2025 introduced significant changes to the tax landscape, including revised thresholds, new incentives, and updated applications of existing rules. For businesses, families, and individuals conducting their planning, understanding the key changes, how they interact, and how they apply across different areas is an essential step in aligning strategy with future goals.
What Changed in the 2025 Tax Landscape?
The most consequential development in 2025 was the enactment of the One Big Beautiful Bill (OBBBA), signed into law on July 4, 2025. As the most significant tax legislation since the Tax Cuts and Jobs Act (TCJA) of 2017, OBBBA extended and modified certain TCJA provisions, and introduced new incentives, thresholds, and compliance requirements. As a result, many existing strategies are now being revisited through a broader, multi-year planning lens, with greater emphasis on timing, coordination, and how individual provisions influence overall strategy.
OBBBA Business Provisions to Evaluate as 2025 Closes
For businesses, several TCJA provisions are now permanent or enhanced, while new incentives place greater importance on timing, capital planning and coordination for future tax years.
Qualified Business Income Deduction
OBBBA permanently extends the qualified business income (QBI) deduction, allowing eligible pass-through businesses to offset up to 20% of qualified income. Beginning in the 2026 tax year, phase-out ranges expand, increasing the number of taxpayers who may qualify for the deduction. The phase-out range increases to $75,000 for single filers and $150,000 for MFJ (Married Filing Jointly) filers.
Bonus Depreciation
OBBBA reinstates 100% bonus depreciation and makes it permanent, whereas the prior rules would have continued to phase out bonus fully by the end of 2026. This provision applies to qualifying property acquired after January 19, 2025, with the acquisition date tied to the date of a binding written contract, if applicable.
Section 179 Expensing
Section 179 also increases under OBBBA, with a $2.5 million deduction available for 2025. Phase-outs begin at $4 million of the Section 179 property placed in service. Even with full bonus depreciation available, Section 179 may continue to provide value when considering state tax treatment and asset-by-asset election flexibility.
Qualified Production Property
OBBBA introduces the qualified production property (QPP) deduction, providing an immediate deduction for certain nonresidential real estate used for manufacturing purposes. Construction must begin between January 19, 2025, and January 1, 2029, and the property must be placed in service by January 1, 2031.
Domestic Research and Development Expenditures
OBBBA reinstates full expensing for domestic research and development expenditures under Section 174, allowing 100% deductibility for costs paid or incurred after December 31, 2024. This change reverses the prior requirement to amortize domestic research costs over five years. Foreign research expenditure remains subject to a 15-year amortization period. Small businesses are eligible to file amended returns to retroactively claim the deductions for domestic R&D costs incurred between 2022 and 2024. All taxpayers are able to accelerate the deductions for any costs not previously amortized on their first or first and second returns for the years ending after December 31, 2024.
Planning Considerations for Individuals and Families after OBBBA
The passage of the One Big Beautiful Bill Act (OBBBA) represents the most significant shift in tax policy for individuals since 2017. These changes offer both new opportunities for savings and new complexities in deduction planning.
Marginal Tax Rate Stability
OBBBA makes the current tax brackets (set initially by the TCJA) permanent, removing the “sunset” that was scheduled for the end of 2025. This stability allows for more confident long-term execution of Roth conversions as well as capital gains timing.
Enhanced Standard Deductions
Beginning in 2025, the standard deduction increases to $15,750 for single filers and $31,500 for married couples filing jointly.
State and Local Tax (SALT) Relief
The $10,000 SALT cap is increased to $40,000 ($20,000 for MFS) for tax years 2025 through 2029.
- The phase-out: For those with MAGI over $500,000, the $40,000 cap is reduced by 30% of the excess income, but it will not fall below $10,000.
- The future: The cap will be indexed for inflation (1% annually) starting in 2026 before reverting to $10,000 in 2030.
Expanded 529 Plan Flexibility
Effective July 5, 2025, 529 funds can be used for a broader range of K-12 expenses, including tutoring, testing fees, and educational therapies.
- K-12 limit: Starting January 1, 2026, the annual withdrawal limit for K–12 tuition and expenses doubles to $20,000.
- Credentialing: 529s can now be used for vocational and professional credentialing programs.
Youth Savings Accounts
A new savings vehicle for children (beneficiaries under 18) launches in 2026. This must be opened by the individuals in order to receive the “seed funding” from the federal government.
- Seed funding: Children born between 2025 and 2028 are eligible for a one-time $1,000 federal contribution.
- Contributions: Parents and others can contribute up to $5,000 annually. Earnings grow tax-free, and funds must be invested in American stock market indices. Accounts must be converted to an IRA when the child turns 18.
Charitable Giving (Effective 2026)
- The floor: For those who itemize, a new 0.5% AGI floor applies. Only contributions exceeding 0.5% of AGI will be deductible.
