One Big Beautiful Bill Act, Explained
Practical Tax Moves Texas Business Owners Can Make Now With OBBB
The One Big Beautiful Bill Act, commonly referred to as the OBBB Act, was signed into law by President Donald Trump and introduces significant changes to the tax landscape for taxpayers.
Effective from the taxable year beginning in 2025, this sweeping legislation aims to provide new tax benefits, including enhanced tax credits and deductions that are indexed for inflation.
With the OBBB Act, individuals and businesses will have access to provisions that expand eligibility for various tax exemptions and deductions, impacting federal tax returns and the overall tax policy landscape.
This summary of the OBBB Act highlights its potential effects on tax filers, with a particular emphasis on Texas business owners, and the adjustments to the Internal Revenue Code as we approach the tax year 2026.
One Big Beautiful Bill Act Summary for busy owners (What changed & why it matters)
Pass-through QBI deduction (Sec. 199A) is now permanent at 20% with a few tweaks: higher phase-in thresholds ($75k single / $150k MFJ), a new $400 minimum QBI deduction for those with ≥$1,000 of “active” QBI, and a clarification that tips deducted under §224 don’t count toward QBI. Effective mainly for tax years beginning after 12/31/2025.
“No tax on tips” via new §224: individuals can deduct up to $25,000 of qualified cash tips (subject to AGI phase-out starting at $150k/$300k MFJ). Applies 2025–2028. Adds new W-2 and platform reporting; Treasury will publish the official list of “tipped” occupations. Deducted tips are excluded from QBI.
“No tax on overtime” via new §225: individuals can deduct up to $12,500 ($25,000 Married Filing Jointly) of qualified overtime; phased out starting at $150k/$300k MFJ; applies 2025–2028. Adds a new W-2 box for overtime totals.
100% bonus depreciation (Sec. 168(k)) restored/made permanent for property acquired after Jan 19, 2025 (binding contract rules apply). Sec. 179 limits increased to $2.5M (expensing limit) / $4.0M (phase-out) and indexed.
R&D expensing is back—domestic costs deductible under new §174A, with an election to capitalize/amortize ≥60 months; foreign research remains 15-year amortization under §174. Applies beginning 2025.
Interest deduction limit (Sec. 163(j)) now permanently uses EBITDA (not EBIT) starting 2025, with new coordination tweaks from 2026.
SALT cap raised to $40,000 for 2025 (phased down at high AGIs) then reverts to $10,000 after 2029—less relevant to Texas income tax (none), but property-tax itemizers may care.
Law signed July 4, 2025; many changes are effective for 2025 returns.
What should Texas owners do now with the OBBB Act?
1) If you run a pass-through (LLC/S-Corp/partnership)
Confirm QBI eligibility and limits. With 199A now permanent, revisit wage/W-2 and UBIA strategies; more owners will fall below the wage/property limits due to higher phase-in thresholds. Plan around the $400 minimum deduction if you have smaller but active QBI streams. Effective primarily starting 2026.
Model reasonable comp (S-Corp) to balance payroll tax and QBI; align with renewed 163(j) EBITDA rule for leveraged businesses.
2) If you’re in hospitality, salons, or any tipped business
Update payroll and point-of-sale reports for the new tips deduction (§224). Owners should ensure W-2s include total cash tips and that platforms send the new tip details; watch the official Treasury list of tipping occupations. Educate staff: intent is cash tips only, up to $25k, with phase-outs at $150k/$300k MFJ. These deducted tips don’t count toward QBI. Window: 2025–2028.
3) If you pay overtime
Track “qualified overtime compensation” separately and ensure the new W-2 box is populated. Employees can deduct up to $12.5k ($25k MFJ) through 2028; AGI phase-outs apply. This creates employee relations and recruiting angles. Make sure to communicate it clearly.
4) Capex & vehicles: 100% bonus vs. §179
Time 2025–2026 equipment buys to maximize restored 100% bonus and higher §179 caps. Coordinate placed-in-service and “binding contract” dates. Compare §179 (room-by-room asset control; caps/phase-outs) vs. bonus (no dollar cap; NOL interactions).
Texas angle: Texas franchise (margin) tax is based on revenue minus a chosen deduction (COGS or compensation). Federal depreciation choices don’t directly change the Texas margin calculation, but they do impact federal taxable income and cash flow—plan purchases with both in mind.
5) If you do product or software development
Resume expensing for domestic R&D under new §174A; consider the election to capitalize/60-month amortize when that better fits book/tax goals. Keep foreign R&D segregated (still 15-year amortization under §174). Update project accounting now.
6) If you’re financing growth
Re-evaluate debt capacity under 163(j) (EBITDA basis), especially for capital-intensive operators (manufacturing, logistics, healthcare). Model 2025+ interest deductibility and watch 2026 coordination rules.
