On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The OBBBA introduces a number of changes to the U.S. tax code with significant impact to individuals and business owners. From individual tax rates, estate tax thresholds, updated deduction provisions and more, individuals and business owners should take a closer look at what is inside the bill to ensure that no changes to long-term financial and tax planning are needed. In this article, we’ll discuss some of the key provisions within the OBBBA.
OBBBA and the Tax Cuts and Jobs Act
A major piece of legislation in the OBBBA is the permanent extension of federal income tax rates from the 2017 Tax Cuts and Jobs Act (TCJA). Under the TCJA, income tax brackets were reduced from 2017 – 2025, but were set to revert to pre-TCJA levels in 2026. This created uncertainty around income planning for 2026 and beyond with exposure to higher tax rates. The OBBBA permanently extends the current tax brackets, which are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. This uncertainty has been a key planning consideration for highly compensated individuals and business owners, and the permanent extension allows for more accurate long-term cash flow planning.
Similarly to income tax rates, estate tax rates were set to revert to pre TCJA levels before the passing of the OBBBA. This was significant because in 2017 the TCJA doubled the gift and estate tax exemption from $5.6 million to $11.2 million per person. In 2025, the exemption has grown to $13.99 million per individual, meaning that a couple with a combined estate of $27.98 million of assets could pass without being subject to estate tax. Without an extension, the exemption would have reduced by 50% in 2026. The OBBBA stops the reduction and increases the estate exemption up to $15 million per person ($30 million per couple), with continued adjustments upwards for inflation beyond 2026.
Key Takeaways for Business Owners
Another item from the TCJA that had an uncertain future was the Section 199A deduction for Qualified Business Income (QBI). The QBI deduction allows owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of income earned by the business, subject to phaseouts. This deduction was created in the original TCJA but was set to expire at the end of 2025. The OBBBA makes the deduction permanent, which removes a major source of tax uncertainty for business owner’s moving forward. Business owners who have considered a change to entity structure to take advantage of the deduction may be more incentivized to do so now that the deduction is permanent.
OBBBA and Social Security Benefits
The OBBBA has also been in the news for making changes to the taxation of social security benefits. Many people speculated that the legislation would eliminate tax on social security income, and this was a source of confusion after the Social Security Administration sent an email that claimed nearly 90% of recipients would owe no tax on their benefits. The OBBBA does not eliminate or change the taxation of social security benefits. Rather, the bill provides a new tax deduction for seniors aged 65 or older from 2025 – 2028, subject to phaseouts. The new deduction is $6,000 for single filers or $12,000 for married filing jointly. This new senior deduction will reduce taxable income for eligible filers, therefore reducing the total amount of tax paid, but it does not directly tie to Social Security in any way. Put differently, individuals aged 65 plus do not have to have social security income turned on to take advantage of the new deduction.
Additional Takeaways for Taxpayers
Outside of these items, the OBBBA also includes changes with direct impact to taxpayers. Itemized deductions have received several updates, most notably a temporary increase in State and Local Tax (SALT) Deductions from $10,000 to $40,000. Private mortgage insurance (PMI) is deductible for homeowners again, and the Child Tax Credit has been increased and will now index to inflation year over year. The bill also creates new “Trump Accounts”, investment accounts designed specifically for children to kick start their retirement savings. There will undoubtedly be further clarification regarding the specifics of these accounts, but it provides an interesting avenue for parents eager to give their kids a head start.
Why Partner with Pathfinder Wealth Consulting?
The OBBBA is a large bill with widespread financial implications for individuals and business owners. At Pathfinder Wealth Consulting, we work to understand how these new pieces of legislation are relevant to our clients lives and financial futures. Our tailored financial strategies evolve over time as new legislation passes, so that our clients are building and transferring wealth in the most tax efficient manner.
To learn how Pathfinder Wealth Consulting can help you navigate the ever-changing tax code, schedule a consultation today. Your financial success starts with a clear plan.
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