The One Big Beautiful Bill Act (OBBBA) is big and it is beautiful if you think the largest tax cut in American history is a beautiful thing.  Everything in this bill is in the taxpayer’s favor.

From my perspective, even without the new goodies contained in the OBBBA, it was necessary to pass the OBBBA to retain the benefits from the 2017 Tax Cut and Jobs Act (TCJA).  If we lost those benefits by not passing the OBBBA, it would have resulted in a huge tax increase for small businesses.

The OBBBA is seen as a pivotal piece of legislation that could reshape the American economic landscape, with potential long-term effects on taxation, social services, and immigration policy.  This article speaks only to the effects on our restaurant clientele.

1. The OBBBA makes the TCJA’s increased standard deductions used by every taxpayer permanent and adjusted for inflation.
2. The OBBBA temporarily (though 2029) increases the limit for state and local tax deductions if you itemize from $10,000 to $40,000. (Michigan taxpayers currently utilizing the Michigan Flow Through Entity Tax Agreement to avoid the $10,000 limit are still locked into the agreement unless Michigan provides a means to opt out.)
3. The OBBBA increases the non-refundable child tax credit and makes permanent the refundable child tax credit
4. The OBBBA makes permanent the estate and lifetime gift tax exemption to $15 million for single filers and $30 million for joint filers and indexes the amounts to inflation. (This is a big one for passing on a business or businesses or real estate holdings to children or other heirs without having to sell assets to pay the taxes.)
5. QBI (Qualified Business Income Deduction). The QBI was set to expire but was made permanent under the OBBBA.  The QBI was a brand-new concept that allowed a 20 percent deduction for small businesses.  Even if you have multiple businesses you were allowed to pay taxes on only 80 percent of the profit.  This is a huge benefit for small businesses in reducing their taxes.
6. Gambling losses starting in 2025 are limited to 90 percent of gambling winnings. This is a negative for the gambling community.
7. The OBBBA creates a new charitable contribution deduction for taxpayers who do not itemize. Up to $1,000 for single filers and $2,000 for joint filers.
8. The bill permanently extends the first-year bonus depreciation deduction to 100 percent for property placed in service on or after January 19, 2025.
9. The bill increases the maximum amount a taxpayer may expense under Sec 179 to $2.5 million.
10. The employer credit for paid family and medical leave is now permanent.
11. The bill increases the Form 1099-K reporting threshold to $20,000 and 200 transactions for third-party settlement organizations. This means that if you use Mastercard, Visa, Venmo, Cash App, Zelle, Square or other financial transfer services and you are under the threshold above, you should not receive a 1099-K.
12. The bill increases the information reporting threshold for 1099 payments (you make to contractors) to $2,000 (from $600) with the threshold indexed to inflation.
13. The OBBBA permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. The credit is reduced as your income increases.
14. No Tax on Tips. Although this is a huge break for your tipped employees, the marketing of this benefit was a little misleading.  First, there will be no change to how you report tips as an employer.  Then, instead of “No tax”, there is a tips deduction of a maximum $25,000 per year taken on the employee’s personal return.  The deduction phases out at gross income over $150,000 for single and $300,000 for joint filers.  This new deduction is temporary only through 2028.  For tipped employees, a new $25,000 deduction is still a huge deal.
15. No Tax on Overtime. Individuals who receive qualified overtime compensation may deduct the amount that exceeds their regular rate of pay for the same hours.  In other words, the ½ portion of the overtime is eligible for a deduction on the individual’s personal return.  The maximum deduction is $12,500 for individuals and $25,000 for joint filers.  This provision is temporary only through 2028.  Employers will have to identify on the W-2 what earnings are eligible for this deduction.  Kallas will do this automatically for clients utilizing our payroll services.
16. There is a new deduction for car loan interest starting in 2025 and ending in 2028. If you purchase a qualified vehicle after December 31, 2024 for personal use, you can deduct up to $10,000 in interest paid on the car loan.  This benefit phases out for individual taxpayers with gross income over $100,000 and $200,000 for joint filers.  A qualified vehicle is one where the final assembly was in the U.S.  The VIN must be included in the tax return.
17. There is a new deduction for seniors age 65 and older. It is effective for years 2025 ending 2028.  The amount is $6,000 for an individual taxpayer and $12,000 for joint filers as long as both are 65 or older.  This deduction phases out at gross income of $75,000 for individual filers and $150,000 for joint filers.