Understanding the One Big Beautiful Bill Act (OBBBA)

The One Big Beautiful Bill Act (OBBBA), officially enacted as Public Law No. 119-21 on July 4, 2025, signifies a significant transformation of the United States Internal Revenue Code of 1986. By extending, expanding, and permanently enacting key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, the OBBBA fulfills a vital campaign promise of the Trump Administration while introducing several new initiatives aimed at enhancing tax incentives for individuals and small businesses.

Key Features of the OBBBA

Here, we delve into the major elements of the OBBBA, exploring adjustments that will influence both individuals and businesses across various sectors.

I. Individual Income Tax Changes

Permanent Tax Rate Adjustments
One of the key features of the OBBBA is the permanence of the 37% top marginal federal income tax rate for individuals. Previously set to revert to 39.6% post-2025, this change will maintain a more favorable tax climate for higher-income earners.

Alternative Minimum Tax Revisions
The OBBBA solidifies the TCJA’s increased exemption amounts for the alternative minimum tax (AMT), ensuring higher-income taxpayers will retain a more manageable AMT threshold in the years to come.

Enhanced Standard Deduction
The act makes the increased standard deduction of $15,750 for single and married filing separately taxpayers, and $31,500 for married couples, permanent. This will rise to $16,000 and $32,000 in 2026, adjusted annually for inflation.

Charitable Contributions and Deductions
Changes include a permanent adjustment in the charitable deduction limit to 60% of adjusted gross income (AGI). Moreover, non-itemizers can benefit from an above-the-line charitable deduction up to $1,000 for single taxpayers and $2,000 for married couples.

State and Local Tax (SALT) Deduction
Starting in 2025, the SALT deduction cap will increase from $10,000 to $40,000, gradually phasing out for modified AGI between $500,000 and $600,000, thus allowing more taxpayers to benefit.

II. Business Tax Provisions

Qualified Business Income Deduction
The OBBBA permanently extends the 20% deduction for qualified business income for noncorporate taxpayers, enhancing opportunities for many who derive income from pass-through entities.

Business Interest Deduction
Restoring the favorable interest expense limitation will allow more businesses to deduct interest associated with their debt, further facilitating business growth.

III. Estate and Gift Tax Changes

Beginning in 2026, the federal estate, gift, and GST tax exemptions rise permanently to $15 million per taxpayer, translating to $30 million for married couples. This enables families to strategize their generational wealth transfer without the pressure of imminent tax liabilities.

IV. Tax-Favored Investment Provisions

Expansion of Opportunity Zones
The OBBBA revitalizes and extends the Qualified Opportunity Zones program, aimed at fostering investments in distressed communities, with enhanced benefits for those who reinvest their capital gains.

Qualified Small Business Stock Exclusion
Significantly benefiting investors, the OBBBA raises the exclusion cap for QSBS to $15 million or 10 times the taxpayer’s stock basis. The holding period is reduced, allowing partial exclusions sooner.

V. Non-Profit Organizations and Education Initiatives

Scholarship Granting Organizations
The introduction of a federal nonrefundable tax credit for contributions to Scholarship Granting Organizations (SGOs) allows taxpayers to claim up to $1,700 annually.

Excise Tax Adjustments
While the OBBBA did not increase the 1.39% excise tax on large private foundations, it has raised taxes on institutions with substantial endowments, emphasizing a renewed focus on equitable education funding.

VI. International Tax Changes

GILTI and FDII Revisions
Renaming the Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII), the OBBBA introduces new deduction reductions and modifies credit structures. The aim is to streamline tax calculations for corporations engaged in foreign business without jeopardizing competitiveness.

Controlled Foreign Corporation Changes
With amendments to rules governing controlled foreign corporations (CFCs), the legislation aims to limit aggressive tax avoidance strategies employed by foreign parented groups.

Conclusion

The One Big Beautiful Bill Act signifies a substantial shift in U.S. tax policy, presenting multiple avenues for individuals and businesses to capitalize on favorable tax conditions. From permanent deductions and enhanced exemptions to encouraging investment in both urban and rural settings, the OBBBA redefines the landscape for taxpayers. As taxpayers prepare for these changes, it’s crucial to stay informed and strategically plan to maximize these new provisions for financial benefit.

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