Navigating the One Big Beautiful Bill Act (OBBBA): A Guide for 2026
Comprehensive analysis of the OBBBA tax reforms signed into law July 4, 2025, including new deductions for tips, overtime, and seniors, a higher SALT cap, permanent QBI, and a $15M estate tax exemption.
Introduction
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. It permanently extends the Tax Cuts and Jobs Act (TCJA) individual tax rates, introduces several new deductions for workers and seniors, raises the SALT cap, makes the QBI deduction permanent, and raises the estate tax exemption to $15 million per person. This guide covers every provision that affects taxpayers starting in 2025 and 2026.
1. Key Individual Tax Deductions
OBBBA introduces four new deductions available to all taxpayers, whether you itemize or take the standard deduction. These are designed to provide relief to working Americans and seniors. All four are effective for tax years 2025 through 2028.
| Deduction | Maximum | Phase-Out Begins | Key Details |
|---|---|---|---|
| Senior Deduction | $6,000/person | $75K / $150K joint | Age 65+ required. Reduces at $0.06/dollar over threshold. Fully eliminated at $175K / $250K. |
| "No Tax on Tips" | $25,000/year | $150K / $300K joint | IRS-designated tip occupations only. Reduces at $0.10/dollar over threshold. SSTBs ineligible. |
| "No Tax on Overtime" | $12,500 / $25,000 joint | $150K / $300K joint | FLSA-required overtime premium only. Reduces at $0.10/dollar. |
| Car Loan Interest | $10,000/year | $100K / $200K joint | New vehicles assembled in the U.S. only. Original owner. Reduces at $0.20/dollar. Eliminated at $150K / $250K. |
All four deductions run from 2025 through 2028. Important: these deductions reduce your income tax, not your self-employment or payroll tax.
2. Changes to Itemized Deductions
State and Local Tax (SALT) Deduction
The SALT deduction cap increases from $10,000 to $40,000 for tax year 2025 ($20,000 if married filing separately). Starting in 2026, the cap is inflation-adjusted at 101% per year, making it $40,400 for 2026. The increased cap runs from 2025 through 2029, then reverts to $10,000 in 2030.
The benefit phases down for higher earners: taxpayers with MAGI over $500,000 see the cap gradually reduced. This is particularly impactful for taxpayers in high-tax states like California and New York.
Charitable Contribution Deduction for Non-Itemizers
OBBBA permanently allows people who take the standard deduction to deduct cash donations, up to $1,000 (single) or $2,000 (joint) to qualified charities. This is a permanent provision with no sunset date.
Child Tax Credit
The Child Tax Credit increases to $2,200 per child (up from $2,000 under TCJA) and is now permanent. Both the CTC and the refundable portion ($1,400) will be adjusted for inflation annually.
3. Key Business and Investment Provisions
Qualified Business Income (QBI) Deduction: Now Permanent
The 20% QBI deduction under Section 199A is now permanent. This was set to expire after 2025 under the TCJA sunset. If you own an LLC, S Corporation, or sole proprietorship, this deduction can save you up to 20% on qualified business income. Starting in 2026, there is also a new minimum deduction of $400 for qualifying business owners.
100% Bonus Depreciation: Reinstated
OBBBA reinstates 100% bonus depreciation for qualified property placed in service after 2025. (IRS Pub. 946) This had been phasing down under TCJA (80% in 2023, 60% in 2024, 40% in 2025). Business owners can once again immediately expense the full cost of eligible equipment and improvements.
Estate Tax Exemption
The federal estate tax exemption increases to $15 million per person, adjusted for inflation. Unlike the TCJA increase (which was set to sunset), this change is permanent. This benefits high-net-worth individuals and family businesses. A married couple can shelter up to $30 million from estate taxes.
Deferred Compensation Planning (4 U.S.C. §114)
For executives with nonqualified deferred compensation, the federal Pension Income Tax Limits Act (PITLA) prohibits states from taxing retirement income received by nonresidents, but only if the payments are structured as substantially equal periodic payments over at least 10 years or the recipient's life expectancy. A lump-sum payout remains taxable by the former state. By coordinating a 10-year distribution schedule to fill lower tax brackets during the "gap years" between active employment and Required Minimum Distributions, executives can achieve substantial bracket-smoothing savings alongside state tax elimination.
4. OBBBA Tax Savings Calculator
Estimate how much you could save under the new OBBBA provisions. Enter your income details below.
OBBBA Tax Savings Calculator
Max deduction: $25,000
FLSA-required overtime portion only
New US-assembled vehicle only
Old cap: $10K → New cap: $40K
65+ qualifies for senior deduction
LLC / S-Corp / sole prop income
Estimate only. Actual savings depend on your complete tax situation, state taxes, and other deductions. Consult a tax professional for precise calculations.
5. Before vs. After OBBBA: Tax Burden Comparison
The chart below illustrates approximate federal income tax for a single filer at different income levels, before and after OBBBA provisions (assuming the filer claims applicable deductions such as tips, SALT, and QBI).
Provision Sunset Dates
| Provision | Effective | Expires |
|---|---|---|
| Tips / Overtime / Senior / Car Loan | 2025 | Dec 31, 2028 |
| SALT Cap ($40K+) | 2025 | Dec 31, 2029 |
| QBI §199A (20%) | Permanent | None |
| Estate Tax Exemption ($15M) | 2026 | None (permanent) |
| 100% Bonus Depreciation | 2026 | Permanent |
| Child Tax Credit ($2,200) | 2025 | None (permanent) |
| Non-Itemizer Charitable | 2025 | None (permanent) |
OBBBA Tax Planning Worksheet
Calculate your personal savings from every OBBBA provision: tips, overtime, senior deduction, SALT, QBI, and car loan interest. Includes phase-out calculations.
6. Frequently Asked Questions (FAQ)
Conclusion
OBBBA makes substantial changes that require careful planning. The new deductions for tips, overtime, and seniors provide real savings for working Americans, while the permanent QBI deduction and raised estate exemption give business owners and high-net-worth individuals long-term planning certainty.
The key is understanding which provisions apply to your situation, when they expire, and how the phase-outs interact with your income level. Arc & Ledger provides comprehensive tax planning and advisory services to help you maximize every applicable OBBBA benefit.
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Related Services
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Take advantage of OBBBA provisions with expert individual tax preparation. We help you maximize deductions, optimize SALT benefits, and plan for estate tax changes.
Business Tax & Compliance
Leverage the permanent QBI deduction and 100% bonus depreciation. Strategic planning for LLCs, S-Corps, and partnerships to minimize your tax burden.
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Free OBBBA Tax Changes Summary
New SALT cap, tip deductions, QBI permanence, child tax credit increase, and estate tax changes from the One Big Beautiful Bill Act.
Disclaimer: This guide is for general informational purposes only and is current as of its publication date. Tax laws change frequently. Please consult a qualified tax professional for advice specific to your situation.
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