On July 4, the One Big Beautiful Bill Act (OBBBA) was signed into law which included significant changes to our tax laws. We are reaching out to highlight some key provisions which may affect your tax situation. You can view a more comprehensive guide to the new tax provisions here.

Key Highlights – Businesses 

• Qualified Business Income (QBI) Deduction: The 20% QBI deduction is now made permanent, including new eligibility guidelines to qualify for the deduction.
  • Note: The House version of the bill that would have increased the deduction to 23% did not make it to the final version of the bill.
• 100% Bonus Depreciation: For eligible property acquired after January 19, 2025, businesses may deduct the full cost of the property immediately. This 100% bonus depreciation deduction was also made permanent.
• Pass-Through Entity Tax (PTET): The PTET deduction was preserved in the final version of the bill, allowing pass-through entities to continue deducting state taxes at the entity level.
  • Note: On June 27, 2025, Governor Newsom signed CA legislation to extend the CA pass-through entity elective tax and related credit for an additional five years (was set to expire at the end of 2025).
• Research and Experimental Expenditures: The new tax act now allows businesses to fully deduct domestic specified research and experimental expenditures (SRE) starting with the 2025 taxable year. For small businesses taxpayers[1], they now have the option to elect to immediately expense unamortized SRE costs incurred from 2022 through 2024.
  • Note: The election to immediately expense prior year unamortized SRE costs are complex and may require additional analysis. We recommend reaching out to your LLME professional if you would like to learn more about this new special provision.

Key Highlights – Individuals

• State and Local Taxes (SALT) Deduction Cap Raised: The SALT deduction cap is temporarily increased to $40,000 for 2025, with annual 1% increases through 2029. The deduction is reduced for taxpayers with modified adjusted gross income (AGI) above certain thresholds (ex. AGI phase-out starts at $500,00 for most taxpayers).
  • Note: Starting in 2029, the SALT cap reverts back to $10,000.
• No Tax on Tips: Provides an above-the line deduction of up to $25,000 for cash tips to employees in customary tipping industries. The deduction begins to phase out for taxpayers with modified AGI of $150,000 ($300,000 for MFJ).
• No Tax on Overtime: Allows an above-the-line deduction for overtime pay of up to $12,500 ($25,000 MFJ). The deduction begins to phase out for taxpayers with a modified AGI of $150,000 ($300,000 for MFJ).
  • Note: The IRS recently released guidance clarifying the amount that qualifies for the deduction is only the pay that exceeds a taxpayer’s regular rate of pay, such as the “half” portion of “time-and-a-half” compensation.
• Estate and Gift Tax Exclusion: OBBBA permanently resets the unified exclusion at $15 million per taxpayer and adjusts for inflation beginning with the 2026 tax year.
• Credits: Many of the new green deal energy and electric vehicle credits are being phased out early.

Your LLME tax professionals are here to help you navigate these changes to ensure effective tax planning and compliance. Please feel free to contact us if you have any questions about the new tax act.

 

[1] Small taxpayers are defined as those whose average annual gross receipts are $31M or less for 2025