On July 4, President Trump signed into law the far-reaching legislation known as the One, Big, Beautiful Bill Act (OBBBA). As expected, it extends and enhances many of the tax breaks from the Tax Cuts and Jobs Act (TCJA). It also includes several of Trump’s campaign promises — though many are only temporary — and eliminates tax breaks related to clean energy. Here’s a rundown of some of the main tax law changes to be aware of as you plan for the 2025 tax year.

Highlights for Individuals

• Makes permanent the TCJA’s individual tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%,
• Makes permanent the near doubling of the standard deduction, plus for 2025 increases it to $15,750 for single filers, $23,625 for heads of households and $31,500 for joint filers, with annual inflation adjustments going forward,
• Makes permanent the higher child tax credit, plus for 2025 increases it to $2,200, with annual inflation adjustments going forward,
• Temporarily increases the limit on the deduction for state and local taxes (the SALT cap) to $40,000 for 2025, with a 1% increase each year through 2029, after which the $10,000 limit will return,
• Expands the allowable education expenses that can be paid with tax-free Section 529 plan distributions, beginning July 5, 2025, or Jan. 1, 2026, depending on the type of expense,
• Permanently increases the federal gift and estate tax exemption amount to $15 million for individuals and $30 million for married couples beginning in 2026, with annual inflation adjustments going forward,
• For 2025–2028, creates a new deduction of up to $25,000 for tip income in certain industries, subject to income-based phaseouts,
• For 2025–2028, creates a new deduction of up to $12,500 for single filers or $25,000 for joint filers for qualified overtime pay, subject to income-based phaseouts,
• For 2025–2028, creates an above-the-line deduction of up to $10,000 for qualified passenger vehicle loan interest on the purchase of certain American-made vehicles, subject to income-based phaseouts,
• For 2025–2028, creates an additional deduction of up to $6,000 for taxpayers age 65 or older, subject to income-based phaseouts, and
• Eliminates clean energy tax credits, generally after 2025, such as the energy-efficient home improvement and residential clean energy credits — but eliminates the clean vehicle credits for both new and used vehicles after Sept. 30, 2025.

Highlights for Businesses

• Makes permanent and expands the 20% Sec. 199A qualified business income (QBI) deduction for owners of pass-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships,
• Makes bonus depreciation permanent and increases it to 100% for qualified new and used assets acquired after January 19, 2025,
• Increases the Sec. 179 expensing limit to $2.5 million and the expensing phaseout threshold to $4 million for 2025, with annual inflation adjustments going forward,
• Permanently allows the immediate deduction of domestic research and experimentation expenses (retroactive to 2022 for eligible small businesses), and
• Eliminates clean energy tax incentives, such as the alternative fuel vehicle refueling property credit and the Sec. 179D deduction for energy-efficient commercial buildings after June 30, 2026 — but eliminates the qualified commercial clean vehicle credit after Sept. 30, 2025.

How Will You Be Affected?

While this list may seem extensive, it represents just a sampling of the tax changes included in the 870-page OBBBA. Contact the office with questions about how the new law will affect you.

If the fringe benefits of your job include employer-paid group term life insurance, a portion of the premiums for the coverage may be taxable. And that could result in undesirable income tax consequences for you.

The cost of the first $50,000 of group term life insurance paid by your employer is excluded from taxable income. But the employer-paid cost of coverage over $50,000 is taxable to you and included in the taxable wages reported on your Form W-2, even if you never actually receive any benefits from it. That’s called “phantom income.”

Have you reviewed your W-2?

If you’re receiving employer-paid group term life insurance coverage in excess of $50,000, check your W-2 to see the impact on your taxable wages. If there’s a dollar amount in Box 12 (with code “C”), that’s the amount your employer paid to provide you with group term life insurance over $50,000, minus any amount that you paid for the coverage. You’re responsible for any taxes due on the amount in Box 12, including employment tax.

The amount in Box 12 is already included as part of your total “Wages, tips and other compensation” in Box 1 of the W-2. It’s the amount in Box 1 that’s reported on your tax return.

