Jobs Act (TCJA) and was set to expire in 2025. The Big Beautiful Bill makes it permanent.

Key qualifications for 2025:

• Applies to sole proprietors, S corporations, and LLCs taxed as pass-throughs.
• Begins to phase out if taxable income exceeds:
• • $400,000 for joint filers
  • $200,000 for single filers
• Phaseouts apply primarily to Specified Service Trades or Businesses (SSTBs) like:
• • Legal, medical, consulting, financial, and accounting services
• Eligibility also depends on:
• • Wages paid to employees
  • The amount of qualified business property held

Heads-up: High-income service businesses face complex IRS limitations for QBI. Review the latest IRS guidance or consult a tax pro before claiming. IRS Publication 

Research Deduction Reinstated

The Big Beautiful Bill reverses a prior law that required businesses to amortize their research and development (R&D) expenses over five or more years. Beginning in 2025, domestic R&D expenses are again fully deductible in the year incurred.

Key points:

• Applies to expenses for U.S.-based research and development.
• Retroactive relief: Small businesses with gross receipts under $31 million can apply the deduction rules to tax year 2022.
• This change primarily benefits startups and tech-driven companies with large R&D costs and limited cash flow.

Note: The amortization requirement for foreign-based R&D still applies.

Paid Family Leave Credit Extended

Businesses can now claim a credit of 12.5% to 25% on wages paid to employees during qualifying paid family or medical leave.

To qualify, the leave must be:

• For reasons like childbirth, adoption, serious illness, or caregiving
• Paid directly by the employer (not reimbursed by the state)
• Provided under a written policy that meets minimum requirements

This credit applies even when leave is mandated by state law, but only for the portion that goes beyond the state-required benefit. It is claimed using IRS Form 8994.

Note: The employee must have worked for the business for at least 6 months. The percentage depends on the wage amount compared to normal pay.

What Small Businesses May Lose

Business Interest Deduction Tightened

The Big Beautiful Bill tightens the rules around how much interest businesses can deduct.

• Previously, businesses could include depreciation, amortization, and depletion when calculating “Adjusted Taxable Income” (ATI).
• Starting in 2025, these items are excluded from the ATI calculation.
• As a result, deductible interest will likely decrease, especially for capital-intensive businesses like manufacturing or real estate.

Why it matters: This change may increase taxable income and limit financing options for highly leveraged companies. Businesses with significant depreciation deductions need to review their capital strategy.

Green Energy Credits Phased Out

• Credits for clean commercial vehicles and buildings expire between 2025 and 2026

Direct File Program Repealed

The IRS’s Direct File pilot has ended. A $15 million public-private task force will explore scalable alternatives for free or low-cost e-filing options that could reach up to 70% of taxpayers..

• Direct File allowed eligible taxpayers to file simple federal returns online with the IRS for free.
• The 2024 pilot was limited to a small number of states and tax situations.
• The Big Beautiful Bill allocates $15 million to form a public-private e-filing task force.
• The new system aims to reach up to 70% of U.S. taxpayers.
• No formal replacement platform is yet confirmed.

ERC Claims Cut Off

Businesses can no longer claim the Employee Retention Credit (ERC) for any quarters after January 31, 2024.

This includes new claims and amended returns for prior quarters, meaning the window to file retroactively has closed.

The BBB also introduces new penalties for ERC promoters, including:

• A $1,000 penalty per false filing
• Up to 75% of gross income received from improperly assisting with ERC submissions

Businesses that legitimately claimed the ERC may still be audited under an extended 6-year lookback period. Supporting documentation is essential.

IRS Audits, Filing Rules, and Digital Changes in 2025

Mandatory E-Filing for More Preparers

The Big Beautiful Bill affirms that tax preparers must e-file if they submit more than 10 returns—a rule already in effect but now more firmly backed by law.

It also expands the IRS’s authority to deliver digital notices. However, if taxpayers prefer paper notices, they can still opt in to receive them.

Stricter Audit Criteria

• IRS will focus more on international income, foreign tax credits, and business transfer pricing.
• These efforts are tied to new global tax agreements.

Streamlined Dispute Options

The bill promotes more use of Advance Pricing Agreements and Mutual Agreement Procedures to resolve cross-border tax issues.

FAQs: Big Beautiful Bill & You

Q1: Does this lower my taxes?

Q2: Do I need to itemize to get these deductions?

Q3: Are energy tax credits still available?

Q4: What are Trump Accounts?

Q5: Can I still claim the Employee Retention Credit?

Final Thoughts

The Big Beautiful Bill brings significant changes, but not all are simple. The updates affect how much you can deduct, which credits apply, and how the IRS handles filings and audits. If you're unsure how these changes impact you, it's worth getting help.

Are you unsure how the Big Beautiful Bill affects your taxes? e.file-tax.net can guide you. Get started with your tax prep today.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. For personalized guidance, consult a licensed tax professional or the IRS.