Frequently Asked Questions for tax professionals: The One Big Beautiful Bill Act

Key provisions:

• • Permanent and expanded deductions — OBBBA makes the QBI deduction permanent, creates deductions for tips and overtime, and increases expensing limits for businesses.

  • New caps and phaseouts — The OBBBA also imposes new limits and phaseouts on itemized deductions, the SALT deduction, and charitable giving, especially affecting high-income individuals.

  • Accelerated sunset for green incentives — Many energy-related tax credits and deductions will end sooner, so taxpayers should act quickly to benefit.

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The recently passed One Big Beautiful Bill Act (OBBBA) carries a lot of questions for tax professionals, especially around new tax regulations, deductions, tax credits, and planning strategies. Here are some of the most Frequently Asked Questions (FAQs), to address the most pressing questions and provide clear, concise answers to help tax professionals navigate the OBBBA and its implications.

1. How do the new rules for deducting tips and overtime interact with traditional wage and self-employment income, and what substantiation is required for each?

Because the OBBBA provides a deduction for these items, rather than an exclusion from income, tips and overtime pay will initially be lumped in with traditional wage and self-employment income. Taxpayers will then be able to deduct up to $25,000 of reported qualified tips and up to $12,500 ($25,000 for joint filers) of qualified overtime pay. However, both deductions are subject to phaseout rules.

For substantiation purposes, employers must report the amount of qualified tips and/or overtime pay on the worker’s Form W-2 (for employees) or Form 1099 (for contractors). For qualified tips, the worker’s occupation also must be reported. In addition, a work-eligible Social Security Number is required for both deductions.

Note that these two deductions do not affect Social Security and Medicare taxes.

2. What are the permanent changes to the Qualified Business Income (QBI) deduction, and how should tax practitioners advise clients with pass-through businesses on long-term planning?

Thanks to the OBBBA, the QBI deduction is now permanent, which offers more stability when planning for QBI optimization. On top of that, starting in 2026, the OBBBA provides a $400 minimum deduction for businesses with at least $1,000 of QBI and increases the phase-in limitation range from $100,000 to $150,000 for joint filers (from $50,000 to $75,000 for other filers).

Tax professionals should continue to monitor wage and property limitations and the specified service trade or business phaseouts. For taxpayers with taxable income near or slightly over the threshold amounts, traditional planning techniques such as bunching income, making deductible retirement plan contributions or Health Saving Account contributions, or contributing to donor-advised funds should be considered to get under the threshold (or at least into the phaseout range).

3. Which changes to the Excess Business Loss limitation most significantly impact owner-operators and professional partnerships, particularly regarding carryforward treatment and bankruptcy?

The OBBBA makes the excess business loss limitation permanent. (Previously, it was set to expire after 2028.) Owner-operators and professional partnerships will now face a permanent cap on business losses; however, excess losses may be carried forward as a net operating loss (NOL), which will retain its character in a bankruptcy setting. Therefore, if a debtor excludes cancellation of debt income under the bankruptcy exception, their tax attributes will have to be reduced, including any NOL carryforwards.

4. How does the increased $15 million estate and gift tax exclusion, effective 2026, transform wealth transfer strategies and generation-skipping plans?

The larger exclusion allows for more tax-free transfers during life or at death. Tax professionals should explore estate planning strategies such as shifting future appreciation of assets through gifting, creating irrevocable trusts, and taking advantage of portability for married couples.

5. What are the new phase-out thresholds, floors, and limitations for itemized deductions and alternative minimum tax (AMT) exemption under the OBBBA, and how will this affect high-net-worth individuals?

For taxpayers in (or approaching) the 37% tax bracket, the OBBBA caps the value of each dollar of itemized deductions at $0.35. Also, itemizers can only deduct charitable contributions exceeding 0.5% of taxable income.

In addition, the OBBBA has permanently extended the increased AMT exemption amounts and phaseout thresholds. Starting in 2026, exemption phaseout thresholds will equal the 2018 levels of $500,000 (for single filers) and $1 million (joint filers), with those amounts being indexed for inflation beginning in 2027. In addition, the phaseout rate for higher-income taxpayers in 2026 increases to 50% from 25%.

High-net-worth individuals will see a reduced benefit from itemized deductions and higher AMT exposure if their income exceeds the applicable threshold. Tax professionals should consider bunching deductions while carefully managing AMT triggers.

6. How should planning change for clients impacted by the temporary State and Local Tax (SALT) deduction cap increase (from 2025 to 2029), and how does the phaseout for higher earners function?

The OBBBA increases the SALT cap to $40,000 ($20,000 for married filing separately) for 2025 and $40,400 for 2026. For tax years beginning after 2026 and before 2030, the cap will be increased by 1% per year. For tax years beginning in 2030, the cap will revert back to $10,000 ($5,000 for married filing separately).

The increased SALT cap is subject to a phasedown once modified adjusted gross income (MAGI) exceeds $500,000 for 2025 and $505,000 for 2026. For years after 2026, the MAGI threshold increases by 1%. Taxpayers who are fully phased down will be capped at $10,000.

Although this is a welcomed change, tax professionals may need to advise some clients to accelerate payments of state and local taxes into years with the higher cap. Also, despite the higher cap, pass-through businesses may still want to make a pass-through entity tax election. This may lower a partner’s share of self-employment income or allow the business owner to take advantage of the even higher standard deduction under the OBBBA ($31,500 for joint filers in 2025).

7. How do the new charitable deduction provisions for both itemizers and non-itemizers alter year-end giving strategies, and what new floors or caps apply?

Under the OBBBA, itemizers can only deduct charitable contributions exceeding 0.5% of taxable income. Also, the 60% adjusted gross income (AGI) limit for cash gifts to qualified charities applies. However, the OBBBA provides a permanent charitable deduction of up to $1,000 ($2,000 for joint filers) for non-itemizers who donate cash to public charities.

Itemizers should consider bunching gifts to exceed the 0.5% floor. However, tax professionals should determine if the standard deduction plus the new charitable deduction for non-itemizers would be more beneficial than itemizing.

8. For business clients, what are the implications of permanent expensing for capital investments and research & development expenditures on future expansion or M&A plans?

The OBBBA makes permanent 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Also, the Section 179 expensing limit has been increased to $2.5 million (with a $4 million phaseout threshold) starting in 2025. With respect to domestic research & development expenditures, the OBBBA permanently reinstates full expensing for tax years beginning after 2024. The bill also provides special transition rules for small businesses to expense research expenditures for tax years beginning after 2021.

Because many businesses will be able to immediately deduct the full cost of qualifying investments, their after-tax cash flow and return on investment will improve. Also, businesses should consider moving any foreign research activities to the United States so they can take advantage of immediate expensing of related costs. This will encourage investment in equipment, technology, and innovation into the US.

9. Which credits and incentives for green energy and vehicles are sunsetting, and what timing strategies should clients consider to maximize remaining benefits?

Among others, the following popular energy-related credits are scheduled to sunset quicker under the OBBBA:

• • • The clean vehicle credit and the previously-owned clean vehicle credit for vehicles acquired after September 30, 2025.
    • The alternative fuel vehicle refueling property credit, for property placed in service after June 30, 2026.
    • The energy-efficient home improvement credit terminates after December 31, 2025.
    • The residential clean energy credit expires for expenditures after December 31, 2025.
    • The energy-efficient commercial buildings deduction expires for property construction beginning after June 30, 2026.

For clients interested in taking advantage of these energy-related incentives, acquisition and installation of the qualified property should be accelerated before the relevant cut-off dates.

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You can find more of our coverage of the impact of the One Big Beautiful Bill Act here