7) Personal planning for owners
SALT itemizers: temporary $40k cap for 2025 may help high-property-tax households; phased down for higher AGI; reverts to $10k in 2030.
Estate & gift: increased basic exclusion is part of OBBB; revisit gifting and entity structures with counsel to lock in favorable thresholds.
The New Tips Deduction: How it works, who qualifies, what to file
Many Texas businesses live in the tipped economy: restaurants, bars, salons, barbers, hospitality, and wellness. Under the One Big Beautiful Bill (OBBB), eligible workers can deduct up to $25,000 of qualified tips for tax years 2025–2028, with a phase-out starting at $150,000 (single) / $300,000 (MFJ) modified AGI.
Importantly, this is an income-tax deduction only; tips remain subject to FICA/Medicare. Electronic tips (card/app) count as “cash” tips; mandatory service charges don’t. Treasury/IRS has proposed rules and released an initial occupations list, and they’re finalizing it now. (The Washington Post)
Who qualifies & what counts
“Qualified tips” = voluntary cash or charged tips (including tip pools) that are reported (W-2/1099/4137). For self-employed folks, the deduction can’t exceed net income from that trade. A Social Security number is required. Occupations must be on the IRS list of roles “customarily and regularly” tipped as of 12/31/2024. (IRS)
What employers and platforms must do
For 2025, the IRS left withholding tables and forms (W-2/1099/941) unchanged to avoid mid-season disruption. Employers should continue normal reporting, but track tip totals and occupations because employees will use those figures to claim the deduction. IRS has signaled updated W-2 coding for 2026. We’re helping clients add fields to payroll/PoS now. (IRS)
Texas angle
There’s no Texas personal income tax, so this is a federal cash-flow win for your staff. For owners, the business obligation is process and reporting: clean W-2 data, clean tip logs, and staff education. (Texas Comptroller)
Owner checklist
Update payroll/PoS to separately track reportable tips and the employee’s occupation.
Re-train managers on service charges vs. tips; service charges do not qualify.
Add a year-end W-2 review step: confirm reported tip totals before issuing forms.
Communicate to staff: deduction doesn’t reduce FICA, and phase-outs apply. (The Washington Post)
The Overtime Deduction: Tracking, W-2s, and HR messaging
New for 2025–2028, employees can deduct up to $12,500 (single) or $25,000 (MFJ) of qualified overtime compensation (generally the “premium” above the regular rate required by FLSA). It’s designed as an above-the-line deduction—claimable even if you take the standard deduction. For 2025, withholding tables and W-2 layout stay the same; W-2 coding is expected for 2026. (IRS)
What counts as qualified overtime
Overtime must meet FLSA standards and be reported on a W-2 (or specified statement) to be deductible by the employee. Employers should code and summarize the overtime premium separately in payroll. (IRS)
HR and recruiting angle
This is a retention tool. Frame it in offer letters and all-hands updates: “Our payroll will show the overtime information you’ll need for your 2025 return.” Make sure managers don’t alter premium calculations that would jeopardize eligibility. (ADP)
Owner checklist
Configure payroll to track OT premium distinctly from base pay.
Add year-end W-2 controls to confirm OT totals are available for employees.
Refresh handbook language and timekeeping practices to stay FLSA-compliant. (IRS)
QBI is now permanent—what does that mean for Texas pass-throughs?
OBBB makes the 20% QBI deduction (IRC §199A) permanent. It also raises the phase-in ranges to $75k (single) / $150k (MFJ) and adds a $400 minimum QBI deduction starting in 2026 for those with ≥$1,000 of active QBI—a small but helpful floor for active owners. No increase to the 20% rate made it into the final law. (Steptoe)
Planning moves we recommend
S-Corp reasonable comp tune-up: strike the right balance between payroll taxes and maximizing QBI—now with long-term certainty.
Test W-2 and UBIA limits for higher-income owners; the larger phase-in window helps more taxpayers qualify fully.
Group small active ventures: that $400 minimum can matter for side operations that meet material participation. (RSM US)
Texas angle
With no state income tax, QBI is purely a federal lever for Texas owners—but a very valuable one. We model this alongside payroll and distributions so you see the all-in cash impact. (Texas Comptroller)
Invest confidently—100% bonus depreciation & bigger §179
Two capital spending levers got stronger:
1) 100% bonus depreciation is back—and permanent. For qualified property acquired and placed in service after Jan. 19, 2025, businesses can expense 100% in year one. Binding-contract rules apply to the “acquired” test; your placed-in-service date still matters. (Grant Thornton)
2) Section 179 got larger. The annual expensing cap rises to $2.5M with a $4.0M phase-out threshold, generally for property placed in service in tax years beginning after 12/31/2024 (indexed later). §179 is still elective asset-by-asset, which is handy for partial write-offs by room, line, or location. (Bipc)
How we help you choose (quick framework)
Bonus: unlimited dollar amount; simple; can create/expand losses—great when you need the deduction now.
