Navigating the Maze: The "One Big Beautiful Bill Act" Is Law
/
Guide to the New Tax Landscape for High-Income Passthrough Entity Business Owners
July 7, 2025 (Updating our Blog Post from Jul 2, 2025)
The tax code has undergone its most significant update in years. The "One Big Beautiful Bill Act" has been officially signed into law, moving from proposal to permanent policy. For high-income business owners, especially those operating passthrough entities like S-Corporations and partnerships, this law solidifies many favorable provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and introduces new rules that need attention.
This isn't just an extension of the status quo; it's a fundamental shift that creates long-term certainty and opens new doors for strategic income and financial planning. Below, we break down the most critical components of the new law and what they mean for you, your family, and your business.
Disclaimer: This summary is for informational purposes and is based on the final version of the Act. Tax laws are complex, and their application depends on individual circumstances. Please consult with your tax professional for tax advice focused on your specific situation. We do not provide legal or tax advice.
Key Provisions for High-Income Individuals & Families
The new law provides significant stability for personal tax planning, making many familiar provisions permanent.
Permanent Individual Tax Rates: The existing individual income tax rates, which are historically low, are now permanent.
Benefit: This removes the uncertainty of expiring tax cuts, allowing for confident, long-term income planning and investment strategy.
State and Local Tax (SALT) Deduction: The cap on deducting state and local taxes is temporarily increased to $40,000. However, for high-income earners, this benefit is limited. The deduction begins to phase out for those with a Modified Adjusted Gross Income (MAGI) over $500,000 and is eliminated (returning to the $10,000 cap) for those with higher incomes.
Example: A family with a MAGI of $700,000 would have their potential $40,000 deduction reduced by $60,000 (30% of their $200,000 excess MAGI). Since this reduction is greater than the initial benefit, their SALT deduction would be limited to the $10,000 floor.
Key Strategy: Crucially, for some states with income tax, the law does not limit the ability of passthrough entities to elect to pay state income taxes at the entity level (a PTET). For business owners with operations in states with an income tax, the PTET remains a powerful and now federally-secured strategy to deduct state taxes without being subject to the individual SALT cap.
Standard & Itemized Deduction
Standard Deduction: For those who don't itemize, the law permanently enacted the higher standard deduction amounts from the TCJA, which almost doubled the standard deduction from the 2017 amounts. If instead you itemize your deductions, see below.
New Itemized Deduction Limitation: The old "Pease" limitation is replaced with a new rule. Your total itemized deductions are now reduced by 2/37 of the lesser of (1) your total itemized deductions or (2) the amount your taxable income exceeds the start of the 37% tax bracket (approx. $751,600 for married couples in 2025).
Example: A family has $1,500,000 of taxable income and $120,000 in itemized deductions. Their income exceeds the 37% bracket threshold by about $748,400. The lesser amount is their $120,000 of deductions. Their itemized deductions will be reduced by $6,486 ($120,000 x 2/37).
Permanent $15 Million Estate & Gift Tax Exemption: This is one of the most significant provisions for wealth transfer. The lifetime estate and gift tax exemption is permanently increased to $15 million per person ($30 million per married couple), indexed for inflation.
Example: A couple with a $30 million estate, who under the old law (prior to TCJA) would have faced a potential 40% estate tax on approximately $16 million of their assets, can now pass their entire estate to their heirs tax-free. This represents a potential tax saving of over $6.4 million.
Benefit: This provides an incredible opportunity for tax-efficient wealth transfer and simplifies estate planning for wealthy families.
Mortgage Interest & Wagering: The current $750,000 limitation on mortgage acquisition debt for the interest deduction is made permanent. Additionally, wagering loss deductions would be limited to 90% of the loss and could only offset wagering gains.
Game-Changing Provisions for You and Your Business
The law locks in powerful incentives for business investment, growth, and innovation.
Permanent 100% Bonus Depreciation: Businesses can now immediately deduct 100% of the cost of qualifying new and used assets, such as equipment and machinery.
Benefit: This is a powerful tool for managing taxable income, especially when combined with the enhanced Section 179 expensing. Businesses typically apply the Section 179 deduction first (up to its $2.5 million limit, provided total equipment purchases don't exceed the $4 million phase-out threshold). Then, 100% bonus depreciation allows the business to deduct the full remaining cost of the qualifying assets, with no upper limit on the total purchase amount. This one-two punch provides a compounded benefit, allowing businesses making significant capital investments to write off the entire cost in a single year, dramatically lowering their tax bill and improving cash flow for reinvestment.
Section 179 Expensing: The maximum expensing amount under Section 179 would be increased to $2.5 million, with the phase-out threshold rising to $4 million, providing more flexibility for capital investments.
Permanent QBI Passthrough Deduction: The 20% Qualified Business Income (QBI) deduction is now permanent, securing a critical tax break for owners of S-Corps and partnerships. For 2025, limitations on the deduction begin to apply at taxable incomes over approximately $394,600 for married couples and $197,300 for single filers. The new law expands the phase-out range to $150,000 for married couples (up from $100,000) and $75,000 for single filers (up from $50,000).
For owners of Specified Service Trades or Businesses (SSTBs)—such as doctors, lawyers, and consultants—the deduction is completely phased out once their income exceeds the top of this new, higher range. For other business owners, the deduction above these thresholds is limited by W-2 wages or the basis of business property.
Example: A married manufacturing business owner with $2,000,000 in QBI and who pays $1,000,000 in W-2 wages would have their deduction limited to the lesser of $400,000 (20% of QBI) or $500,000 (50% of W-2 wages), resulting in a full $400,000 deduction. In contrast, a married medical doctor with the same $2,000,000 of income would receive $0 for the QBI deduction, as their income is well above the complete phase-out threshold for an SSTB.
Benefit: The permanency of this deduction is a major win. The expanded phase-out range also allows some business owners to retain more of this valuable deduction than under the prior law.
Immediate R&D Expensing: The requirement to amortize domestic Research & Development (R&D) expenses over five years has been eliminated. Businesses can now immediately deduct these expenses in the year they are incurred.
Example: A tech company with $500,000 in domestic R&D costs can now deduct the full $500,000 in the current year, instead of only $100,000 under the old amortization rule. This, combined with the separate R&D Tax Credit, provides a major boost for innovation.
Favorable Business Interest Limitation (Sec. 163(j)): The calculation for the business interest deduction limitation is permanently based on earnings before interest, taxes, depreciation, and amortization (EBITDA).
Benefit: This more generous EBITDA-based calculation allows most businesses, particularly those with significant capital assets, to deduct a larger portion of their interest expense each year.
Reduced Reporting Burden: The bill raises information reporting thresholds, easing compliance for businesses. The Form 1099-K threshold would revert to its prior, higher level (more than 200 transactions AND over $20,000), and the general Form 1099 reporting threshold for services would increase from $600 to $2,000.
Your Next Steps
The "One Big Beautiful Bill Act" provides a stable foundation for financial planning that we haven't seen in years. The permanency of these key provisions allows for the development of robust, multi-year strategies for income management, business investment, and wealth transfer.
Now is the time to act. The opportunities presented by this new law are significant, but they require careful planning to maximize their benefit. We encourage you to contact us to discuss how this new tax environment impacts your financial plan to ensure it is optimized. For specific tax advice, we encourage you to contact your tax professional.
Source: This summary is based on reporting from the Journal of Accountancy article, "Tax provisions in the One Big Beautiful Bill Act," by Alistair M. Nevius, J.D., updated July 4, 2025, and the final text of the Act. (link) Link to the text of the One Big Beautiful Bill Act (link).
Contact our team today to build your forward-looking financial strategy.