One Big Beautiful Bill Act of 2025 or OBBBA*

Let’s start off by saying that I have been putting this article off for a long time.  Why?  Because I like to be inspired, and to write about fun or sentimental things.  But here we have a topic that people need to look at.  (I will define abbreviations one time as I go (*), after that it’s up to you remember them).

Do not rely on tax advice from unqualified or biased sources.  This includes your local barber shop, Google, and especially Google AI search.  Just trust me on that point.  Unfortunately, whitehouse.gov articles are very misleading, as are articles written by the opposing team.  Find some tax professional that you trust to get details.

My goal in this article is to cover the highlights; the parts of the new tax law that will be most to affect you as readers.  I also intend to give you some of the background, or reasons for the changes.  This is not comprehensive; there are a lot of things I won’t cover. 

Taxation of Social Security Benefits (SSB)*

o   SSB continue to be taxed as before, despite promises made to the contrary.  HOWEVER:

o   The OBBBA includes a provision for those over 65 years of age to have an additional deduction of $6,000 each.  For a married couple filing jointly (MFJ)* that’s an additional deduction of $12,000.

o   The basic calculation of whether or not you pay tax on SSB remains the same:  For a married couple, you add ½ of your SSB to your total net income from other sources, and if that total is less than 32,000 you do not pay taxes on your SSB.

o   If the amount is greater than that, then you need a computer to calculate how much of your SSB will be taxed.  It can be as much as 85% of your SSB taxed at your tax rate. 

o   More below on this topic.

The “No tax on tips” part.

o   This new law is quite straightforward:  If you have reported tip income on your W2 form, in almost all cases, you can deduct that amount from your taxable income (up to $25,000 annually).

o   More below.

The “No tax on overtime” part.

o   The OBBBA set in place a deduction for the overtime earned up to $25,000 for MFJ or $12,500 for singles. 

o   Employers will be required to list the appropriate amount on their employees’ W2 forms to facilitate this beginning for wages paid in 2026.  But there’s no reason that employers should not do this for 2025 wages.  Almost everybody does their payroll with software that has that information and can note that amount in box 14 of Form W2.

o   Only the ½ portion of the “time and ½” pay for overtime is deducted.

New “above the line” Deduction for Charitable Contributions (Begins 2026)

o   If you do not itemize your deductions (you take the standard deduction) you still get to deduct up to $1,000 for single and $2,000 for MFJ.

o   Of course you must actually have given the money.

There is a new tax-preferred savings account called the “Trump” account:

o   If you open the account for your child born between 2025 and 2028, the government will contribute $1,000 to that account.

o   You or your child can put up to $5,000 in that account each year up to their 18^th birthday.  The funds must be invested in mutual funds, too much fine print to explain here.

o   The contributions to the accounts are not tax deductible, but the earnings are exempt from tax until they are distributed.

New option for tax savings on farmland sales: (Begins after July 4, 2025)

o   You can elect to spread the income(gain from the sale) over 4 years, thus keeping more income in the lower tax brackets.  Who knows why the date was July 4…

o   Property must have been used for farming for 10 years and must be sold to a “qualified” farmer only defined as one who is “actively engaged in farming.”   

o   Said qualified farmer must sign a covenant that the property will remain in farming for at least 10 years and the seller must include a copy of this with his tax return.

o   Here the definition of “farmland” includes buildings that are attached to the land. 

Rules for reporting payments on 1099 forms:  (Begins in tax year 2026)

o   Increases the amount you can pay without sending a 1099 form from $600 to $2,000.

The first $5,000 of the Adoption Credit is now refundable.

o   Before OBBBA the credit reduced your tax to zero, then carried forward to the next year.

o   Now, after your tax is reduced to zero, you will get the first $5,000 as a refund, then the rest is carried forward.

Estate tax lifetime exemption has been raised to $15 million per taxpayer, $30 million for MFJ.

o   All the more reason to give to charity, and tips to your accountant.

You can now deduct interest on your car loan IF:

o   The car is new (you are the first purchaser)

o   The car’s final assembly was in the United States.

o   Dealers will be responsible for giving you that information.

Most Energy Credits are repealed for 2026 and forward:

o   No more credit for electric cars.

o   No more credit for energy efficient home improvements such as windows, HVAC, etc.

o   Ditto for solar and wind energy production, except for business/farm systems:

§  Businesses must begin construction by July 4, 2026, and complete the project within four years to qualify.

Permanent extension of temporary deductions put in place with the TCJA changes of 2017:

o   Most notably is the ability to deduct 100% of capital business purchases using:

§  Bonus depreciation for 100% on short life assets.

§  179 deduction for some longer life assets.

o   Continued generous Standard Deduction indexed to inflation.

o   Increased Child Tax Credit

§  Now $2,200 per child 16 or younger (raised by $200).

o   BUM DEAL FOR THOSE OF USE WHO USE BICYCLES TO COMMUTE. 