§179: precise control by asset; subject to entity-level income limits and caps; often better for targeted expensing.
Lease/finance: model interest limits (see 163(j) below) alongside expensing to optimize after-tax ROI. (Grant Thornton)
Texas angle
The Texas franchise (margin) tax base starts from total revenue, then you choose COGS or compensation (or other statutory options). Federal depreciation choices don’t directly change margin for most service businesses; for producers/retailers, depreciation can appear inside COGS calculations—so we align methods with your Texas filing posture. (Texas Comptroller)
R&D: immediate domestic expensing returns
OBBB creates IRC §174A so you can immediately deduct domestic R&E outlays for years beginning after 12/31/2024—or elect to capitalize and amortize ≥60 months if that better matches book/GAAP or lenders’ expectations. Foreign R&D remains 15-year amortization under §174. Software dev often qualifies; we’ll review your chart of accounts and projects. (Grant Thornton)
Action list
Tag costs by geography (domestic vs. foreign) in your ledger.
Decide whether to expense or elect 60-month amortization for domestic spend.
Coordinate R&D credit (§41) documentation—credit rules didn’t change, but the expense base did.
Consider method changes and transition relief the IRS released for accelerating prior unamortized domestic amounts. (RSM US)
Interest deduction flexibility is back
Starting with 2025 tax years, OBBB permanently restores the EBITDA base for computing the §163(j) interest limit (30% of ATI, with depreciation/amortization added back). That can materially increase deductible interest, especially for capital-intensive companies. Note there are coordination tweaks after 2025 (e.g., capitalization interactions and international inclusions) that can narrow the benefit for some groups. (Grant Thornton)
What to do now
Re-run 2025–2027 capital plans and debt capacity under EBITDA-based ATI.
For multinationals, review the post-2025 ATI adjustments and any CFC grouping assumptions—the rules shift here.
Coordinate with your bonus/§179 decisions; expensing lowers ATI and can affect the 30% math. (Goodwin Law)
SALT, estate & personal planning touchpoints for owners
If you itemize, OBBB raises the SALT cap to $40,000 starting in 2025 (with modest annual bumps through 2029), then reverts to $10,000 in 2030. High-income households see a phase-down above roughly $500,000 MAGI—and remember, in Texas, this mainly affects property tax itemizers. Coordinate SALT with charitable giving and mortgage interest to “stack” deductions in high-tax years. (RSM US)
On the estate side, OBBB maintained favorable thresholds; it’s a good moment to revisit gifting, buy-sell, and trust structures with counsel so tax and business goals stay aligned. Schedule a consultation with us. (We’ll coordinate with your attorney and wealth advisor.) (Bipartisan Policy Center)
Quick compliance calendar & next steps
By year-end 2025: payroll/PoS ready to report tips and OT totals employees will need; manager training complete. (IRS)
Q1 2026: be ready for W-2 code updates if IRS finalizes them; build them into your year-end testing. (CohnReznick)
Now–Q2 2026: model capex under 100% bonus vs. §179 and EBITDA-based 163(j); lock vendor contracts after you know which rule fits best. (Grant Thornton)
Ongoing: segregate domestic vs. foreign R&D; decide expense vs. 60-month election per project. (Grant Thornton)
Texas-specific quick hits
No state personal income tax—QBI is a federal play; still a big deal for S-Corp/partnership owners here.
Franchise (margin) tax filing is unaffected directly by federal depreciation choices, but federal cash-flow wins (bonus/§179/R&D) can fund growth, payroll, and expansion timing.
Hospitality & service hubs (like our own DFW, Austin, Houston) should prioritize tips/overtime reporting updates before 2025 year-end W-2s.
“Do this now” checklist
Payroll & systems: add separate fields for cash tips and qualified overtime; confirm new W-2 boxes will populate.
Capex calendar: sequence 2025 equipment and vehicle buys to leverage 100% bonus and the higher §179 limits.
R&D ledgering: tag domestic vs foreign R&E costs; update capitalization policies for §174A.
Structure review: revisit S-Corp pay, wage/UBIA positioning for permanent QBI.
Debt strategy: re-model leverage under EBITDA-based 163(j) for 2025 projects.
Personal planning: if you itemize, map 2025 SALT impact; revisit estate plan.
Let's map your 2025-2026 plan with Hecht and Associates. Schedule your consultation today.
FAQs
Does the QBI rate jump to 23%?
No—the final law keeps it at 20% but makes it permanent, raises phase-in amounts, and adds a $400 minimum deduction.
Are tips/overtime tax-free for my business?
These are individual deductions for employees/individual taxpayers, but you must update reporting and payroll processes.
Is 100% bonus the same as §179?
No—different mechanics, limits, and planning use-cases; we’ll compare both for your asset mix.