What’s in Trump’s Big Beautiful Bill? Impact on Small Business and Individual Clients

by Prof. Robert Bloink and Prof. William H. Byrnes

The Trump administration and GOP-controlled Congress have managed to push the so-called "One Big Beautiful Bill" Act, or "OBBBA" past the finish line by the administration’s self-imposed July 4th deadline. The sweeping legislation contains major changes—both for small business and individual clients. Now that the OBBBA has officially become the law of the land, it’s critical for advisors to understand the extended, enhanced and entirely new provisions that will impact clients today and in the coming years.

Key Changes for Small Business Clients

The 2017 TCJA created a new 20% deduction for qualified business income (QBI). This QBI deduction for pass-through entities was set to expire after 2025, along with many of the 2017 provisions. The 2025 OBBBA made the 20% 199A deduction permanent. However, the 20% QBI deduction has always been subject to limitations (and those limitations will continue to apply). These limitations generally do not apply to taxpayers whose earnings do not exceed an inflation-adjusted income threshold.

After the taxpayer's income exceeds the relevant threshold, they are subject to a phase-out of the QBI deduction in proportion of excess earnings above the threshold up to $50,000 ($100,000 for joint filers). Beginning in 2026, the OBBBA increased the phase-out range above the income threshold for individuals so that they will now equal $75,000 (single filers) or $150,000 (joint returns).

Also beginning in 2026, the OBBBA establishes a minimum QBI deduction for active qualified business income for an applicable taxpayer. An "applicable taxpayer" is one who earns at least $1,000 in aggregate qualified business income from active qualified trades or businesses. Qualified trades or businesses are those in which the taxpayer materially participates in the business activity. The minimum deduction is $400 regardless of the otherwise required phase-out.

With respect to the deduction for business interest, the OBBBA restores the original TCJA formula for calculating adjusted taxable income (ATI). In removing depreciation, amortization and depletion deductions from the calculation of ATI, the OBBBA essentially increases the amount of interest expense that businesses will be entitled to deduct.

Under the OBBBA, bonus depreciation in year-one is again increased to 100%--and made the provision permanent for qualified property that is acquired and placed into service on or after January 19, 2025. Yet another elective 100% depreciation deduction is allowed for certain “qualified production property”, or (QPP). This elective additional deduction is temporary and allowed only through 2030.

The law also increased the IRC Section 179 deduction cap from $1 million to $2.5 million for property placed in service after December 31, 2024.  Phase-outs under Section 179 will now begin at $4 million.

SALT Cap Compromise

The cap on the deduction for state and local taxes (the “SALT” cap) was one of the most controversial sticking points during negotiations over the tax and spending bill. In the end, the House and Senate reached a compromise position to temporarily raise the current $10,000 SALT cap to $40,000.

The SALT cap will be adjusted annually by 1% annually through 2029 (the amount will increase to $40,400 in 2026). In 2030, the SALT cap is set to revert back to $10,000.

The heightened cap is phased out for taxpayers with modified adjusted gross income that exceeds $500,000 (with a minimum $10,000 floor regardless of income). The cap will be reduced be reduced by 30 percent of the excess (if any) of the taxpayer's MAGI over the threshold amount (which will also be adjusted for inflation, from $500,000 in 2025 to $505,000 in 2026).

No new restrictions were implemented to limit the effectiveness of state-level SALT cap workarounds involving pass-through entity taxes (PTETs).

Additional Individual Tax Changes

The OBBBA made the 2017 TCJA individual income tax rate brackets permanent, so the top tax rate will remain at 37%. The increased standard deduction was also made permanent and further increased the amounts to $15,750 (single returns), $23,625 (heads of households), and $31,500 (joint returns).

The law generally eliminated the personal exemption on a permanent basis, while creating a new exemption for older Americans. A temporary $6,000 deduction for qualified individuals over the age of 65 will be available for the 2025-2028 tax years. The otherwise available senior deduction will be reduced by six percent the extent the taxpayer’s MAGI exceeds $75,000 ($150,000 for joint returns).

The law also created a new charitable deduction for taxpayers who do not itemize deductions. These taxpayers can claim a charitable contributions deduction of up to $1,000 ($2,000 for joint returns). Taxpayers who do itemize will only be entitled to deduct contributions to the extent they exceed 0.5% of the taxpayer’s AGI (that disallowed portion may be carried forward if the taxpayer has other charitable contribution carry-forwards for the tax year). The TCJA’s 60% AGI limit for cash charitable contributions was also made permanent.

The OBBBA also permanently increased the transfer tax exemption, by raising the unified credit for gift and estate taxes to $15 million (the amount will be indexed for inflation going forward). This prevented a reversion of the TCJA’s $10 million base amount to the pre-2018 $5 million base amount—meaning that taxpayers will be permitted to pass even higher amounts to heirs without becoming subject to estate taxation.

Conclusion

This article only provides a summary of the important changes for small business and individual clients. Further, advisors should watch closely for forthcoming IRS provisions interpreting the terms of the law itself.