On May 22, House Republicans narrowly passed the president’s broad package of proposed tax breaks and revenue offsets, and will move to the Senate, where Republicans have indicated they will make changes prior to considering the bill. If passed, differences between the House and Senate versions would need to be resolved before a final bill can be sent to the President.
The bill includes some $4 trillion in tax cuts and is estimated to add $3.8 trillion to the US debt according to the non-partisan Congressional Budget Office. Below is a summary of the items in the most recent version of the bill most meaningful to individuals and closely held businesses and their owners.
Questions about how these proposed changes could affect your individual or business tax situation? We’re here to help.
Potential Impact for Individuals
Extended Tax Rates and Brackets
The lower individual tax rates introduced under the Tax Cuts and Jobs Act (TCJA) of 2017 would become permanent. The rates are currently set to expire after 2025.
State and Local Tax (SALT) Deduction
Beginning in 2026, the cap on the SALT deduction would increase from $10,000 to $40,000. The higher limit would be reduced for taxpayers above certain income thresholds.
No Tax on Tips
Workers in traditionally tipped professions would be allowed to deduct voluntary and customary tips from income. The deduction would be limited to those earning below a specified income threshold.
No Tax on Overtime
Workers could deduct income earned from federally defined overtime pay. The benefit would be limited to those below a specified income threshold.
Enhanced Standard Deduction
The existing standard deduction would become permanent, with a temporary increase of $1,000 for single filers and $2,000 for joint filers for tax years 2025 through 2028. Additionally, taxpayers who are 65 and older and below a specified income level would receive an extra $4,000 deduction per person.
Limitation on Itemized Deductions
Individuals in the highest tax bracket would face limits on itemized deductions.
Estate and Gift Tax Exemption Increase
The estate and gift tax exemption would be permanently increased to $15 million starting in 2025, with inflation adjustments in future years.
Potential Impact for Businesses
Pass-Through Deduction
The 20% deduction for qualified business income (QBI) from pass-through entities would become permanent, which is currently set to expire after 2025. The deduction rate would increase to 23% beginning in 2026. The proposal also expands eligibility and calculation rules, potentially making more business owners eligible for the benefit.
100% Bonus Depreciation Reinstated
The bill restores 100% bonus depreciation for qualified assets placed in service between January 20, 2025, and December 31, 2029. This reverses the current phase-down schedule and applies retroactively to early 2025.
Section 179 Expensing Expanded
The maximum amount small businesses can deduct immediately under Section 179 would increase to $2.5 million, with the phase-out threshold rising to $4 million. Both amounts would be indexed for inflation.
R&D Deduction Restored
From 2025 through 2029, domestic research and experimental expenses could again be fully deducted in the year incurred. Foreign research and development (R&D) expenses would remain subject to 15-year amortization.
Business Interest Limitation Eased
Between 2025 and 2029, interest deduction limits could be calculated using EBITDA (earnings before interest, taxes, depreciation, and amortization), offering greater deductibility.
Restrict State Tax Workarounds for Certain Pass-Throughs
Partnerships and S corporations that do not qualify for the Section 199A deduction would no longer be able to use state-level pass-through entity tax elections to bypass the federal SALT deduction cap.
Incentives for Small Manufacturers and Domestic Production
The gross receipts threshold under Section 448 for small manufacturing businesses would increase to $80 million for tax years beginning after December 31, 2025, providing expanded relief from certain capitalization rules. A new 100% depreciation deduction would also be available for qualified production property placed in service in the US before 2033, provided construction begins after January 19, 2025, and before January 1, 2029.
Business Loss Carryforwards
Any excess business loss of a noncorporate taxpayer is carried forward as an excess business loss rather than being treated as a net operating loss (NOL)
Incentives for Small Manufacturers and Domestic Production
New qualified opportunity zones could be designated between 2027 and 2033, with added focus on rural areas. Investments in these zones would retain key benefits, including deferred and reduced capital gain recognition, and a larger 30% basis step-up on deferred gains for rural zones held for five years.
Employee Retention Credit (ERC) Enforcement Measures
The proposal would retroactively disallow ERC claims submitted after January 31, 2024, increase penalties for abusive claims, and extend the statute of limitations for enforcement.
What's Next?
It remains uncertain what will ultimately be included in the final bill. The Senate will begin its own reconciliation process, which could result in further revisions. Any differences between the House and Senate versions would need to be resolved before a final bill can be sent to the President.
Questions about how these proposed changes could affect your individual or business tax situation? We’re here to help.
