The Big Beautiful Bill: Key tax changes you need to know

• Permanent Extension of 2017 Tax Cuts: A cornerstone of this bill is the permanent extension of many individual and business tax breaks from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025. These include examples such as the lower tax brackets, the standard deduction, and the increased Alternative Minimum Tax exemption. This provides much-needed certainty for long-term business planning.
• Bonus Depreciation: The bill restores 100% bonus depreciation for qualifying property placed in service on or after January 20, 2025, and before January 1, 2030. This allows businesses to immediately deduct the full cost of certain assets, incentivizing investment in equipment and machinery.
• Qualified Business Income (QBI) Deduction (Section 199A): While the House initially proposed increasing the QBI deduction, the final Senate version keeps the deduction at 20% and introduces a $400 minimum deduction for those with at least $1,000 in QBI from trades. It also adjusts the phase-out thresholds for specified service trades or businesses (SSTBs).
• State and Local Tax (SALT) Deduction Cap: The cap on the SALT deduction has been raised to $40,000 for married couples earning up to $500,000, with an annual inflation adjustment through 2029. This provides some relief for businesses in high-tax states.
• Research and Development (R&D) Expensing: The bill allows for immediate expensing for domestic research and experimentation and gives tax-payers the option to expense over 1 to 2 years for 2022-2024.

IMPACT ON SPECIFIC INDUSTRIES AND PRACTICES:

• Clean Energy: The OBBBA phases out many clean energy tax credits established by the Biden-era Inflation Reduction Act. Businesses in the renewable energy sector, particularly residential solar, may experience significant changes to their financial incentives. We encourage clients in this sector to assess the implications and adjust their strategies accordingly.
• International Tax: The bill introduces substantial modifications to the U.S. international tax framework, including changes to foreign tax credits (FTCs), Global Intangible Low-Taxed Income (GILTI), and Foreign-Derived Intangible Income (FDII) deductions. Businesses with international operations should review these changes carefully.

OTHER NOTABLE PROVISIONS:

• New Deductions for Individuals (Temporary): The bill introduces temporary tax deductions (expiring in 2028) for tips and overtime pay (capped at $25,000 each for workers making less than $150,000) and for “Made in America” auto loan interest (up to $10,000 per year). While primarily affecting individuals, these could impact employee compensation strategies.
• Child Tax Credit: The Child Tax Credit will permanently increase from $2,000 to $2,200 per child, with inflation adjustments.
• “Trump Accounts”: The bill creates “Trump Accounts,” allowing parents to establish tax-deferred accounts for the benefit of their children.

WHAT THIS MEANS FOR YOU:

The OBBBA represents a complex set of changes that require careful consideration. We strongly advise all our business clients to:

• Review Your Current Tax Strategies: The permanence of certain tax cuts and the reintroduction of 100% bonus depreciation may open new avenues for tax planning.
• Assess Operational Impacts: If your business is in an industry directly affected by the changes, such as clean energy, consider how these provisions will impact your financial projections and investment decisions.
• Consult with Our Experts: Our team is well-versed in the intricacies of this new legislation. We are ready to work with you to understand how these changes specifically apply to your business, identify potential opportunities, and mitigate any challenges.

If you would like to discuss how this bill will affect you and your business, please don’t hesitate to reach out to our team. We are committed to helping you navigate these changes effectively and ensure your continued financial success.