- The non-itemizer “win”: Those who take the standard deduction can now claim an above-the-line deduction for cash gifts to public charities (up to $1,000 for single filers and $2,000 for joint filers).
New Above-the-Line Opportunities (2025-2028)
Several new deductions are available even for those who do not itemize:
- Overtime and tips: Deductions for the “premium” portion of overtime pay and qualified tips for eligible occupations.
- U.S. car loan interest: A deduction for interest on loans (up to $10,000) for new vehicles assembled in the U.S. (subject to income phase-outs).
- Seniors (65+): A new $6,000 deduction is available for qualifying seniors, though it begins to phase out for single filers with MAGI over $75,000 ($150,000 for joint).
Energy Incentives Phasing Out
The electric vehicle credit was discontinued as of September 30, 2025, and solar and residential energy credits expire after December 31, 2025, though unused residential credits may continue to carry forward into 2026.
Estate and Gift Tax Exemption
Effective January 1, 2026, the lifetime exemption increases permanently to $15 million per individual (indexed for inflation). This provides a new opportunity for high-net-worth families to transfer wealth and lock in current asset values without federal transfer tax.
Planning Considerations for International Business Activity
OBBBA refines several elements of the international tax framework introduced under TCJA, with many changes taking effect in 2026.
- Net CFC Tested Income (NCTI): OBBBA renames Global Intangible Low-Taxed Income (GILTI) Net CFC Tested Income (NCTI). For C corporations, the NCTI deduction is reduced from 50% to 40%, but the foreign tax credit disallowance is reduced from 20% to 10%. In addition, no deduction is allowed for a deemed return on qualified business asset investment (QBAI).
- Foreign-Derived Deduction Eligible Income (FDDEI): OBBBA also updates the Foreign Derived Intangible Income (FDII) deduction, renaming FDII foreign-derived deduction eligible income (FDDEI). The FDDEI deduction serves as an export-related incentive for qualifying C corporations. Beginning in 2026, the FDDEI deduction percentage is reduced from 37.5% to 33.34%. For corporations with taxable income, the deduction continues to lower the effective U.S. corporate tax rate on qualifying foreign-derived income from 21% to approximately 14%.
- Other International Changes: OBBBA includes several additional international updates that may affect compliance and coordination for multinational groups, including:
- Excluding Subpart F income and NCTI from the Section 163(j) interest limitation calculation
- Requiring closer alignment between controlled foreign corporation tax years and the tax year of the majority U.S. shareholder
- Modifying downward attribution rules that resulted from changes under TCJA
- Updating sourcing rules for foreign sales of U.S.-produced inventory
Section 962 Election Considerations
NCTI is generally taxable to individual owners of controlled foreign corporations at ordinary income tax rates, without access to the 40% deduction or foreign tax credits available to C corporations. A Section 962 election allows an individual to be taxed on NCTI as if it were earned by a corporation, potentially providing access to the corporate tax rate, deductions, and credits. Modeling is helpful in determining the benefit of the section 962 election.
Expanding Internationally
Expanding operations outside the United States introduces additional considerations affecting compliance, cash flow and entity structure. Sales and services performed abroad may be subject to value-added or goods and services taxes, and having a fixed place of business, inventory, employees or agents can trigger local tax obligations. Coordinating tax planning alongside operational decisions can help manage complexity as international activity grows.
Planning for 2026 and Beyond
As 2025 comes to an end, several additional developments may influence planning for next year. With changes spanning different areas of the tax landscape, the following items introduce new considerations around compliance, reporting and strategy in 2026:
- 401(k) plan updates under SECURE 2.0, including new Roth catch-up contribution requirements for certain higher-income employees.
- Digital asset reporting and taxation, with expanded broker reporting for 2025 transactions, including the introduction of Form 1099-DA and required per-wallet or per-account cost basis tracking.
- 1099 reporting changes, as the reporting threshold for Forms 1099-NEC and 1099-MISC increases from $600 to $2,000 for payments made after December 31, 2025, with indexing for inflation beginning in 2027.
- Executive orders and administrative changes that continue to unfold as they impact refund processing, reporting timelines, and IRS procedures.
Looking Ahead: Planning Beyond 2025
The changes introduced in 2025 will continue to shape planning decisions well beyond the current filing season. As businesses and individuals look ahead to 2026 and beyond, evaluating how these provisions interact across tax, financial, and operational considerations remains integral to effective planning.
Grassi’s Year-End CPE Webinar provides additional perspective on these developments and their practical implications across the tax, technology and accounting landscape. For organizations and individuals seeking guidance tailored to their specific circumstances, Grassi’s advisors are available to support ongoing planning discussions and strategy development.
