With the official beginning of tax season upon us — filing begins January 26 — we are reproducing with permission an article written by Edward McWilliams, CPA of Cerini & Associates that provides an excellent summary of the One Big Beautiful Bill tax implications and their impact on our 2025 tax return.
The 2025 tax year marked a significant turning point in federal tax policy. The One Big Beautiful Bill Act (OBBBA) reshaped several core provisions of the Tax Cuts and Jobs Act (TCJA), introduced new individual incentives, and restored favorable rules for business investment—particularly in the area of research and experimental (R&E) expenditures. Combined with structural changes at the IRS and evolving reporting requirements, taxpayers face a substantially different environment moving into 2026.
OVERVIEW OF THE ONE BIG BEAUTIFUL BILL ACT
The passage of OBBBA brought both permanence and clarity to several long-standing TCJA provisions. For many high-income taxpayers and businesses, the OBBBA brought about a continuation of the current status quo, rather than major impactful changes.
Permanent Extensions and Key Individual Modifications:
OBBBA permanently extended:
- The 10% through 37% income tax bracket structure
- The elimination of personal exemptions
- The enhanced AMT exemption and threshold, with certain inflation adjustments removed
- Limits on mortgage interest and casualty loss deductions
- The termination of miscellaneous itemized deductions
- Continued ability to roll over 529 plan funds to ABLE accounts
Additional revisions include:
- Deductibility of mortgage insurance premiums
- Restoration of unreimbursed educator expenses as a miscellaneous itemized deduction
- An increased standard deduction beginning in 2025
- Limitations on itemized deductions for high-income taxpayers
Changes to the State and Local Tax (SALT) Deduction.
For tax year 2025, the SALT deduction cap increases to $40,000 for all filing statuses. This represents a meaningful rise from the long standing $10,000 cap that has been in place since 2018 under the Tax Cuts and Jobs Act (TCJA). The increase is intended to offer relief to taxpayers—particularly those in high tax jurisdictions—where state income taxes and property taxes routinely exceed the $10,000 limitation. The enhanced deduction applies to most taxpayers whose Modified Adjusted Gross Income (MAGI) is less than $500,000 for 2025 and phases out fully at $600,000.
OBBBA includes a mechanism for annual incremental increases of 1% for tax years 2026 through 2029. These modest adjustments are designed to preserve some measure of inflation responsiveness while keeping the provision contained within the broader fiscal framework of the Act.
Estate and Gift Tax Adjustments
The One Big Beautiful Bill Act (OBBBA) includes a significant change to federal transfer tax law beginning in 2026, affecting both estate tax and gift tax planning. Under the Act, the estate tax basic exclusion amount increases to $15 million per person (so $30 million for married couples), indexed for inflation thereafter. This represents a notable shift from the pre-OBBBA exemption levels and creates both planning opportunities and potential pitfalls. Individuals with estates approaching this threshold should revisit existing wealth transfer plans.
Deductions for Tips and Overtime
OBBBA introduced deductions—rather than exclusions—for qualifying tip and overtime income.
- Tips deduction: up to $25,000
- Overtime deduction: up to $12,500 (single) / $25,000 (joint)
Both provisions phase out at higher income levels and sunset after 2028.
Senior Taxpayer Deduction
Taxpayers age 65 and older may claim a $6,000 deduction for tax years after 2024 and before 2029, subject to income phaseouts.
New-Vehicle Interest Deduction
Interest on qualifying new-vehicle purchases may be deductible up to $10,000 for interest paid between 2025 and 2028, depending on income.
Business Tax Updates:
Permanent 100% Bonus Depreciation
The One Big Beautiful Bill Act (OBBBA) delivers one of the most consequential business tax changes in recent years by permanently reinstating 100% bonus depreciation for qualifying property. This reverses the scheduled phase down under the Tax Cuts and Jobs Act (TCJA) and restores immediate expensing as a long-term planning tool.
Additionally, the OBBBA also increased the Section 179 limit – another form of bonus depreciation, to $2,500,000.
Immediate Expensing for Research and Development Costs
Under the TCJA, beginning in 2022, taxpayers were required to capitalize and amortize all §174 R&D expenditures over:
- 5 years (domestic)
- 15 years (foreign)
This rule significantly increased taxable income and created administrative challenges.
OBBBA reinstates full and immediate expensing for domestic R&E costs incurred after 2024, restoring long-standing tax policy intended to promote domestic innovation.
Treatment of Previously Capitalized §174 Costs
Previously capitalized costs must continue to be amortized. Taxpayers cannot retroactively expense remaining unamortized balances. Foreign R&E expenditures before 2025 must continue 15-year amortization.