What are your options?

If the tax cost seems too high for the benefit you’re getting, ask your employer if they have a “carve-out” plan, which allows certain employees to opt out of the group coverage. If there’s no such option, ask your employer if they’d be willing to create one.

Carve-out plans vary, but one option is for your employer to continue to provide $50,000 of group-term coverage at no cost to you. Your employer could then provide you with an individual permanent policy for the balance of the coverage. Or it could pay you a cash bonus representing the amount it would have spent for the excess coverage, and you could use that money to pay premiums for an individual policy. There would still be tax consequences, but the tax liability might be smaller and the coverage might better meet your needs.

We can help

You may have other tax questions about life insurance. Feel free to contact the office for answers.

If you’re a business owner, your company is likely your most valuable asset. To ensure it survives after you’re gone, you first need a succession plan that will provide a smooth transition of the business to one or more of your children (assuming you want to keep it in the family). In addition, you need an estate plan that effectively addresses the tax impact of transferring your ownership interests to the next generation.

Consider Who’ll Take the Reins

If you’re like many business owners, you may dream of the day you can transfer ownership to your children. A succession plan can provide a smooth transition of power when you retire and be used in the event of unexpected death before retirement.

Typically, a succession plan will outline the structure going forward and prepare for the eventual transfer of ownership interests in the business, whether through selling, gifting or a combination of the two. Make sure the plan is in writing. Identify training opportunities and special compensation arrangements for your successors. Include in the plan financial details reflecting assets, liabilities and current value, and update the plan periodically. Also, coordinate your succession plan with your estate plan.

Ensure Key Estate Planning Documents Are in Place

A comprehensive estate plan should be supported by several key documents, starting with a basic will. A will specifies how your assets will be distributed to designated beneficiaries and meets other objectives. Without a will or having assets otherwise titled, your business and other assets will be distributed under the prevailing state law, regardless of your wishes.

A financial power of attorney (POA) appoints someone to manage your affairs in case you become incapacitated and allows this “attorney-in-fact” to conduct business transactions. (Other important documents include health care powers of attorney and advanced directives.)

Make Use of Tax Breaks

If you own significant business assets, consider taking maximum advantage of currently available federal estate tax breaks. These include the unlimited marital deduction and the federal gift and estate tax exemption, which in 2024 shields up to $13.61 million. Some states also impose their own state estate or inheritance taxes.

You may be able to minimize federal and state taxes by using trusts or setting up a family limited partnership (FLP). With a tax-favored FLP, assets are removed from your taxable estate and limited partner interests can be gifted to loved ones, often at a discounted value.

Bypass Potential Family Conflicts

As you develop your succession and estate plans, you may face family challenges. Unfortunately, elevating one child to run the business and leaving another out, or giving someone a secondary role, may create hard feelings.

One estate planning strategy is to attempt to even things out. For example, let’s say that you own a business valued at $5 million and you have $5 million in other assets. You might give $5 million in business assets to the child who’s taking the helm of your business and give other assets worth $5 million to the child who isn’t active (or is less active) in the business.

Relax and Enjoy a Smooth Transition

There’s no universal plan for family business succession. What’s right depends on your circumstances and goals. Contact the office for help.

Are you in the process of starting a business or contemplating changing your business entity? If so, you’ll need to decide how to organize your company. Should you operate as a C corporation or as a pass-through entity such as a partnership, limited liability company (LLC) or S corporation? Among the important factors to consider are the potential tax consequences.

Tax Treatment Basics

Currently, the corporate federal income tax is a flat 21% rate and individual federal income tax rates begin at 10% and go up to 37%. With a pass-through entity, income the business passes through to the owners is taxed at individual rates, which currently range from 10% to 37%. So, the overall rate, if you choose to organize as a C corporation, may be lower than if you operate the business as a pass-through entity.

But the difference in rates can be alleviated by the qualified business income (QBI) deduction, which is available to eligible pass-through entity owners who are individuals, and some estates and trusts.

The QBI deduction will expire Dec. 31, 2025, unless Congress acts to extend it. The 21% corporate rate is permanent, but Congress could still change it by passing new legislation.

