Tax Update: President Trump Signs His One Big Beautiful Bill Act into Law

There are lots of changes in the “One Big Beautiful Bill Act” that will impact the taxes of small business owners and your employees. Most taxpayers will see reductions, and some quite substantial. You’ll want to consult with your tax accountant on any necessary changes to your specific situation, but we wanted to provide you with a summary of some of the most broadly applicable changes. 

Top changes that impact individual (personal) income taxes

Standard Deduction: Increases to $15,750 for single filers, $23,625 for heads of households and $31,500 for married, filing jointly. These amounts will be indexed to inflation and are available to all filers at all income levels unless the taxpayer is itemizing deductions. 

State and Local Tax Deduction: Increases from $10,000 to $40,000 for the tax years 2025-2029. This one is the same no matter if you are filing a single or joint return. And it phases down to the original $10,000 deduction for incomes over $500,000 (single) or $600,000 (joint).  

Child Tax Credit: Permanently increases the Child Tax Credit to $2,200 per child aged 0-16 years old during the tax year. Up to $1,800 per eligible child is refundable. This credit will be indexed to inflation and phases out for income levels above $200,000 (single) and $400,000 (joint). 

Overtime: There is a new deduction for overtime wages up to $12,500 (single) and $25,000 (joint). This deduction is in addition to the standard deduction and only applies to overtime wages required to be paid at time and a half under the Fair Labor Standards Act. It phases out at income levels above $150,000 (single) and $300,000 (joint). W2 forms will need to be amended to separate qualified overtime wages. 

*Overtime deduction note: Independent Contractors can claim this deduction if they can clearly document premium rate pay for overtime equivalent hours. 

Tipped Wage Income Deduction: This one has several conditions. Workers in customarily tipped occupations (servers, bartenders, stylists, valet) may deduct up to $25,000 in cash tips only. The maximum deduction is the same for single or joint filers. Tips paid via credit cards or other electronic forms are not eligible for this deduction. Only tips reported to the employer and reflected on the W2 are eligible for this deduction. The W2 form will need to be amended to separate eligible tips from other forms of income. Occupations not classified as tipped under the IRS guidelines are not eligible for this deduction. This deduction phases out at incomes above $150,000 (single) and $300,000 (joint). 

Top changes that impact small businesses

20% Deduction for Business Owners (QBI) Made Permanent and Expanded 

If you own a small business as a sole proprietor, LLC, S-Corp, or partnership, you can deduct 20% of your business income from your taxable income. This is now permanent but starts to phase down at Adjusted Gross Income levels above $75,000 (single) and $150,000 (joint). This deduction is expanded to include Specified Service Trades or Businesses (SSTBs) that were previously excluded. SSBTs are subject to a more aggressive phase out at income levels above $75,000 (single) and $150,000 (joint). 

100% Bonus Depreciation — Made Permanent 

Businesses can now immediately deduct the full cost (100%) of most business equipment (new or used), such as machinery, furniture, vehicles, software, tools, etc. This applies to assets placed in service after Jan. 19, 2025. Before the passage of the OBBBA, bonus depreciation was limited to 40% in the 2025 tax year. 

Special Deduction for U.S. Manufacturing Equipment 

Businesses that buy and start using qualified production property (like factory or manufacturing equipment) between July 4, 2025 and the end of 2030, can deduct 100% of the cost immediately. This is separate from bonus depreciation and applies to more types of property and equipment. It is meant to boost domestic production. 

Section 179 Expensing Limits Raised 

Businesses can now deduct up to $2.5 million in equipment purchases each year using Section 179 (which works even faster than depreciation). The deduction begins to phase out if you buy more than $4 million of assets in one year. Eligible purchases include tangible goods like computers, vehicles, office furniture, and some improvements to buildings. These limits are indexed to inflation starting in 2026. 

More Generous Business Interest Deduction 

Businesses with loans or debt can now deduct more interest on that debt. This is because depreciation, amortization, and depletion are no longer subtracted from the income used to calculate your cap on interest deductions — a return to the more favorable EBITDA-based rule. 

Research and Development Deductions Restored 

Research & development costs can now be fully deducted in the year you spend them (instead of spreading over 5 years). For some small businesses, these changes are retroactive to 2022, meaning previous tax returns can be amended. Larger businesses get “catchup” deductions in 2025 and 2026.  

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