New Tax Bill is in Effect
The One Big Beautiful Bill Act (the “Act”), a sweeping tax bill that accomplishes many of our President’s campaign goals, was signed into law on July 4, 2025. The Act aims to make permanent several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025. It also includes some additional temporary and permanent changes to the tax code. This article is intended to summarize some of the primary changes that may impact our clients.
Prior to passing the Act, the standard deduction was scheduled to revert to pre-TCJA statutory amounts. Now, under the Act, for tax years beginning after December 31, 2024, the standard deduction is increased to $31,500 for joint returns and surviving spouses, $23,625 for heads of household, and $15,750 for single individuals and married couples filing separately.
A new, temporary tax deduction for senior taxpayers aged 65 or older, and their spouses, is introduced under the Act for the tax years 2025 through 2028. Such taxpayers can claim a $6,000 deduction per qualified individual if filing jointly. This senior deduction is reduced by 6 percent (but not below zero) for adjusted gross income that exceeds $75,000 for single filers and $150,000 for joint filers.
Regarding qualified business income (“QBI”), taxpayers could deduct 20 percent of QBI from a partnership, S corporation, limited liability company, or a sole proprietorship. However, the Act sets the minimum deduction for active QBI at $400. It also states that an applicable taxpayer must have a minimum of $1,000 QBI to claim the deduction. The term “active qualified trade or business” means any qualified trade or business of the taxpayer in which the taxpayer “materially participates” (within the meaning of I.R.C. § 469(h)).
In regard to the child tax credit (“CTC”), the Act made all of the TCJA changes to the CTC permanent, which include: (1) the refundable portion of the CTC, which is $1,400, adjusted for inflation, which for 2025 is $1,700; (2) the earned income threshold that taxpayers may qualify to claim the CTC, which is $2,500, without adjustment for inflation; and (3) the modified adjusted gross income (MAGI) threshold amounts that the CTC begins to phase out, which is $400,000 for joint filers and $200,000 for all other filers, without adjustment for inflation.
Additionally, the CTC made the following revisions to the TCJA: (1) the nonrefundable CTC amount is increased to $2,200 per qualifying child, and is indexed for inflation for tax years after 2025; and (2) to claim the credit on the tax return, the taxpayer must include both the taxpayer’s social security number (or the social security number of at least one spouse for a joint return) and the qualifying child’s social security number.
Effective in 2026, the lifetime exclusion from the 40 percent estate and gift tax will increase to $15 million per individual, which is adjusted for inflation after 2025. For married couples electing portability of a deceased spouse’s unused exemption, that exclusion rises to $30 million. This was a significant change for many of our high-net-worth clients who were concerned that the exclusion amount would expire at the end of 2025 and be reduced to pre-TCJA levels (approximately $7 million per person). Fortunately, for those individuals, this did not occur.
As for spending cuts, the Act will likely reduce overall federal spending by approximately $1.4 trillion, including significant cuts to federal student loan spending (which is estimated to save taxpayers $307 billion over a decade), to the Supplemental Nutrition Assistance Program (SNAP), i.e., food stamps (where the Act significantly changes how SNAP benefits, administrative costs, and nutrition education costs are funded), and to Medicaid (by reducing the spending by around $911 billion over the next decade).
Further, the Act provides no tax on tips (which is treated as a deduction up to $25,000 per year per taxpayer) and overtime (which is a deductible amount of $12,500 per year in qualified overtime compensation). Furthermore, a temporary tax deduction of up to $10,000 of car loan interest is effective through 2028.
For better or worse, significant changes have been made to the tax code that will affect many of our clients, with some here to stay indefinitely. Be sure to talk with your CPA and tax attorney to determine how this new Act will change the way you do business and whether changes may now be needed in your overall financial goals. As always, the attorneys at Carnahan Evans are here to guide you in these conversations.