IRS Operational and Filing Changes
Elimination of the Direct File Program
The IRS’s Direct File program—initially introduced as a pilot to allow eligible taxpayers to prepare and file simple federal returns directly through the IRS website—was formally discontinued in 2025. Although Direct File had expanded to serve taxpayers in 25 states and was steadily gaining traction among lower complexity filers, shifting political priorities and questions regarding long-term funding ultimately led to its elimination.
Direct File was originally viewed as a significant modernization effort intended to make tax filing more accessible, especially for taxpayers eligible for refundable credits such as the Earned Income Tax Credit, Child Tax Credit, and Premium Tax Credit. However, the program faced early skepticism from lawmakers who questioned whether the IRS should operate as both “tax administrator” and “tax preparer.” As the administration changed, support for continuing the program eroded, with concerns raised about operational cost, scope creep, and duplication of existing private sector services.
Phaseout of Paper Refund Checks
Pursuant to Executive Order 14247, the IRS has begun phasing out the issuance of paper refund checks, accelerating the government’s transition toward secure electronic payment methods. This effort aligns with broader federal initiatives aimed at reducing administrative costs, improving payment accuracy, and minimizing risks associated with lost or stolen checks.
Taxpayers who have historically relied on paper refunds will increasingly be encouraged—and eventually required—to adopt one of the IRS-approved digital alternatives, including:
- Direct deposit to a checking or savings account
- Prepaid debit cards for individuals without bank accounts
- Digital wallet solutions, which the IRS is expected to expand upon in future guidance
Taxpayers should consider using direct debit for balance due payments to reduce the risk of mail delays, misapplied payments, and penalties associated with late receipt. As the IRS modernizes its payment infrastructure, reliance on electronic methods will increasingly become the standard rather than an optional method.
IRS Leadership Turnover and Increased Use of AI
The year 2025 saw substantial leadership volatility within the IRS, including multiple acting commissioners before the appointment of a new agency CEO to oversee day-to-day operations. These changes occurred alongside a significant reduction in workforce—approximately one quarter of IRS employees—as a result of budget cuts, early retirements, and restructuring efforts led by the Department of Government Efficiency.
With fewer personnel available to manage compliance, audit functions, and taxpayer support, the IRS has accelerated its reliance on artificial intelligence (AI) and automation. Treasury officials have publicly noted that AI will be used to enhance:
- Collections enforcement, including automated outreach for past due balances
- Matching of income and information reports, increasing detection of underreported income
- Identification of anomalous filing patterns, helping to flag potential noncompliance
- Processing of returns and correspondence, improving throughput under reduced staffing levels
While these developments may increase efficiency, they also present challenges. Automated notices may rise in volume, and taxpayers may encounter situations where correspondence is generated before a human reviewer has examined the underlying facts. Practitioners should advise taxpayers to respond promptly to any IRS notices and to maintain thorough documentation supporting reported income, deductions, and credits.
The expanded role of AI also signals a potential shift in how audits are initiated. Rather than traditional random sampling or resource-driven targeting, more examinations may stem from algorithmic identification of discrepancies. This places renewed importance on accurate information reporting, timely reconciliation of Forms W 2, 1099, and K 1, and proactive review of income-tax withholding and estimated payments.
The 2025 tax year introduced a series of developments that collectively reshape the compliance and planning landscape for both individuals and businesses. While the One Big Beautiful Bill Act (OBBBA) preserved much of the Tax Cuts and Jobs Act framework, it also expanded several targeted deductions, permanently restored favorable business provisions, and introduced meaningful adjustments to estate and gift tax thresholds. For many high-income taxpayers and business owners, the legislation represents a continuation—and in some cases, an enhancement—of existing tax policy rather than a wholesale shift in direction.
At the same time, the changes occurring at the IRS—most notably the elimination of Direct File, the transition away from paper refunds, and the agency’s growing reliance on automation and artificial intelligence—signal a modernization of tax administration that will impact how taxpayers interact with the system. Increased automation may improve efficiency, but it also places greater responsibility on taxpayers and practitioners to ensure accuracy, maintain documentation, and respond promptly to IRS correspondence.
As the tax landscape continues to evolve, thoughtful, forward-looking planning will be essential. Engaging early with advisors, reassessing strategies annually, and staying informed about both legislative updates and administrative changes will help taxpayers navigate this new environment effectively.
Edward McWilliams, CPA is a Partner in Cerini & Associates’ tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.