The One Big Beautiful Bill Act: A Guide for Tax Professionals.

A guide to the latest updates and resources on OB3 for tax professionals

Here's what you'll learn:

What is the One Big Beautiful Bill Act?
Permanent Extension of 2017 Tax Cuts
Increased SALT Deduction Cap
Enhanced Child Tax Credit
Senior Deduction Introduction
R&D Expensing Reinstated
Tip Deduction: Which jobs qualify?
New Car Loan Deduction
Overtime

What is the One Big Beautiful Bill Act?

The One Big Beautiful Bill Act (OBBBA or OB3) or H.R.1 - 119^th significantly changes how taxpayers qualify for deductions, requires new employer reporting standards, and introduces IRS oversight in areas like tip income, wage classification, and transition-year compliance. With major implications for 2025 and beyond, preparers must update workflows, educate clients, and ensure tax software is aligned with the new rules.

We are committed to providing the latest resources and updates relating to OB3 to help tax professionals get through the upcoming tax season with as little uncertainty as possible.

We have a few resources that cover introductory topics related to the One Big Beautiful Bill Act. Please visit:

Blog Post: The One Big Beautiful Bill Act: What Tax Pros Need to Know

Video: The One Big Beautiful Bill Act Explained

Recorded Webinar: Understanding the One Big Beautiful Bill Act

Let’s break down the One Big Beautiful Bill Act

Permanent Extension of 2017 Tax Cuts

The Permanent Extension makes the Tax Cuts and Job Act (TCJA) permanent with lower tax brackets and higher standard deductions.

More explained:

Keeps lower tax brackets, higher standard deduction, 20% pass-through deduction, bonus depreciation, and doubled estate/gift exemptions beyond 2025.
Baseline update: Assumptions in projections, planning, and software shift — TCJA rules are now the “new normal.”
OBBB adds new deductions (tips, overtime, car loan interest, higher SALT cap) and some temporary provisions.
Client communication: Many clients avoid a 2026 “tax hike,” but you’ll still need to track temporary or phased-out items.

Resources:

Blog Post: Congressional Reconciliation Tax Changes

Download: Prepare for Policy Changes Ahead of the 2025 Tax Season

Increased SALT Deduction Cap

The increased SALT deduction cap allows taxpayers to claim a higher deduction for state and local taxes on their federal returns.

More explained:

New higher cap (2025–2029): The SALT deduction limit rises from $10,000 to $40,000 (for joint filers) in 2025.
Married filing separately: Cap is $20,000 under the new rule.
Phaseout for high income: For filers with MAGI above $500,000 (or $250,000 if married filing separately), the cap is reduced by 30% of the excess income.
Floor & reversion: The deduction can’t be reduced below the old cap ($10,000). Beginning in 2030, the cap reverts back to $10,000.
PTET workarounds stay intact: Pass-through entity tax (PTET) workarounds stay intact: The Act doesn't eliminate or limit PTET strategies used to bypass SALT caps.

Enhanced Child Tax Credit

Higher & permanent: Credit increases to $2,200 per child (from 2025, inflation-indexed) with a larger refundable portion ($1,700 in 2025).
No 2025 sunset: The higher credit and phase-out thresholds ($400k MFJ / $200k others) are now permanent.
SSN requirement: Both the child and taxpayer must have valid SSNs.
Other dependents: $500 credit stays, but nonrefundable.

Tax pro tip: More predictability in planning, bigger refunds for lower-income families, and a need to update projections and client communication.

Senior Deduction Introduction

New deduction (2025–2028): $6,000 per taxpayer age 65+ ($12,000 for couples if both qualify).
Phase-out: Begins at $75k MAGI (single/HOH) or $150k (MFJ, both 65+); fully gone at $175k / $250k.
Stacks with other deductions: Can be claimed with standard or itemized deductions and in addition to the existing senior standard deduction.
Temporary: Expires after 2028 unless extended.

Tax pro tip: Model income carefully near phase-out thresholds, highlight the short planning window, and update client projections accordingly.

Resource:

Drake Knowledge Base Article: Senior deduction values and thresholds

R&D Expensing Reinstated

Immediate expensing back (2025+): Domestic R&D costs can again be deducted in full the year incurred.
Transition relief: Unamortized 2022–2024 R&D expenses may be deducted in 2025 (or spread over 2025–26).
Small business retroactive option: Firms ≤ $31M gross receipts can amend prior returns to claim expensing.
Foreign R&D unchanged: Still amortized over 15 years.
Optional amortization: Taxpayers can elect to spread costs instead of expensing.

Tax pro tip: Stronger cash flow for R&D-heavy clients, need to track domestic vs foreign R&D, evaluate amending past returns, and update projections/software for new Section 174A rules.

Tip Deduction

New deduction (2025–2028): Up to $25,000 above-the-line for qualified tips.
Who qualifies: Employees in IRS-listed tipped jobs; must report tips on W-2/1099.
Phase-out: Starts at $150k MAGI (single) / $300k (joint).
Limits: Self-employed can’t deduct more than net business income; Specified Service Trade or Business (SSTB) occupations excluded.
Qualified tips: Voluntary customer tips (cash, card, electronic); not mandatory service charges.
Temporary: Expires after 2028 unless extended.

Tax pro tip: New planning tool for service-industry clients, but phase-out rules and reporting compliance will be critical.

Resources

Drake Knowledge Base Article: Entering Tip Income (Drake Tax)
Drake Knowledge Base Article: Direct vs Indirect Tips (Drake Accounting)

Who qualifies for the new car loan deduction?

Time window: Applies to interest on auto loans taken out after December 31, 2024 and before 2029 (i.e., tax years 2025–2028).
Vehicle must be new & U.S. assembled: The car (or SUV, truck, van, or motorcycle) must be new (original use begins with the taxpayer) and its final assembly must occur in the U.S.
Weight & vehicle type limits: Only passenger vehicles under 14,000 lbs. qualify.
Personal use only: The vehicle must be for personal use—not a business, commercial fleet, or lease.
Loan must be secured & eligible: The loan must be secured by the vehicle, with a first lien. Refinanced loans may qualify (if the original loan met the rules).
Income phaseouts:
The deduction begins to phase out when a single filer’s MAGI exceeds $100,000, or $200,000 for married filing jointly.
It is fully phased out for single filers over $150,000 MAGI, and for joint filers over $250,000 MAGI.
Reporting required: Taxpayers must include the vehicle’s VIN on the return, and lenders must report interest (similar to Form 1098) when interest paid ≥ $600.

Overtime under OB3

New above-the-line deduction (2025–2028): Eligible workers can deduct up to $12,500 (single) or $25,000 (joint) of “qualified overtime compensation.”
What qualifies: Only the premium (the “half” in “time-and-a-half”) for overtime required under the FLSA (i.e., federal overtime).
What doesn’t qualify:
Overtime mandated by state/local law (unless same as FLSA)
• Employer-paid premiums beyond FLSA minimum (like double-time)
• Non-exempt bonuses or incentive pays not tied to overtime hours
Phase-out / income limits: Begins phasing out at $150,000 MAGI (single) / $300,000 MAGI (joint).
Reporting & employer duties: Employers must separately track and report “qualified overtime compensation” on W-2s. For 2025, they may approximate using a “reasonable method.”
Taxes still apply: The deduction applies only for federal income tax. FICA (Social Security and Medicare) still applies to full overtime pay.
Temporary: Set to expire after 2028, unless extended.