What the New OBBBA Tax Law Means for You

What the New Tax Law Means for You: Key Changes, Limits, and Opportunities

Congress has passed a brand-new tax law—officially called the One Big Beautiful Bill Act (OBBBA). Yes, that’s really the name. And yes, accountants everywhere are already bracing themselves for the paperwork avalanche. While the bill brings some fresh opportunities, it also sneaks in new limits, penalties, and deductions that phase out faster than Girl Scout cookies in a staff lounge. Let’s break it down.

Changes for Individuals

Pass-Through Entity Deduction

Good news: the deduction for partnerships and S corporations is sticking around. Less-good news: starting in 2025, you’ll need to prepay 50% of last year’s liability (or at least $1,000) to keep it. For clients with income that bounces around, this could be like trying to hit a moving target while blindfolded. Miss the mark, and the IRS will be there with a penalty slip in hand.

Charitable Deductions in 2026

Non-itemizers, you’ll soon get a new little perk: a $1,000 charitable deduction if you file single, or $2,000 if you file jointly. Itemizers can still deduct donations, but high-income filers will see their benefits capped at 35% of AGI. Translation: generosity is still rewarded, but maybe don’t try to deduct that yacht you “donated” to your cousin.

Alternative Minimum Tax

The AMT thresholds drop in 2026, which means more high-income taxpayers with big capital gains may find themselves paying this not-so-fun extra tax. Think of it as the IRS’s version of surprise hotel fees—no one wants them, but here they come anyway.

Senior Bonus Deduction

Starting in 2025, seniors 65 and older get an extra deduction of $6,000 if single or $12,000 if married filing jointly. Before you start celebrating, note the phaseout: it starts at $75,000 (single) or $150,000 (joint) and vanishes entirely at $175,000 and $250,000. So, if you’re on a fixed income, congratulations—you finally get a win. If you’re not, well, at least you still get the senior discount at the movie theater.

New Worker Deductions

This one reads like a menu of random freebies:

• Tip income: deduct up to $25,000 a year (great for servers, bartenders, and hair stylists). Phases out at $150,000 single or $300,000 joint.

• Overtime pay: deduct up to $12,500 single or $25,000 joint. Same income limits apply.

• Car loan interest: deduct up to $10,000, but it phases out starting at $100,000 single or $200,000 joint.

So yes, Uncle Sam will let you deduct tips and overtime… but not the coffee it took to get through those overtime shifts (more on that below).

Dependent Care Exclusion

In 2026, the limit goes from $5,000 to $7,500. Parents everywhere will appreciate it, though whether the IRS will bother indexing it for inflation remains a mystery. Spoiler: don’t hold your breath.

New “Trump Account” for Children

Babies born between 2025 and 2028 get a government-funded $1,000 savings account. Parents and employers can add more, but when your child cashes out later, it’s taxed as ordinary income. In other words, it’s like a 529 plan’s less attractive cousin—the one you’re polite to at family gatherings but don’t invite to game night.

Estate and Gift Taxes

The exemption is now set at $50 million per person. That’s a big number, but remember, tax law can change faster than fashion trends. If you’re in that ultra-high-net-worth bracket, don’t get too comfortable.

Energy Credits

Solar panels? Electric cars? Get them now. These credits are fading away soon, and once they’re gone, they’ll be about as rare as a tax return with no errors on the first try.

Changes for Businesses

Meals and Snacks

Starting in 2026, staff meals, coffee, and snacks are no longer deductible. Yes, you read that right: the IRS wants your donuts. While the dollar impact might be small, the cultural impact could be huge—especially in industries where “free pizza Fridays” are basically morale insurance.

Tip Credit Expansion

The employer tip credit is being extended to the beauty industry. Great news for salons, spas, and anyone whose paycheck depends on a good tip and a better hair day.

R&D and Bonus Depreciation

Two big wins here:

• R&D costs are back to being fully deductible in 2025.

• Bonus depreciation returns to 100% for assets placed in service after January 19, 2025.

In other words, if you’re buying big-ticket equipment, the IRS is practically begging you to time it right.

SALT Deduction Cap

The state and local tax (SALT) deduction limit rises to $40,000 starting in 2025 ($20,000 if married filing separately). But it phases down for higher earners once income crosses $500,000 (single), with adjusted limits for joint filers. The good news: it will never fall below $10,000. The bad news: that’s still not much if you live in, say, California, New Jersey, or basically anywhere with “coastal” in the name.

Reporting and IRS Updates

• 1099 forms: The reporting threshold is jumping from $600 to $2,000. Fewer forms, fewer headaches—but don’t expect software updates to go smoothly.

• IRS mailing addresses: Some payments now have new destinations, but systems haven’t caught up. Translation: checks might take the scenic route.

• Social Security: Paper checks are history. Direct deposit rules the day. Even Grandma’s on board now.

A Few Watch-Outs

• PTE elections: You can make the election even if you’re short on prepayment, but expect a 12.5% penalty. Think of it as a cover charge for showing up underfunded.

• ERC refunds: Many businesses are still waiting. If denied, wages get added back. If approved, refunds are taxable in the year received. Either way, it’s not free money.

• New deductions: Car loan interest, tips, overtime—sounds great, but the IRS hasn’t told us exactly what forms will look like yet. Brace for confusion.

Bottom Line

The new tax law is part opportunity, part headache. Some households will come out ahead, others will lose benefits they’ve relied on. The real kicker? Income limits and phaseouts mean a few dollars of extra income could make the difference between a valuable deduction and nothing at all.

So plan early, stay informed, and maybe keep a little humor about it. After all, if the IRS is going to take away your free coffee at work, at least you can still deduct your tips.