Understanding the One Big Beautiful Act

Understanding the One Big Beautiful Bill Act

Roughly a year after the One Big Beautiful Bill Act (OBBBA) took effect, many taxpayers are still evaluating how the law is influencing tax planning, deductions, credits, and long-term planning. Here’s an overview of the key tax aspects of the OBBBA and what they may mean for taxpayers across different income levels and industries.

Do I Owe Taxes on Payments Received Through Venmo, PayPal, and Cash App?

If you use payment apps like PayPal, Venmo, or Cash App for business transactions, you may have heard about the $600 IRS reporting rule. However, that rule has now been reversed, restoring the previous reporting threshold for most taxpayers.

That changed with the OBBBA, signed into law on July 4, 2025; this legislation repealed the ARPA $600 threshold and reinstated the $20,000 threshold and 200 transactions rule for 2025 and future years. Effectively, this means that for many taxpayers, payment platforms such as PayPal, Venmo, and Cash App are required to issue Form 1099-K for payments received for goods and services when both conditions are met:

More than $20,000 in payments for goods or services were received
More than 200 business transactions during the calendar year

The rule does not apply to personal payments between friends and family. This includes personal transactions that include splitting the restaurant bill, paying your roommate for rent or utilities, or sending money as a birthday or holiday gift. It is important to keep in mind that even if you do not receive a Form 1099-K, you are still legally required to report all taxable business income on your tax return.

SALT Deduction Increased to $40,000

Among the OBBBA’s significant tax provisions is the expansion of the State and Local Tax (SALT) deduction. Applicable to taxpayers who itemize deductions, the higher cap may provide an opportunity for many to deduct more state and local taxes, potentially reducing federal taxable income and overall federal tax liability.

In a nutshell, the SALT deduction allows taxpayers who itemize deductions to deduct certain state and local taxes paid during the year. This may include applicable real estate taxes, certain personal property taxes, and either state and local income taxes or state and local sales taxes. Prior to the OBBBA, the SALT deduction cap was generally capped at $10,000. As a result, the cap increased to $40,000, subject to income-based phaseout rules.

The higher cap is not available in full to all taxpayers. For tax year 2025, the deduction begins to phase out for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000 ($250,000 for married taxpayers filing separately). The phaseout thresholds are scheduled to increase by 1% annually through 2029. Even so, the deduction cannot be reduced below the original $10,000 deduction floor, meaning eligible taxpayers will not receive a smaller SALT deduction than was available under prior law.

Understanding the New Deductions for Tips and Overtime Pay

For many taxpayers, tips and overtime pay represent an important part of their income. Under the OBBBA, eligible taxpayers may be able to deduct qualified tip income, up to $25,000 annually. Generally, qualified tips are considered to be voluntary amounts paid by customers and received in services that regularly receive tips.

Self-employed individuals may also qualify for this deduction, to the extent that your deduction does not exceed the net income that is generated by the business. In other words, this deduction can reduce your taxable income, but it cannot be taken to create a loss. The deduction begins to phase out for taxpayers with modified adjusted gross income (MAGI) exceeding $150,000 for single filers and $300,000 for married taxpayers filing jointly.

Similarly, eligible taxpayers may be able to deduce qualified overtime compensation up to $12,500 annually for single filers and up to $25,000 for married taxpayers filing jointly. Like the tip deduction, this is subject to income-based phaseouts beginning at $150,000 MAGI for single filers, and $300,000 for married taxpayers filing jointly. This deduction is regardless of whether the taxpayer claims the standard or itemized deduction.

Qualified Business Income Deduction Remains Available

For many small business owners and self-employed individuals, the Qualified Business Income (QBI) deduction continues to be an important tax benefit. The OBBBA made changes designed to preserve this deduction, allowing eligible taxpayers to continue deducting up to 20% of qualified business income.

Bonus Depreciation

The OBBBA included provisions that expand businesses’ ability to immediately deduct certain qualifying purchases rather than recovering the cost over several years, thus restoring 100% bonus depreciation for qualifying property acquired after January 19, 2025. For many businesses, these changes may improve cash flow by accelerating tax deductions and reducing taxable income in the year an investment is made.

Research and Development Expenses

The OBBBA restored more favorable tax treatment for certain research and development expenses, allowing qualifying businesses to recover these costs more quickly. As a result, qualifying domestic research and development expenditures may be immediately expended rather than amortized over five years.

Estate and Gift Tax Exemptions

Individuals and families engaged in estate planning may benefit from the OBBBA’s changes to federal estate and gift tax rules. With the exception of future inflation adjustments, the exemption is at $15 million per individual and $30 million for married taxpayers filing jointly. The legislation increased exemption amounts, allowing more wealth to be transferred during life or at death without triggering federal transfer taxes.

Child Tax Credit Updates

Families with dependent children may continue to benefit from the Child Tax Credit, one of the most valuable tax benefits available to many households. The maximum Child Tax Credit is now $2,200 per qualifying child. Parents and guardians with higher incomes may be eligible to claim partial credit.

Additional Deduction for Older Taxpayers

This deduction may help reduce taxable income for eligible individuals who are age 65 and older while supplementing existing tax benefits available to seniors. Qualifying taxpayers may claim an additional deduction of up to $6,000 per taxpayer.

Certain Auto Loan Interest Deductions

For taxpayers financing the purchase of a qualifying vehicle, the OBBBA created a new opportunity to deduct certain auto loan interest. Eligible taxpayers may deduce up to $10,000 of qualified vehicle loan interest per year. However, income limitations and vehicle requirements apply, so not all taxpayers will qualify for the full benefit.