July 16, 2025
Filed under: Business Owners
On July 4th, the latest tax bill, officially titled the One Big Beautiful Bill Act, was signed into law. There is a lot to dig into and there are certainly criticisms abound, but how big and how beautiful is it really for your bottom line?
Here’s what’s most relevant right now for our clients’ financial situations:
Income Tax Brackets Stay the Same
Had this bill not passed in some form, the tax brackets set under the 2017 tax law would have expired after 2025, reverting to higher pre-2017 levels. The new law locks in today’s brackets and keeps the current structure in place. This isn’t a windfall for anyone, but it removes a big source of tax planning uncertainty that was present. As a result, we’re able to plan more effectively for the future.
SALT Cap Rises (Temporarily)
Starting in 2025, the cap on state and local tax (SALT) deductions will rise from $10,000 to $40,000. But it’s not for everyone. The full deduction is only available to those with modified adjusted gross income (MAGI) below $500,000 for joint filers, $400,000 for heads of household, and $250,000 for singles. It phases out completely at $750,000, $500,000, and $400,000 respectively, and it all sunsets in 2029.
If you live in a high-tax state like California, New York, Massachusetts, or New Jersey – or simply pay a significant amount in state and local taxes – this change is worth noting. It may create some planning opportunities, particularly when paired with charitable strategies, but it’s important to remember that the benefits are limited and the window is short-lived.
Estate Exemption Set at $15 Million
The estate and gift tax exemption was scheduled to drop sharply after 2025. Instead, it’s now fixed at $15 million per person (plus inflation) starting in 2026. If your net worth is between $10 and $30 million, this likely means you don’t need to rush into complex estate planning structures…at least not yet. But it’s still always a good time to revisit your estate plan and make sure it reflects your long-term goals. Omega’s rule of thumb is to revisit your documents every 5-7 years.
Charitable Giving Gets More Complicated
In 2026, itemizers will face a new floor on charitable deductions. You’ll need to give more than 0.5 percent of your MAGI before any deductions count. For someone with $1 million in MAGI, that’s a $5,000 hurdle. Above-the-line deductions are being added for non-itemizers, but they’re capped at $1,000 (single) or $2,000 (joint). If you’re already charitably inclined, 2025 might be a smart year to front-load giving, particularly through donor-advised funds or multi-year pledges.
A Few of the “Headline” Deductions: What You Should Know
Several provisions have gotten attention in the press, but are mostly aimed at middle-income households. Still, they may be relevant for family members or employees:
- No Tax on Social Security: Actually a new $6,000 deduction per person age 65+, on top of the standard deduction. Available for single filers with income up to $75,000 and joint filers up to $150,000.
- No Tax on Tips: Deduction of up to $25,000 for single filers (income up to $150,000) and joint filers (up to $300,000). Treasury will define qualifying workers.
- No Tax on Overtime: Deduction up to $12,500 (single) or $25,000 (joint) for qualified overtime pay, with the same income thresholds as above.
Business Owners: Pay Attention to QBI and QSBS
Two provisions that didn’t get much airtime but could significantly affect business owners are the Qualified Business Income (QBI) deduction and Qualified Small Business Stock (QSBS) exclusion.
The QBI deduction, which allows eligible business owners to deduct up to 20% of their qualified business income, has been extended. That’s a win for many small businesses structured as pass-through entities. However, just like before, it’s subject to income thresholds and limitations based on the type of business you run. So planning around how you pay yourself – wages vs. distributions – still matters.
On the QSBS front, the bill didn’t touch the generous 100% exclusion for gains on qualified small business stock (Section 1202), which continues to offer major upside for startup founders and early-stage investors. The changes increase the maximum tax exclusion from $10 million to $15 million while allowing partial benefits after just three years instead of the current five-year minimum. While limitations still apply, this is an important planning tool to be mindful of for business owners and early investors.
Final Thoughts
This bill is long and complex, and there’s more to unpack over time. If you’re unsure what applies to you or have any tax planning questions, let’s talk. And while nothing in tax law is ever truly permanent, knowing what we’re working with today is a good place to start.
jared