One Big Beautiful Bill: What the Tax Changes Mean for You – Tom Wheelwright and Andrew Lautz

The 'One Big Beautiful Bill' introduced significant tax law changes for 2025 and 2026, impacting individuals and businesses with modifications to deductions, credits, and IRS operations.

• New tax laws for 2025-2026 significantly change SALT deductions, R&D expensing, and child tax credits.

• Employers face reporting challenges for new overtime and tip deductions, with complex rules and delayed guidance.

• The IRS faces operational challenges from staff reductions and funding cuts, potentially causing delays for non-digital or complex filings.

The 'One Big Beautiful Bill' (OB3) enacted in July 2025 made several tax law changes retroactive to January 1, 2025, with further provisions for 2026. Key changes include adjustments to the State and Local Tax (SALT) deduction, R&D expensing, and the child tax credit, while also presenting challenges for IRS operations due to staff reductions and funding cuts. Taxpayers are advised to consult professionals and utilize digital filing methods to navigate the complex new landscape.

2025 Tax Law Changes

• 00:03:04 The 'One Big Beautiful Bill' (OB3) introduced several changes retroactive to January 1, 2025. The State and Local Tax (SALT) deduction cap increased from $10,000 to $40,000, though it phases down for incomes above $500,000 and applies per return, creating a 'marriage penalty'. Full and immediate expensing for Research and Development (R&D) expenses was reinstated, reversing a prior requirement to amortize deductions over five years.

• 00:05:59 Bonus depreciation for machinery and equipment was permanently restored to 100% full expensing, effective January 20, 2025. Section 179 deductions were also increased, raising the allowance from $1.25 million to $2.5 million and the phase-out threshold from $3.1 million to $4 million, effective January 1, 2025. For individuals, the standard deduction increased to $15,750 for singles and $31,500 for married filing jointly, and the maximum child tax credit rose to $2,200 per child, phasing out for higher earners.

• 00:09:47 New provisions concerning qualified overtime and tips were made retroactive to January 1, 2025, but employer reporting systems are not yet fully in place. The IRS encourages employers to provide information but does not yet require it, leading to a transition period with potential liability concerns. The overtime deduction is highly restricted, applying only to Fair Labor Standards Act (FLSA) overtime and only to the 'half-time bonus' portion, creating a significant information gap for many workers.

• 00:15:32 Forward-looking changes for 2026 include a new floor on charitable deductions, requiring individuals and C-corporations to clear a certain percentage of income or taxable income before claiming deductions. Another problematic change caps gambling loss deductions at 90% of winnings, meaning taxpayers can have a net loss but still owe taxes. This policy is widely considered poor tax policy and has legislative momentum for a potential fix.

• 00:20:21 The IRS is undergoing a significant stress test due to substantial staff reductions, with a 25% loss in personnel by May 2025, and a rotating leadership. While electronic filers with straightforward returns may experience smoother processing, those filing by paper, claiming new benefits like tips or overtime, or needing IRS assistance due to errors may face greater backlogs and delays. Funding cuts further hinder the IRS's modernization efforts and ability to implement reforms quickly, making patience and digital filing crucial for taxpayers.