The One Big Beautiful Bill (also called the OBBB or OB3) was signed into law on July 4, 2025. The legislation introduces significant changes to federal taxes, credits, and deductions. Below are key provisions impacting individuals and small businesses.
Implications for Individuals
SALT Deduction Cap Raised
- The State & Local Tax (SALT) deduction cap is increased from $10,000 to $40,000 for individuals taking itemized deductions for tax year starting in 2025.
- Limitation: For taxpayers with modified adjusted gross income (MAGI) exceeding $500,000 in 2025, the maximum SALT deduction will be reduced by 30% of the amount over this threshold.
Tips & Overtime Deductions (New)
- Employees and self-employed individuals may deduct up to $25,000 in qualified tips and up to $12,500 in qualified overtime wages from taxable income.
- Limitation: The deduction phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $150,000 ($300,000 for married couples filing jointly).
Interest on Car Loans Deduction (New)
- There’s a deduction for interest on car loans for qualifying vehicles (less than 14,000 pounds, and that has undergone final assembly in the United States, used for personal purposes) up to $10,000.
- Limitations: Applies only to new loans taken out after Dec 31, 2024. The deduction is phased out starting at $100,000 of modified adjusted gross income (MAGI) or $200,000 for married couples filing jointly.
Clean Vehicle Credits (Expiring)
- The Electric Vehicle Credits ends on September 30, 2025. That means if you purchase a qualifying vehicle before that date, these credits will still be available to you (based on when a binding contract is entered, not the delivery date).
Energy Efficient Home Improvement Credit & the Residential Clean Energy Credit (Expiring)
- These credits expires on December 31, 2025. Qualifying improvements include: energy-efficient air conditioners, windows, furnaces, solar panels, etc. These items would need to be installed before the expiration date to qualify for the credit.
No Tax on Social Security (New)
- The new senior deduction allows eligible seniors and their spouses who are 65 or older to deduct up to $6,000 each from their taxable income for tax years 2025 through 2028. Phased out for taxpayers with MAGI above $75,000 (single) or $150,000 (married couples filing jointly).
FICA Tip Credit (Expanded)
- FICA Tip Credit allows eligible employers to claim a federal income tax credit for a portion of the Social Security and Medicare (FICA) taxes they pay on tips that employees receive directly from customers.
- This credit was only allowed previously in food and beverage industries. It has been expanded to include beauty service businesses where tipping is customary.
Implications for Small Businesses
100% Bonus Depreciation
- Businesses can once again fully expense qualifying property placed in service after January 19, 2025.
Qualified Business Income (QBI) Deduction (Made Permanent)
- The Qualified Business Income deduction, also known as the §199A deduction, was created under the 2017 Tax Cuts and Jobs Act (TCJA). It allows certain business owners to deduct up to 20% of their qualified business income on their individual tax returns.
- Qualified business income includes net income from a qualified trade or business (sole proprietorship, partnership, S-corp, or certain trusts/estates). Examples include net profits from a business, rental income treated as a trade or business.
- The phase-out thresholds have increased to allow more businesses to qualify for the deduction. Additional limits on the deduction gradually phase in if 2025 taxable income exceeds the applicable threshold – $197,300 (single) or $394,600.