On May 12, the House Committee on Ways and Means released a version of “The One, Big, Beautiful Bill,” the merits of which will be debated in the House of Representatives beginning this week, with a goal to ultimately lead to the enactment of legislation.
The provisions of the bill generally extend the Tax Cuts and Jobs Act (TCJA) legislation passed in 2017, increase the federal debt limit and adds additional provisions favored by President Trump. It’s part of an overall proposed legislative package, comes in at 389 pages and contains over 115 separate tax provisions impacting individuals and businesses.
While there are still many pages of legislative text to digest, below are some highlights of a few of the provisions. Additional details and insight will be provided in future posts.
Selected Proposals Impacting Individuals
- Provide for the temporary or permanent extension (or termination) of many TCJA provisions, including the extension of existing tax brackets (no millionaire tax bracket proposed). The extension prevents tax increases on most individual taxpayers, as opposed to the result of those provisions expiring at the end of 2025 and reverting to pre-2018 tax law.
- Provide for temporary separate deductions from income for “qualified tip income” and “qualified overtime compensation” for the years 2025 through 2028, with specific limitations and thresholds included.
- Permanently enhance the Section 199A qualified business income deduction by increasing the deduction percentage from 20% to 23% for tax years beginning after December 31, 2025, and reduces the impact of the phaseout of the deduction on specified service trades or businesses.
- Provide for a temporary enhanced deduction of $4,000 per eligible filer for senior citizens over age 65 with adjusted modified income under $75,000 (for single taxpayers) and $150,000 (for those married filing jointly) for tax years 2025 through 2028. The senior deduction would be available to both itemizers and non-itemizers.
- Permanently extend the increased estate and gift tax exemption and increases the exemption to $15 million for single filers ($30 million for couples), indexed for inflation.
- Reinstate a partial deduction for charitable contributions by individuals who do not itemize deductions.
- Provide for a second round of qualified opportunity zone investing. The provision is billed as adjusting, improving and expanding the previous policy and would allow investment from January 1, 2027, through December 31, 2033.
Selected Proposals Impacting Business
- Allow 100% bonus depreciation on the cost of “qualified equipment” acquired after January 20, 2025, and before December 31, 2030 (up from 40% for 2025, 20% for 2026 and 0% in 2027 and follows, under existing law).
- Allow taxpayers to immediately deduct 100 percent of the cost of certain “qualified production property,” including new factories, certain improvements to existing factories and certain other structures.
- Increase the maximum amount a taxpayer may expense under IRC section 179 to $2.5 million for items placed in service after January 1, 2024 (up from $1,250,000 under current law), reduced by the amount by which the cost of qualifying property exceeds $4 million (up from $3,130,000).
- Modify the calculation of “adjusted taxable income” and reduce the limitation on the deductibility of business interest expense for taxable years beginning after December 31, 2024, and before January 1, 2030. Under the proposal, a business would add back deductions for depreciation, amortization and depletion. As a result, “adjusted taxable income” would correspond with the financial accounting concept of earnings before interest, taxes, depreciation and amortization (EBITDA), as opposed to being limited to earnings before interest and taxes (EBIT).
- Allow the immediate deduction for domestic research and development expenses incurred after December 31, 2024, and before January 1, 2030.
- Increase the ability to use the cash receipts method of accounting.
Other Provisions
The bill rescinds a number of the renewable energy incentives enacted in the 2022 Inflation Reduction Act that passed under the Biden administration using the same procedures Republicans employed in 2017 to pass the TCJA and are now using to move the current proposal through Congress. It also contains provisions intended to remove benefits for illegal immigrants, to prevent fraud, waste and abuse, and increase the debt limit that continues to allow the federal government to operate, which could be reached as early as August 2025.
Closing Thoughts
While generally accepted that a tax bill will be enacted – though House passage of the current version is by no means certain – it does provide a foundation that the final package will likely be built upon and provides details that up to now were only talking points. Republicans hold a slim 220-213 majority in the House and would need to remain united before the proposed legislation is passed and moved onto the Senate, where it will also likely be further debated.
Note that various state Republican House Representatives, including those in New York and California, have threatened to oppose the legislation unless the state and local tax itemized deduction limitation is increased even further than the $20,000 increase under the current proposal. Plus, fiscal hawks within the Republican Party may be uncomfortable that the proposal does not include sufficient spending cuts and will continue to increase the deficit over the 10-year window used for budget reconciliation.
Like most tax-related legislative proposals, there will be likely be winners, losers and those who break even. What you can do is make your viewpoints known to your representatives and continue to monitor the legislation’s process. As we’ve noted with other proposed legislation, it’s too soon to rely upon the proposed tax changes in making decisions, but you may want to begin modeling potential impacts upon your business.
Please note: This article was written before the final version of the bill became law, so some information may no longer be current.
Resources
- “The One, Big, Beautiful Bill”
- House Ways and Means Committee Summary
- Joint Committee on Taxation JCS-21-25 Report on the Budget Reconciliation Legislative Recommendations Related to Tax
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