Revised July 7th at 4:45pm –
The Big Beautiful Bill approved by the House was a bit smaller as the Senate and the House fought over more Medicaid cuts to pay for new tax breaks, and painted a dark deficit picture for the President. The fight last week continued between parties to decide how high, and for how long, to set the cap on state and local taxes, but finally decided on $40,000; ditto for arguing on thresholds and timing for “No Tax on Tips.” The Senate also wanted to take a slower approach than the House to phasing out some of the clean energy tax credits. Last week it didn’t look like the July 4th target for signing would be met, but a last minute flip of holdout Republicans advanced the bill to the White House late on July 3rd.
Of course the “bill” covers more than taxes, but here are key financial changes to watch for businesses and individuals:
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- Creates an above-the-line deduction of up to $25,000 for qualified tips received by an individual in an occupation which traditionally and customarily receives tips. Phaseout threshold: $150,000.
- Expands the FICA tip tax credit for a portion of the employer-paid Social Security taxes for employee cash tips to include beauty service establishments.
- Creates an above-the-line deduction for overtime premium pay during a given taxable year. Amount up to $12,500. Phaseout threshold: $150,000.
- Child Tax Credit increases to $2,200.
- Expensing of investments in equipment and R&D would become permanent.
- Makes permanent the modified federal income tax bracket schedule, increased standard deduction and lower tax rates created by the Tax Cuts and Jobs Act.
- Makes the deduction for qualified business income (QBI) permanent.
- Permanently extends the estate and lifetime gift tax exemption. Increases the amount to $15 million for single filers ($30 million for married filing jointly) in 2026.
- Permanently extends the increased individual alternative minimum tax exemption (AMT) amounts and exemption phase-out thresholds.
- Provides a deduction for Seniors (age 65 or older) of $4,000 (may increase to $6,000) per eligible filer with a modified adjusted gross income (AGI) that does not exceed $75,000 for single filers ($150,000 for married filing jointly). The Senior deduction is available to both itemizers and non-itemizers for tax years 2025 through 2028.
- Creates an above-the-line deduction of up to $10,000 for qualified passenger vehicle loan interest during a given taxable year. The deduction phases out starting when the taxpayer’s modified adjusted gross income exceeds $100,000.
- Permanently increases the employer-provided child care credit from $150,000 to $500,000 and the percentage of qualified child care expenses covered from 25 to 40 percent. It allows for small businesses to pool their resources to provide child care to their employees using a third-party provider.
- Allows taxpayers to immediately expense 100 percent of the cost of qualified property acquired on or after January 20, 2025, and makes the 100% bonus depreciation permanent.
- Creates a second round of Opportunity Zones, making adjustments and improvements to the previous policy. Begins on January 1, 2027, and ends on December 31, 2033.
- Increases the maximum amount a taxpayer may expense under IRC section 179 to $2.5 million, reduced by the amount that the cost of qualifying property exceeds $4 million. The proposal applies to property placed in service in taxable years beginning after December 31, 2024. The deduction will end for property beginning construction after June 30, 2026.
Reach out to us: These changes could affect both your individual and business tax planning strategies during the rest of this year and also for 2026, so keep a watchful eye on developments. Contact your TFG tax professional at CPA@fuoco.com to discuss how present legislation could impact your tax liability or be an opportunity to reduce taxes paid in the Spring! Need a refresher on 2025 Tax brackets and deductions? Click HERE.
