How OBBBA Impacts Small Businesses and Individuals
The One Big Beautiful Bill Act (OBBBA) (passed early July 2025) will bring sweeping changes to the tax code that impact small businesses and individuals. Some provisions are permanent, while others will only be in place for the next few years. The bill provides immediate tax cuts, creating planning opportunities for business owners and families alike. Below are the most relevant updates for business owners and individuals:
Business Owners
Increased QBI deduction: The qualified business income (QBI) deduction was originally created under the 2017 Tax Cuts and Jobs Act (TCJA). The QBI deduction is an above the line tax deduction for small businesses simply for being a small business (C corporations and entities taxed as C corporations do not qualify). The deduction percentage is multiplied by businesses’ net income, and the product is subtracted from net income to arrive at taxable income. This deduction was set to expire after 2025, but OBBBA has made the QBI deduction permanent. In addition, the deduction has been increased to 23% from 20% previously.
Return of 100% bonus depreciation: Bonus depreciation was also created under the 2017 TCJA. Bonus depreciation allows businesses to fully deduct the cost of eligible assets like equipment, vehicles, and certain real estate improvements, among others. When passed, the 100% deduction was designed to phase out by 20% each year until it reached 0%, or expired in 2027 (i.e., 80% in 2023, 60% in 2024, 40% in 2025). However, under OBBBA, the deduction has been restored to 100% and is now permanent. Moreover, business owners can retroactively apply this deduction in prior tax years, unlocking tax savings by filing an amended tax return.
Individuals
Permanent increase to the standard deduction: When the TCJA was passed, it roughly doubled the standard deduction in 2018. The approximate doubling of the standard deduction was set to expire after 2025. OBBBA keeps the standard deduction at this heightened level permanently, and raised the standard deduction for 2025 by roughly $1,000. Taxpayers can still expect annual inflation adjustments to the standard deduction. See below for the standard deductions in 2025 and 2026 before OBBBA was passed and with OBBBA signed into legislation.
Standard deduction amounts for 2025
Single and married filing separately: $15,000 before | $15,750 now
Married filing jointly: $30,000 before | $31,500 now
Head of household: $22,500 before | $23,625 now
Standard deduction amounts for 2026
Single and married filing separately: $8,300 before | $16,300 now
Married filing jointly: $16,600 before | $32,600 now
Head of household: $12,150 before | $24,500 now
No tax on tips: Workers that earn tips—bartenders, servers, valets, barbers, nail technicians, food delivery drivers—will not pay federal taxes on their first $25,000 in qualifying tips in each tax year from 2025 to 2028. The $25,000 applies to single and married households, and the deduction is phased out at certain income levels ($150,000 for single and $300,000 for married households).
No tax on overtime: Some overtime wages will be exempt from federal income tax in each tax year from 2025 to 2028. Single filers can enjoy up to $12,500 of tax-free overtime and the limit for married households is $25,000. This change especially benefits hourly and middle-income workers who pick up overtime to boost earnings. It is critical for your employer to correctly report overtime on your paycheck. This tax deduction begins to phase out at the same levels as no tax on tips ($150,000 for single and $300,000 for married households).
Increased child tax credit: The bill raised the child tax credit from $2,000 per qualifying child to $2,500. The credit directly lowers tax liability dollar-for-dollar and is partially refundable, meaning families could receive some money back even if their tax bill is zero. Larger families stand to gain the most, though higher income earners face phase-out limits ($200,000 for single and $400,000 for married households).
Deduction for automobiles assembled in the U.S.: Interest on car loans for automobiles assembled in the U.S. is now deductible (up to $10,000 per year). The deduction can be taken whether or not a taxpayer itemizes. The deduction applies to vehicles purchased between 2025 and 2028 and that are used for personal use only. This deduction begins to phase out for single filers at $100,000 in modified adjusted gross income (MAGI) and for married filing jointly at $200,000.
Permanent home mortgage interest deduction: For those who itemize, the home mortgage interest deduction was set to expire at the end of 2025. Home mortgage interest is now permanently deductible each year if you itemize. You may deduct home mortgage interest if your loan amount was $750,000 or less for most filers filers and $375,000 or less for married filing jointly filers. If your purchased the home before December 2017, you may deduct interest if your total loan amount was $1 million or less ($500,000 if you’re married filing separately). Interest on home equity lines of credit are generally not deductible, unless the proceeds were used to buy, build, or improve the home.
Restriction on gambling losses: The bill materially changes the way gambling losses are taxed. Previously, if a taxpayer won $100 in gambling winnings and had $100 in gambling losses, the taxpayer would have $0 in gambling winnings. After OBBBA, taxpayers can only deduct 90% of gambling losses. Using the same scenario, the taxpayer would only be able to offset $100 in gambling winnings with $90 in gambling losses (90% times $100 loss). Therefore, the taxpayer will pay taxes on $10 in gambling winnings although they don’t have $10 in cash winnings or cash flow. In the case of a high roller or professional gambler, they could now owe taxes on thousands to hundreds of thousands of dollars in winnings even if they don’t net those winnings.
Higher additional deduction for seniors: The bill raised the additional deduction offered to individuals over 65 (effective from 2025 to 2028). The deduction applies regardless of whether the taxpayer itemizes. The taxpayer must have turned 65 on or before the last day of the taxable year to take the deduction. The amount was raised from $2,000 per eligible individual previously to $6,000 now. The deduction begins to phase out for individual filers with $75,000 in MAGI and $150,000 for married filing jointly.
OBBBA creates new opportunities but also introduces complexities that taxpayers will need to carefully navigate. With these and other changes coming into effect, it’s critical to stay up to date and understand the nuances within each change. Wilson CPA Services can help you understand the new rules, identify opportunities, and adjust your strategy so you can maximize tax benefits under new laws.
