Major Tax Law Changes Signed Into Law: What High-Income Earners and Business Owners Need to Know

On July 4, 2025, President Trump signed into law H.R. 1—officially titled the Opportunity for a Better, Balanced Budget Act (OBBBA). This sweeping legislation makes permanent many of the tax cuts originally enacted under the Tax Cuts and Jobs Act (TCJA) and introduces additional provisions that align with President Trump’s campaign promises, including:

• No tax on qualified tips
• No tax on qualified overtime compensation

These changes are likely to have a significant impact on high-net-worth individuals, closely held businesses, and taxpayers in high-tax states. Below is a summary of the key provisions and what they may mean for you or your business.

Key Provisions for High-Income Taxpayers

• TCJA Tax Rates Made Permanent
  The individual tax rate schedules established under the TCJA (originally set to expire after 2025) are now permanent. This provides long-term clarity and planning opportunities for high-income earners.
• Estate Tax Exemption Increase
  The lifetime estate and gift tax exemption has been permanently increased to $15 million per U.S. person, indexed for inflation. This generous threshold will shield most estates from federal estate tax exposure, benefiting families with significant wealth.
• Qualified Business Income Deduction (IRC Section 199A)
  The popular 20% deduction for qualified business income is now permanent. Notably, the phase-out limitations for high earners have been adjusted, expanding eligibility for owners of specified service trades or businesses (SSTBs).

State and Local Tax (SALT) Deduction

• The SALT deduction cap increases from $10,000 to $40,000 starting in 2025.
• However, a phase-out applies to individuals earning more than $500,000, limiting the benefit for high earners in states with high property and income taxes.

Business-Related Enhancements

• Bonus Depreciation Made Permanent
  Businesses can now permanently deduct 100% of eligible property costs (including some nonresidential property like factories) through bonus depreciation for property acquired after January 19, 2025.
• Section 163(j) Interest Limitation Adjusted
  Depreciation, amortization, and depletion are now permanently added back when computing the 30% interest expense limitation. This change may affect debt-heavy businesses.
• Expanded Small Business Accounting Rules
  The gross-receipts threshold under IRC Section 448(c) has increased from $25 million to $80 million (indexed). This change allows more manufacturers and other businesses to:
  • Use the cash method of accounting
  • Avoid complex capitalization rules under IRC Sections 471 and 263A (UNICAP)
  • Be exempt from the business interest deduction limitation

Changes to Charitable Giving and Deductions

• Charitable Contribution Deduction Reduced
  Taxpayers who itemize will now see a 0.5% AGI reduction applied to charitable contributions, on top of an overall cap on itemized deductions.
• New Caps on Itemized Deductions for High-Income Earners
  The value of itemized deductions is effectively limited to:
  • 35% when offsetting ordinary income
  • 19% when offsetting capital gains

For instance, a $1 million charitable contribution by someone in the top bracket will now yield a $350,000 tax benefit in 2026 (down from $370,000 in 2025).

Other Noteworthy Updates

• Qualified Small Business Stock (QSBS) Enhancements
  • 50% exclusion for QSBS held more than 3 years
  • 75% exclusion for 4+ years
  • 100% exclusion still available for 5+ years
  • Cumulative exclusion increases to $15 million (from $10 million)
  • Aggregate gross asset threshold increases to $75 million (from $50 million)
• PTET Deduction Preserved
  The Pass-Through Entity Tax (PTET) deduction remains unchanged and is now permanent—good news for owners of partnerships and S-corporations in states that have adopted PTET workarounds.
• Opportunity Zones Extended
  The tax incentives for investments in designated Opportunity Zones have been extended, providing continued benefits for real estate and business investors targeting economically distressed areas.

What This Means for You

These provisions offer significant planning opportunities for both individuals and business owners. Whether it’s optimizing your charitable giving strategy, reevaluating estate plans, or reassessing your choice of entity, now is the time to review your tax strategy with a trusted advisor.

DWD CPAs & Advisors is here to help!

If you’d like to discuss how these changes may affect your specific situation, our team of experienced professionals is ready to guide you.