How Will the Big Beautiful Bill Affect My Taxes?
No taxes on tips or overtime? Learn how the One Big Beautiful Bill (OBBB) Act adds deductions for workers, permanently extends the Tax Cuts and Jobs Act (TCJA) and includes other changes for individual taxpayers and business owners.
Key Takeaways
On July 4, 2025, the president signed the OBBB into law. The wide-ranging act generally extends the 2017 income tax cuts permanently, though its impact depends on individual circumstances.
The tax act ushers in changes to deductions, exemptions and business tax rules while preserving most saving and investing incentives. It includes some policy changes investors and retirement savers may want to watch.
For many taxpayers, the act will prevent tax increases that would have occurred if the TCJA of 2017 had expired, originally scheduled for December 31, 2025.
Here we summarize select tax provisions of the OBBB Act, that are most applicable to clients and compare them to the prior law. Note that “permanent” refers to no sunset date, and the rules will apply until a future Congress proactively changes them.
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Changes for Individual Taxpayers in the One Big Beautiful Bill
Individual Income Tax Brackets
Effective date: Effective for tax years beginning January 1, 2026. Changes are permanent.
Expanded Standard Deduction
Effective dates: For tax years beginning January 1, 2025. Standard deduction and personal exemption changes are permanent. Temporary enhanced senior deduction expires December 31, 2028.
State and Local Tax (SALT) Deductions
Effective dates: Effective for tax years beginning January 1, 2025. Provision expires on December 31, 2029.
Mortgage Interest
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Charitable Contribution Deductions
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Repeal of Pease Limitations
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Alternative Minimum Tax Exemption
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Expanded Child Tax Credit
Effective dates: Effective for tax years beginning January 1, 2025. Changes are permanent.
**Deductions on tips, overtime, car loan interest, and charitable deductions for non-itemizers do not reduce AGI and do not require the taxpayer to itemize either.
Estates and Trusts
Estate, Gift and Generation-Skipping Transfer Taxes
Effective dates: Effective for estates of decedents dying or gifts being made after December 31, 2025. Changes are permanent.
New Tax Provisions
Trump Accounts
Effective date: Effective 12 months after the date of the enactment. Provision is permanent.
Tax Deduction on Tips
Effective date: Effective for tax years beginning January 1, 2025. The provision expires on December 31, 2028.
Tax Deduction on Overtime
Effective date: Effective for tax years beginning January 1, 2025. Provision expires on December 31, 2028.
Tax Deduction on Car Loan Interest
Effective date: Effective for tax years beginning January 1, 2025. Provision expires on December 31, 2028.
**Deductions on tips, overtime, car loan interest, and charitable deductions for non-itemizers do not reduce AGI and do not require the taxpayer to itemize either.
Business Tax Changes in the One Big Beautiful Bill
Effective dates: Effective for tax years beginning January 1, 2026.
Additional Points of Interest for Small Businesses
Opportunity zones (OZ): The bill establishes a permanent OZ policy, creating a 10-year OZ designation starting in 2027.
Qualified small business stock (QSBS) section 1202: The bill modifies the QSBS exclusion to provide a tiered exclusion determined by the number of years the QSBS stock is held. It also increases the eligibility limits.
Financial Planning and the Big Beautiful Bill
While the OBBB Act does not directly include investing changes, there may be ripple effects that investment professionals will be watching, such as increases in the federal deficit. Individuals may also want to evaluate their tax strategies and estate plans.
Government Policies and Financial Market Activity Can Be Intertwined
Get insights on the intersection of today’s U.S. government policies and the financial markets from our investment professionals.
Definitions
Chained Consumer Price Index for All Urban Consumers (C-CPI-U) supplements existing U.S. Bureau of Labor Statistics inflation indices and reflects the effect of substitutions consumers make in response to rising prices.
Pease limitations, which were permanently repealed in the OBBB Act, reduced itemized deductions for higher-income taxpayers based on their AGI using a reduction formula: the lesser of 3% of the taxpayer's AGI above the threshold or 80% of itemized deductions.
Pass-through entity tax is a state-level tax that certain businesses can choose to pay at the business level instead of having their state and local tax deduction limited at the personal levels.
Section 199A pass-through deductions allow deductions for households with income from sole proprietorships, partnerships and S corporations to exclude up to 20% of their “pass-through business” income from federal income tax. A “pass-through” business is one that is not subject to corporate income taxes.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.