§  Prior to TCJA, we could deduct calories from our weight and deduct plaque from our arteries just for riding our bikes from work.  And, our employers could reimburse our bicycling expense tax free.  My employer didn’t know… ☹

§  Employers can still reimburse, but not tax free and that one is permanent.

§  Still get the health benefits!

o   Meals provided for the employer’s convenience. (Note: Business meals other than this continue to follow the same rules, no change.  This is a special deduction).

§  Prior to OBBBA, Employers could provide meals to their employees in certain circumstances and then deduct those expenses while the meal benefit to the employee was tax free. 

§  Examples of this:

·         Farmers feeding their employees to keep equipment going etc.

·         Schools feeding their teachers so they could eat with the children.

·         Other businesses facing a deadline and getting pizza in so that the employees could remain on the job.

§  OBBA eliminated the ability for the Employers to deduct the cost of these meals.  They can still be provided to the employees tax free.  (This kind of sends mixed messages, and I have no idea why this happened).

§  There are exceptions in fine print of course.  One exception would be that if you have a meeting with your employees at your place of business and get the food from a restaurant, it remains deductible.

DISCLAIMER:  Almost every single one of these new provisions comes with limitations and various calculations.  I do not have any way to cover that without writing a book about this.  Sometimes we wonder if there’s a little team of guys up there on Capitol Hill that come up with acronyms and formulas as well as instructions for tax calculations.  For Example:

o   If in 2025 your AGI is above $751,600 for MFJ, your total itemized deductions will be reduced by 2/37ths of the lesser of:

§  The total other itemized deductions; or

§  The amount that your income is in excess of the top marginal tax rate threshold (751,600 if MFJ).

o   Except for: The deduction for State and Local Taxes (SALT), which is one of the itemized deductions as mentioned above, does not follow that rule.  You reduce that deduction for SALT by 5/37ths of the lesser of:

§  The amount of your permitted SALT deduction; or

§  The amount of your income that exceeds $751,600 if your filing status is MFJ..

o   Um… Huh?

Now that I’ve written this long and boring article, I will touch on some of the logic behind these changes.

Social Security system: 

I intend to put an article in soon to cover some of the mysteries of Social Security, but for now, we all know that there is speculation about the fund and it’s sustainability.  OBBBA changes do affect this somewhat as follows:

o   Taxes that people pay on SSB go directly into the Social Security fund.  Therefore, opponents of the OBBBA cried foul, and the final version continues to tax SSB.

o   By making tips non-taxable for income tax, the government is hoping to see more honesty in this area.  For example waiters/waitresses are required to report their cash tips to their employer (credit card tips are tracked).  The employer withholds and pays in Social Security tax on those tips.  This will not change.  Hopefully there will be more tips reported and more Social Security tax paid in because the employee knows he/she won’t be paying income tax on those.

o   Congress hopes that employers will not be so reluctant to pay overtime.  Overtime, while not taxable now, will still be taxed for Social Security as always.

Family Incentives:

o   The increased child tax credit is intended to give help to families with young children.

o   The Trump account is an incentive for parents to put a little money away for their children so they can have a boost in getting started with college or a house or business.  The time of life of parents having small children is a time when money is scarce to invest.  So, others can contribute to this fund.  Grandparents in particular that want to see others benefit from their money before they die, for example.

Stimulation of the economy and investment in America:

o   The increased business write- ffs of depreciable property give profitable businesses the incentive to trade up their equipment and facilities.  This gives businesses a way to manage their taxes due in the up and down years of profits.  More money flows into the economy as businesses spend.

o   The deductibility of new car interest should stimulate the economy a little bit at least.  Note the provision for US manufactured or assembled vehicles.

o   The government has always had a sweet spot in their hearts for farmers, and rightly so.  The challenge for new farmers to start up operations and for aging farmers to sell without paying prohibitive taxes has gotten much worse.  Spreading the income over 4 years makes a big difference in many cases.

·

Reducing Tax Dollars spent on questionable practices:

o   There is much controversy about the long-term benefits of wind and solar power generation versus using fossil fuels.  There have been discoveries of huge stores of natural gas in America during the last 10 years, for example. 

o   While the wind and solar projects give the appearance of “clean” energy, it’s not as good as it looks.  Many systems require much maintenance and have short life spans.  The government has been subsidizing these systems from 30% up to 80%.  Would these systems be feasible without taxpayers paying for them?

o   There are many other changes included in this bill to cut spending that I won’t be able to mention, such as funding for gender-affirming care, abortions, Medicaid for single people not working, etc.

Taxes are a part of life we must accept, just as Jesus said.  But I do enjoy Mark Twain’s quote “A tax is a fine for doing well, and a fine is a tax for doing wrong!”

Till next time…

Carlos the tax man