The One Big Beautiful Bill Act (OBBBA) introduces sweeping updates to the tax code set to take effect for the 2025 tax year. These changes are crucial for tax professionals who must adapt planning strategies, educate clients, and ensure their software is fully compliant.
Here is what we know so far:
1. Permanent Extension of 2017 Tax Cuts
The OBBBA makes permanent the individual and corporate tax rate reductions introduced in the 2017 Tax Cuts and Jobs Act (TCJA), which were previously set to expire.
2. Increased SALT Deduction Cap
The state and local tax (SALT) deduction cap increases from $10,000 to $40,000 for households earning less than $500,000, effective through 2029.
3. Enhanced Child Tax Credit
The child tax credit increases to $2,200 per child starting in 2025, with a refundable portion capped at $1,400. The credit is indexed to inflation.
4. Senior Deduction Introduction
A new $6,000 deduction for taxpayers aged 65 and older is introduced, phasing out for individuals earning over $175,000 and couples over $250,000.
5. R&D Expensing Reinstated
The bill reinstates immediate expensing for domestic research and experimental (R&E) expenditures, reversing the TCJA’s requirement to amortize these costs.
Preparing for Implementation of the Big Beautiful Bill Act
The bill received the President’s signature, and the bill is now law.
To prepare for the 2025 tax year, tax professionals should:
- Update Tax Software: Ensure that tax preparation software is updated to reflect the new provisions.
- Client Communication: Inform clients about how these changes could affect their tax situations, especially regarding deductions and credits.
- Education: Continue tracking tips and best practices. We will provide updates via our blog, Taxing Subjects.
By staying informed and proactive, you can effectively navigate the One Big Beautiful Bill Act and provide valuable guidance to your clients.
Stay tuned to Taxing Subjects for the latest updates and best practices. To stay current, be sure to sign up for upcoming webinars and other educational resources.