More to Consider

There are other tax-related factors you should take into account. For example:

Will most of the business profits be distributed to the owners? If so, it may be preferable to operate as a pass-through entity because C corporation shareholders will be taxed on dividend distributions from the corporation (double taxation). Owners of a pass-through entity will be taxed only once on business income, at the personal level.

Does the business own assets that are likely to appreciate? If so, it may be better to operate as a pass-through entity because the owner’s basis is stepped up by an owner’s interest in the entity. That can result in less taxable gain for the owner when his or her interests in the entity are sold.

Is the business expected to incur tax losses for a while? If so, you may want to structure it as a pass-through entity, so that you can deduct the losses against other income. Conversely, if you have insufficient other income or the losses aren’t usable (for example, because they’re limited by the passive loss rules), it may be preferable to organize as a C corporation, because it’ll be able to offset future income with the losses.

Is the business owner subject to the alternative minimum tax (AMT)? If so, it might be better to organize as a C corporation, because only the very largest corporations are subject to corporate AMT. AMT rates on individuals are 26% or 28%.

Contemplate the Issues

Clearly, many factors are involved in determining which entity type is best for your business. This covers only a few of them. Contact the office to talk over the details in light of your situation.

Many businesses use independent contractors to help keep their costs down and provide flexibility for short-term needs. But the question of whether a worker is an employee or an independent contractor is complex. Be careful that your independent contractors are properly classified for federal tax and employment tax purposes, because if the IRS reclassifies them as employees, it can be an expensive mistake.

Differing Obligations

If a worker is an employee, your company must withhold federal income tax and the employee’s share of Social Security and Medicare taxes, pay the employer’s share of Social Security and Medicare taxes, and pay federal unemployment tax. State tax obligations may also apply. A business generally must also provide that worker with fringe benefits if it makes them available to other employees.

However, if a worker is an independent contractor, these obligations don’t apply. In that case, the business simply sends the contractor a Form 1099-NEC for the year showing the amount paid (if it’s $600 or more). The contractor is responsible for paying self-employment tax and, generally, making estimated tax payments for income tax purposes in relation to the amount paid.

Key Factors

Who’s an “employee?” Unfortunately, there’s no one definition of the term. The IRS and courts have generally ruled that one of the key factors that determines the difference between an employee and a contractor is the right to control and direct the person in the jobs they’re performing, even if that control isn’t exercised. The issue of control is evaluated by asking several questions, including:

• Who sets the worker’s schedule?
• Are the worker’s activities subject to supervision?
• Is the work technical in nature?
• Is the worker free to work for others?

Another important factor is whether the worker has the opportunity for profit or loss based on his or her managerial skills. That is, can the worker apply independent judgment and business acumen to affect the success or failure of the work being performed? If there’s a lack of such opportunity, that’s one indication of employee status.

Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530. This protection generally applies only if an employer meets certain requirements. For example, the employer must file all federal returns consistent with its treatment of a worker as a contractor and it must treat all similarly situated workers as contractors. Be aware, Section 530 doesn’t apply to certain types of workers.

Think Carefully Before Asking the IRS

You can ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee. However, you should also be aware that the IRS has a history of classifying workers as employees rather than independent contractors.

So, before you file Form SS-8, contact the office for a consultation. Filing this form may alert the IRS that your business has worker classification issues, and it may unintentionally trigger an employment tax audit. It may be better to properly set up a relationship with workers to treat them as independent contractors so that your business complies with the tax rules.

Workers who want an official determination of their status can also file Form SS-8. Dissatisfied workers you’ve treated as independent contractors may do so because they feel entitled to employee benefits and want to eliminate their self-employment tax liabilities. If a worker files Form SS-8, the IRS will notify the business with a letter that identifies the worker and includes a blank Form SS-8. The business will be asked to complete and return the form to the IRS, which will render a classification decision.

Need More Help?

Worker classification is complex. In addition to what’s been discussed here, there are differing rules that apply for labor law purposes, which can impact minimum wage and overtime pay requirements.